Factors Influencing Retirement Savings

People love to have clear and easy to follow instructions that inform them exactly how to reach their goals. We are a society that loves formulas, equations and rules of thumbs. One needs to travel no further than the library to prove this point. Simply do a search for all titles beginning with the words . 12 easy steps to & ... However, people can run into some big problems if they try to base their retirement savings on this type of pre-fabricated approach. An effective savings plan will be tailored to an individual. s specific circumstances, and therefore what works well for one person might not be right for another. However, one thing that every plan has in common is that they will all be influenced by 5 major factors. Let. s examine what these factors are and how they might affect a person. s savings decisions.

• Planned length of retirement. The number of years that a person plans on being retired will determine the amount of money that needs to be saved. The average life expectancies in America are 74 and 79 years old, for men and women respectively. However, the last thing that a person wants is to run out of money if they turn out to be . above average.  Consequently, it is wise to prepare for additional years. People will also need to determine the age at which they wish to retire. For some people this will be well into their 70's while others prefer an early retirement in their 50's. This factor will contribute to the length of the retirement as well as influencing the aggressiveness of the investment. The closer a person gets to reaching his retirement goal, the more conservative his portfolio should become.
• Inflation. The average rate of inflation ranges from 3%-4% annually. It is critical that this gets factored into savings calculations. If an individual plans his retirement based on today. s rates then 30 years from now he will be in for a rude awakening.
• Lifestyle. This is a very broad factor that entails everything from where an individual lives to hobbies and travel plans. Unfortunately, many people underestimate this area when making their savings plans. What they fail to realize is that when a person retires he often finds himself with an abundance of free time. Typically people enjoy filling this time with things they enjoy, such as, golf or vacations. However, these activities can be costly, so it's important to prepare for them in advance.
• Emergencies. Throughout a person. s life it is wise to have a level of emergency savings. This will act as a financial cushion in the event that an unexpected event should arise. There is no reason to change this once a person reaches the age of retirement. A basement is just as likely to flood when you. re 70 as when you. re 40. If an adequate amount of money has not been earmarked for such emergencies then it could result in significantly damaging a budget. It is recommended that people establish an emergency fund that is the equivalent of 3 to 6 months of living expenses.
• Inheritance. Another factor is whether an individual wishes to leave a monetary inheritance for children or grandchildren. If so, then this money must be above and beyond the funds which are necessary for normal living expenses.

By following these steps now, you can help ensure that you will be able to enjoy your retirement years. The longer you wait the harder it will be to reach your goals, so start today!