Future Value of Retirement Plans
An effective Retirement Plan is essential to make your future life secure because retirement planning is usually taken in the financial contents and refers to the allocation of finances for retirement. This usually means setting some money aside during your employment period to obtain a steady amount at the time of retirement. The basic goal of retirement plans is to get financial independence during retirement. Different financial organizations offer various valuable retirement plans so you can pick one according to your own need. It can be tricky to take decisions about the calculation of a retirement plan so you can make this task easy by calculating the future value of a retirement plan. You can also calculate the future value of the retirement plan offered by your potential employer after getting important details.
Tips to Calculate Future Value of Retirement Plans
It is really easy to calculate the future value of retirement plans through a financial calculator but the following steps will make your work easier regarding calculations:
Initially, you have to get details of your retirement plan from a potential employer. Before calculating the future value of your pension, you have to ask about the annual pension benefits and benefits of retirement at an early age.
It is necessary to consider the following amounts to calculate the future value of the retirement plan:
- Beginning Balance of Account
- Monthly contribution
- Years until retirement
- Estimated annual pre-retirement yield (%)
- Estimated annual retirement yield (%)
- Estimated annual inflation (%)
- Estimated annual contribution increase (%)
- Desired future total monthly income (current dollars)
- Estimated monthly Pension income (current dollars)
- Years until Pension income starts
- Pension annual increases (%)
If your retirement plans bear no interest then the future value of your money will be less than its present value because of inflation which can affect the purchasing power of money by steadily eroding its value over time. It is not possible to estimate 100 percent accurate future value but you can get a rough estimate on the basis of inflationary forces.
Here is a preview of a comprehensive template for calculating the Future Value of Retirement Plans created using MS Excel,
Calculations of Future Value
You can use financial calculations to calculate the future value of your retirement plan or can even use “Inflation-adjusted rate (IAR)” equations to perform calculations for you with valuable methods. The equation of the inflation-adjusted rate is as follows:
Inflation – Adjusted Return = (1 + Return)/ (1 + Inflation Rate) – 1
Future value can be calculated with the following formula:
FV = PV . (1 + rt) (For simple interest)
FV = PV . (1 + i) t (For Computer Interest)
A steady inflation rate can reduce the value of your retirement savings so you have to investigate interest rates before investing your money. A good interest rate will help you to increase the future value of your money. Before making any decision, calculate the future value of your current retirement plan so that you can make any amendment at the right time in your own favor.
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