When developing a comprehensive financial plan, the retirement planning portion can be a little tricky. This is due to a few factors, the most critical being the assumptions that you have to make and the complexity of the calculations.
About a year ago I downloaded Smart Money’s Retirement Planner App on my iPad. I was pleased with how intuitive the app made the retirement planning portion of a financial plan. I used it to determine how much money I can expect to have during retirement for my current savings rate.
Elements of a Good Retirement Plan
The purpose of a retirement plan is to help you understand how much money you will need to save and invest in-order to live the lifestyle you want during retirement. To accomplish this, your retirement plan needs to include a few key data elements.
I found that Smart Money’s Retirement Planner includes all of the elements necessary to build a simple retirement plan as their model includes the following elements:
Demographic Information - Including the current age, expected retirement age and life expectancy of both you and your spouse is an important part of an retirement plan. This information helps determine how long you have until retirement and how long you are expected to be retired.
Current Assets/ Salary - Including your current assets, salary and estimated future income enables the determination of how much money you will be able to save and invest before retirement.
Expenses During Retirement - During retirement your expenses will most likely decrease, however it’s important to have an good estimate for how much money you will need during retirement.
Social Security Income - Retirement plans need to include all sources of future income to include Social Security. Leading up to retirement, many will not be able to save enough to retire on. In this case, Social Security may end up being the main source of income during retirement.
Planning Assumptions - Smart Money’s Retirement Planner includes all of the important assumptions including inflation, investment return, tax rate, income raises and life expectancy.
Use this Free Retirement Planner
I recommend using Smart Money’s Retirement Planner as it provides a simple and effective way to determine if and when you can afford to retire. It includes all of the critical data elements and provides a clear graphical representation of your retirement scenario.
When you are building your retirement plan, remember to keep your income and earning assumptions towards the lower side and your expenses to the higher side. This will help to ensure that your retirement plan estimates are conservative.
Planning for retirement is often seen as a daunting task. Using this free retirement planner will help you determine if and when you can afford to retire.