by Bharati P

Created on: May 20, 2008

Every one of us wishes to lead an independent retired life. We wish to lead life in same standards as today. In present, all of us are busy and put off our enjoyments, vacations for future. But unfortunately, future is "old age". Age when no income is flowing in, but expenses are to be met. Bills to be paid, travels,hobbies, health cares. The list can go on and on and on.. To meet all these expenses, one has to start savings today. Earlier, the better. If I think of starting securing my future when I reach age of 55+, it will be a nightmare.

Common question is "How much retirement savings do I need?" The answer is largely dependent on how much of your pre-retirement income you wish to have in retirement.

Edmund Cannon, an economics professor from the University of Bristol in the UK, and JP Morgan announced research that simplifies complex calculations of how much retirement assets are needed. The amount needed to replace all of your pre-retirement income is:

Current Income times (55 less (i) one-third of your current age and (ii) one-seventh of your retirement age)

This is a rough calculation, but it requires only three pieces of information and requires only seconds. The result from this formula is a future value.
This means that
(i) future amounts must be larger because of the loss of purchasing power caused by future inflation, and
(ii) one can use future investment returns to achieve the amount.

Do the math for your own situation, and you will likely be surprised by how much you will need. For example, a 40-year old making $70,000 and wishing to have this full amount without Social Security requires approximately:

$2,267,000 at age 65 (at which point this money will have considerably less purchasing power). This is calculated as $70,000 times (55 less 40/3 and 65/7)

$2,517,000 for a retirement today, calculated as $70,000 times (55 less 40/3 and 40/7)

Variety of free calculators that address various retirement issues are available. These calculators include a Retirement Planner Calculator that calculates whether you will have enough retirement savings based on your inputs for savings, spending rates, investment returns, and other variables that you specify.
Banks also offer financial services to guide us towards secure and independent future.
Its is high time to take take a look at future needs and start planning.

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