Friday, December 21, 2012
Here are some of the things that having that lifetime income number helps me do using numbers and examples that don't pertain to my actual financial situation.
First off, here’s a quick review of my previous article and the equation I used to calculate my lifetime income number, using $20,000 (this isn’t my expense number, but it works for this example) as my current annual expense number and 3 percent as my annual lifestyle inflation number over the next 45 years (my life expectancy):
“Personally, I make this calculation by way of a financial calculator that I keep handy on my desk, but it can also easily be done by way of a future value online calculator, by inputting:
Present value: $20,000
% Change per time period: 3
Time periods: 45
Future value: $75,631.92
Determining Retirement Age
After seeing my income needs and Social Security benefits, I can begin to put a finer point to my retirement age number. Knowing that if I wait until age 70 to retire, that my monthly payments might be $2,000 instead of $1,500, I could wait to take my benefits in order to bolster my retirement income. Or working an extra five years or so could provide me with enough money to increase my income from retirement savings. If nothing else, it might tell me if I need to mix some amount of income earning work into my retirement to supplement Social Security and retirement savings income streams.