Income and Lifestyle in Retirement
There are various options available for people in retirement with active lifestyles and regular jobs. Remember, each type of retirement income option differs from the next. What you choose will be dependent on many factors specific to your situation including taxation implications, social security eligibility, investment preferences, lifestyle choices and more. One of the critical mistake people make while calculating retirement income is getting confused with their pre-retirement income. Remember, most people need only 60% to 80% of the pre-retirement income to sustain their regular lifestyles. Also, when figuring out your retirement income to support your current lifestyle, only include expenses that are required or need to support you and your spouse in retirement. All of us know that this is far from realty due to the fact that some of us have to help paying for children in college and aging parent of our own but take those expenses out for the preliminary calculations. It will make the financial puzzle much more simple to tackle. If you're struggling to figure out the future income you need during retirement to support your existing lifestyle, here are some tips to help.

Start with Wage/Income Replacement Ratio:: Most people will have no clue about this number but a little in depth reading will explain everything. The process uses your present income level to estimate the amount you will need in retirement. Use current income only as a starting point and keep in mind that it is a general guideline. this ratio ranges from 50% to as high as 80% in most people. Also, pre-tax income is use to calculate this ratio. Let's take an example to understand it better.
Paul is a 55-year old person earning $60,000 a year and pays around 7% for social security and saves another 20% of his annual income. This means that remaining income(73%) goes towards taxes(Federal and State) and living expenses. Also, Paul puts 5% of his salary in his retirement account. That means that Paul could maintain his current lifestyle with only 68%(100-(7-20-5)) of his pre-retirement income($60,000 X.68 = $40,800). This method gives you a "ballpark" figure but may not be very accurate if you still have plenty of time before retirement. to get more precise estimates, you'll have to factor in inflation as well as your wage increase to get the projected wages at retirement.

Using Budget/Expense Method: This method is driven by a detailed analysis of your current expenses. Your results will be more accurate if you're closer to Retirement. For most of us, overall expenses will decrease after retirement. This is somewhat comforting since our incomes will drop after we stop working. But some retirees may experience higher costs in addition to reduced incomes, especially if medical costs go up without an offsetting decrease in other costs. To calculate your retirement expenses, you need to start out with your current expenses. Create a worksheet and write down every significant expense you have at the moment. Then you total them up to get your current expenses. Once you have done that, you need to review each item to figure out how retirement will impact it. For example, most of us will have higher medical and travel expenses in retirement but may not have any mortgage or car payments. One of the very important item is homeowner costs. Remember, we may not have mortgage payment in retirement but property taxes, insurance will go up. Also, maintenance cost will rise due to the older age of the home. So pay close attention to items like home. You also have to figure out if each expense is needed every year as well as the amount needed each year. Figure out if amount needed each year is fixed or it goes up or down with time. Once you have an estimate of your retirement lifestyle costs, the next step is to assess how prepared you are to cover those costs. What sources of retirement income will be available?

Strategy to Meet Retirement Needs: If your retirement income is nowhere close to your expected expenses, you've got a problem. How you address this problem will depends how long you have before you retire. First of all, whether you're a few months away or years away from retirement, easiest way to improve your financial life is to save more and spend less. You may be able to deal with an income shortfall by adjusting your spending habits. If you are still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to drastically change your spending and saving habits. Saving even a little money here and there can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you'll find that your savings will last even longer. Start by preparing a budget to see where your money is going.

You can take various steps to curb your spending. You can access the equity in your home to pay off higher-interest-rate debts. you can transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts. You can review your insurance coverage and needs (e.g., your need for life insurance may have lessened). These small changes will make a big difference over time and may save you lot of grief in retirement years.

Lower Your Standard of Living: This is the last resort.

Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it's easy to start overspending.