Estimating Your Retirement Funds: The Asset-to-salary Method

Many baby-boomers reaching their retirement years are planning their retirements

with a combination of do-it-yourself planning and professional know-how. Essentially, a solid retirement plan requires some knowledge on savings strategies, choosing good investments, and securing your nest egg against the effects of inflation to leave you with plenty of room to financially maneuver in your golden years.

The asset-to-salary method is one of these D.I.Y. strategies you can use to estimate how much you'll need to live on comfortably during retirement. This method uses the ratio of your investment assets and average salary to determine if your retirement funds are enough. Corporate employees, for example, may have to put away a minimum of sixty percent of pre-retirement income from 401K, with Social Security benefits accounting for the rest.

However, how would you know if you can reach the projected sixty percent pre-retirement figure once you no longer have your day job? A good rule of thumb: the older you get, the more you have to put in. You'll need a little more than twice your salary to stay on track if you're thirty-five and you plan to work for thirty more years. At forty-five, you'll need around three and a half times your salary. Fifty-five requires almost five and a half times the initial figure, and you'll need almost eight times that figure once you've retired.

After you've identified these basic financial ratios, you'll need to go in-depth with your retirement planning and take into account numerous aspects that can affect your retirement finances. Aside from using the asset-to-salary method, you can obtain a more realistic picture of where you are in terms of money with relatively more complex websites devoted to financial planning.

Although many retirees are opting to go the DIY route for the initial phase of retirement planning with methods such as the asset-to-salary ratio, a major transition like going into official requirement needs professional insight and know-how. Contact your financial advisor or retirement planner to help you ensure your nest egg doesn't run out in your golden years, which is when you'll need it most.

by: Carina Smith

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