How to Figure Out How Much Income You'll Have in Retirement
One of the biggest challenges in planning for retirement is knowing how much money you need to save up in order to have enough income as a senior. For most retirees, the bulk of their income comes from Social Security benefits and retirement savings accounts. If you can figure out how much money to expect from each of these sources, then you can plan out how you'll spend your retirement. And if the numbers look too low, you can adjust your savings plan while you still have the time.
Figuring out how much you can expect from Social Security is more of a challenge than most people realize. Social Security benefits are based on your earnings in the 35 years in which you earned the most money. The agency takes your earnings records, runs them through a weighting index to correct the numbers for inflation, and applies its formula to come up with your base benefit amount. The higher your average income, the bigger your benefit -- up to a limit.
The further you are from retirement, the less accurate any Social Security benefits estimate will be, because a lot can happen in the intervening years: Your earnings could go up or down, you could quit working altogether, or the Social Security formulas could change. It's a good idea to check your Social Security statement each year to see whether any dramatic changes have occurred. You can view your statement online on the Social Security website at any time. The figures in the Social Security statement assume that you will keep earning the same amount you earned last year (adjusted for inflation) until the day you retire.
Source: Fool.com
