Do You Know How Much Money To Contribute To Your Retirement?
March 14th, 2009. Published under Finance. No Comments.
If you are making small 401k contributions, then you may want to start using a retirement calculator before you put any more money away for your future.
Before you start planning for your retirement, you will want to use a retirement calculator. These handy tools are all over the Internet and can help you come up with some realistic numbers so that you are not “shooting darts at a dart board” trying to guess how much you will need for your future.
Some financial calculators only give you a basic idea of what you will need. They do not take into account taxes on your 401K when you withdraw funds, or variability in investment returns over 20 or 30 years. I know you may want a simple answer, but in this case, the more complex the calculator, the better.
You may want to try to tackle a more sophisticated piece of software. That’s not the answer you want to hear, but you might be happier knowing the truth. The alternative to plan properly could bankrupt you in your old age.
One of the things that your retirement calculations should try to adjust for is the effect of taxes and withdrawals during retirement. This can be very difficult and in many instances almost impossible. Try your best. At worst case, you can assume that taxes will not decrease over time.
Unless you believe taxes will go away in the future, planning for them should be part of your financial plan. In some instances you may find that it is beneficial to shoot for a smaller lump sum of money if that means the distributions will be tax free. Larger nest eggs that are taxable may often produce a smaller amount of income than those tax-free accounts (i.e. cash value life insurance, Roth IRAs, etc.).