Your Retirement Savings Account Balance Determines When You Can Retire

Your retirement savings account includes the balances of all your retirement provision efforts and savings. It is ultimately the only solid and reliable indicator of your net worth and thus your chances to provide for a comfortable retirement.

This savings account is something you need to compile yourself. Nobody else is going to do it for you. It doesn't matter how remote or how imminent your retirement is. You need to take control of your retirement planning and eliminate uncertainty.

Let's briefly look at the components of your retirement account:

Tax deferred plans

These plans have in common some tax benefit or another.

Some 401k style plans would allow you to contribute untaxed income with your employer making a matching contribution – also untaxed and thus free money. The income earned by the plan is also not taxed.

This style of retirement provision plan is the most effective way to save for retirement and you should contribute to the maximum allowed.

Retirement annuities on the other hand is to augment your primary plans. Your contribution is with taxed money and there is no matching contribution from an employer, but the income earned in the annuity is not taxed.

Only when you start withdrawing from these plans will you be taxed.

Social security

Take note that social security is not a retirement plan. It will supply at most only 35% of your retirement income needs. You need to save the balance needed through your own efforts. You can calculate your social security benefit at www.ssa.gov.

Rentable property

One of the most endurable components of your retirement account would be rental income. The property could be residential, commercial, or for holiday rental. It could be property that you inherited from your parents, or your investment in a rather run down property that could easily be renovated.

If you acquire the property early in your retirement planning cycle, you can even take out a mortgage and repay the mortgage with rental income to be debt free by the time you retire.

Home equity

In many cases you can free up some home equity at retirement. We often sit with a large comfortable house with the mortgage repaid by the time we want to retire. By downsizing smartly you can add a substantial amount to your retirement account.

A friend of our's did a very smart thing. He rented their house at market value to their son who just started out with a family. The adjacent cottage that used to be their son's accommodation during his university years and early working life is now rented out producing another passive income. He and his wife moved to their holiday house which he renovated to their taste.

Shares

Often you own a business or at least some shares in a business by the time you retire. This can inflate your retirement savings account drastically.

That's what I did. We decided on a price and structured a management buy-out. The balance was paid out over a period of five years at prevailing interest rates.

At least two of our friends who owned businesses made a similar arrangement where their children bought the businesses over a period of five years.

When you add all these components together as your retirement savings account you can determine your net worth and estimate when you can retire comfortably. Elsewhere on this Website you'll find a retirement savings calculator as well as a good retirement income planner.

Return from Retirement Savings Account to Early Retirement Planning

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