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Social Security and Retirement Planning
Is retirement planning necessary or will Social Security take care of everything?   Some people believe that Social Security will cover all of their after retirement expenses, but there are others that believe exactly the opposite.   Retirement planning is important because Social Security is a pay as you go system and pays only a fraction of one’s average monthly income.   The future is unknown, so therefore planning is of extreme importance.
It is important to know at what age retirement will be a viable option.   Knowing the approximate age retirement will happen is necessary when calculating expected expenses at retirement.   When planning for retirement one must first determine his or her retirement goals.   Retirement goals consist of items such as maintaining or improving standard of living, vacations, and much, much more.   After retirement goals are determined, one can begin to calculate his or her retirement expenses.   Retirement expenses include housing costs, food, utilities, and taxes, upkeep of home, insurance, and health care and medical expenses.   When calculating retirement expenses it is important to adjust for inflation.   To adjust for inflation use the following equation:
Expected expenses at retirement = Current expenses x 1.04N
(N is equal to the number of years to retire) (Axia College Week nine readings, 2011, Personal Finance, p. 385).
According to Axia College Week nine readings, Personal Finance, p. 383 (2011), there are three steps that should be taken into consideration when planning for retirement.   The first step is to estimate future retirement expenses.   The second step is to subtract all expected income from employer sponsored defined benefit retirement plans and Social Security to arrive at the expected retirement income shortfall.   The third and final step is to estimate how much wealth will need to be accumulated by the retirement date and how much should be saved each moth to reach that...