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Even the financial planner who sits with you and knows your situation, it is difficult to know how much pension should be saved each month. It is almost impossible to solve problems without understanding the situation. To answer this question, we have assumed an example, so that when the hypothetical example cannot be realized, we will know how to adjust it.
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Suppose that both of you are thirty-five years old and plan to retire at the age of seventy, and both of you can live to be ninety-five years old. The family’s current annual income is 80000 dollars, and they haven’t started to deposit retirement savings. They hope to pay off the mortgage. Considering inflation, they plan to get 70000 dollars of income every year before retirement, so that the living standard after retirement will be better than before. Here are some key assumptions:
- 1. Save more than 10% of your income. Put aside the money for children’s college education, the money for buying a car and all the necessary expenses. Just for retirement, at least 10% of your income should be saved. (You also need to save money to handle other agency matters!)
- 2. Avoid paying taxes in advance because of retirement savings. You need to invest your retirement savings in a 401 (k) retirement benefit plan or IRA, and pay interest, dividends, and taxes on income when you retire. If you only put your money into the “Rose” personal pension account, you will save less now, but you will not have to pay income tax when you retire to receive retirement savings.
- 3. Buy a house. If you don’t have a house of your own, you should buy one in the next five years and pay off the house before you retire at the age of 70. If possible, choose a house that can live for a lifetime.
- 4. (Buying mutual funds) investing in stocks and bonds. When making a retirement plan, you should understand that the fixed deposit certificate and savings fund of the bank cannot generate enough investment return. But you also need to know that other investments will lose more, and your retirement plan may be destroyed in an unexpected financial crisis.
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Assume that the real yield is 4.5%. It sounds a little low, doesn’t it? Actually not. At the time of writing this paragraph, the 10-year yield of US treasury bonds was less than 2%, and the inflation rate was nearly 3%. This means that the actual expected yield of US Treasuries invested now is negative; Ten years later, investing in U.S. Treasury bills can buy less than cash today.
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Note: This plan is to ensure that your income will enable you to live to 95 years old. After that, you have to sell the house. Once you have used up the money to sell your house, you will have to live on social security (this is unlikely to happen before you are nearly 100 years old). Of course, if you die and lose your hair before you live to be 100 years old after retirement, you will have little savings for the younger generation.
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If you want to retire after working for less than 35 years, you have to save more money for retirement. If the family income is borne by the husband and wife, which is greater than the upper limit of social security tax (nearly 110000 dollars), you have to save more money, because the social security fund prepared for retirement will be paid in a smaller proportion. If you plan to retire in 35 years, you can save less. If your dream retirement living standard is lower than that in the example, you can save less. But no one can get enough retirement benefits from social security alone. At the very least, we should make a plan to pay off the house before retirement.