Put Your Finances Into Perspective
Your calculations are an important part of your overall decisions regarding retirement.
Let's break the process down into two steps:
Step 1. Put Your Finances Into Perspective
Step 2. Calculate Your Retirement Expenses
Maintaining your preferred lifestyle throughout retirement will be determined largely by the financial assets and obligations you have at that time. Start taking stock of your financial situation now.
Your Net Worth
Defined simply as the difference between your total assets (what you own) and your total liabilities (what you owe) - your net worth provides a financial snapshot of your current holdings and will help you identify the assets you can call on to meet your retirement objectives.
Start by completing the Net Worth Worksheet to determine your current net worth.
Once completed, print it out and update annually.
Estimating into the Future
Your current net worth statement represents your financial position today. It doesn't, for instance, take into account the number of years you have until retirement (and the additional savings that will accrue by then), or the growth of your investments during that period. Your financial institution or financial advisor can help you estimate the value of your current and projected savings into the future.
Your net worth also does not reflect future financial obligations that you could incur - like the purchase of a new car or eldercare expenses, for example. You should therefore review these calculations periodically to make sure you're still on track.
If You're Nearing Retirement...
You can estimate your future net worth (based on your anticipated number of years to retirement) to get a better idea of exactly where you'll stand.
Use our Future Value Calculator to help estimate the future value of your current assets.
Now take the Net Worth Worksheet you completed earlier, and add these estimates into your asset calculations. At the same time, think about any future liabilities you might incur and factor them into your estimates as well.
With your revised net worth statement printed out, you're ready for the next step of the retirement planning process - calculating your retirement expenses.
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