Using an early retirement calculator can help you determine whether you are on track for a comfortable retirement, or if you need to make some adjustments to your savings plans. It also helps you estimate how much money you will need to withdraw from your savings during your retirement, as well as how much you should expect to earn. You may also want to consider how selling your assets could affect your plan.
Estimate your income
Obtaining an estimate of your income for early retirement is not a trivial task. There are dozens of variables that will affect your estimation.
Obviously, the first step is to determine how much you’re going to need. Aside from your salary, you will need to consider how long you plan on living in retirement and what your other financial needs are. Aside from your main source of income, you may also need supplemental income such as investment returns and a part-time job.
Many people start calculating their estimate for early retirement by using their Social Security benefits as a starting point. These benefits are based on earnings from your past work history and are capped by federal law. You will also need to factor in your personal goals, including how long you plan to live in retirement and what you want to do with your time.
Aside from your Social Security benefits, you may also need to factor in your home mortgage and other recurring expenses. Depending on your age, you may need to make additional contributions to your retirement savings.
Determine your withdrawal rate
Getting your withdrawal rate for early retirement right can be tricky business. Whether you’re a young professional who wants to make sure your money lasts for years or you’re a retiree who’s ready to enjoy your golden years, it’s essential to find the right rate.
A safe withdrawal rate is the percentage of your total wealth that you can take from your retirement account without depleting it. The amount of money you withdraw annually depends on your portfolio’s composition and the timing of your retirement. The goal is to withdraw enough money from your portfolio to support your lifestyle, without running out of money.
The safe withdrawal rate depends on your total savings, how many years you expect to be in retirement, and how much income you expect to get. For example, if you expect to spend $16,000 in the first year of retirement, your withdrawal rate would be 0.42 percent of your savings.
Find out if you’re on track to meet your goals
Whether you’re still working or preparing for retirement, finding out if you’re on track to meet your early retirement goals is important. You can estimate your potential retirement income by using a retirement calculator. It can also help you gauge your savings against your needs.
Having a financial plan before you retire will help you maintain the quality of life you want. You can start by filling out a comprehensive retirement expenses worksheet. You may also want to consider hiring a financial planner on a flat-fee project basis.
You can also save by downsizing your home. This may reduce property taxes and utilities and make it easier to budget your monthly expenses. You may also be able to sell your home and receive a lump sum of money.
You can also save by contributing to a workplace retirement plan. Employers match contributions double. You may also want to open an IRA and direct deposit tax refunds into it.