Planning for retirement would be much simpler if we lived in an unchanging world. But this is not the case. Our personal budget and the economy are contstantly changing, making forecasting our retirement needs an arduous task. Nevertheless, one has to plan for retirement and estimating our needs is a necessary component of the process.
There are basically two ways that you can go about forecasting your retirement needs. One is to plan over a series of time frames in the short run. This can be done by stating your retirement income objectives as a percentage of your present earnings. For example, your desired retirement income may be 80 percent of your final takehome pay. Having determined that, you can then set aside the amount needed to reach this goal. It is likely that you will have to revise and update your plan every three to five years.
The other approach is to take a long-term view. In this case, you have to formulate the level of income you would like to receive after you retire as well as the amount of funds you must accumulate to have that desired amount. This approach goes 20 or 30 years into the future to determine how much savings and investment you must do today to achieve your retirement goals. Of course, if expectations and conditions change, you may have to alter these long-term goals and strategies.
