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Funded Ratio Formula:
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The Retirement Funded Ratio is a financial metric that measures the percentage of retirement liabilities covered by available assets. It provides a clear picture of retirement readiness and financial security for post-retirement years.
The calculator uses the funded ratio formula:
Where:
Explanation: The ratio indicates what percentage of your retirement liabilities are covered by your current assets. A ratio of 100% or higher indicates full funding.
Details: Calculating the funded ratio is crucial for retirement planning as it helps individuals assess their financial preparedness, identify potential shortfalls, and make informed decisions about savings, investments, and retirement timing.
Tips: Enter total retirement assets and estimated retirement liabilities in dollars. Both values must be positive numbers, with liabilities greater than zero for accurate calculation.
Q1: What is considered a good funded ratio?
A: A funded ratio of 100% or higher is ideal, indicating that assets fully cover liabilities. Ratios below 100% suggest a retirement funding shortfall.
Q2: What should be included in assets?
A: Include all retirement savings, investment accounts, pension funds, real estate investments, and any other assets intended for retirement.
Q3: How to estimate retirement liabilities?
A: Estimate future annual retirement expenses multiplied by expected retirement years, considering inflation and healthcare costs.
Q4: How often should I calculate my funded ratio?
A: It's recommended to calculate annually or whenever there are significant changes in assets, liabilities, or retirement plans.
Q5: What if my funded ratio is below 100%?
A: Consider increasing savings, adjusting investment strategies, delaying retirement, or reducing expected retirement expenses.