4 Steps to Figuring Out How Much Money You Need for Retirement
Everyone has their own idea of what they want from retirement. Your ideas for retirement will affect the amount of money you’ll need, so it’s important to figure out how much money you will need to enjoy the retirement you want. Retirement age, the amount of money you need to keep up with bills and your standard or living will impact the total amount needed. For a good estimate of the total amount you need, use the following steps.
Step #1 – Come Up with Yearly Expenses
First, you need to come up with the amount you’ll spend on yearly expenses. This will include the money you’ll spend on housing, utilities, one-time expenses, taxes and the things you want to do. Don’t forget to account for personal expenses, such as food, personal care items and health care expenses. Many online retirement calculators are available to help you estimate the amount you’ll need for each year of retirement.
Step #2 – Note the Retirement Income You Can Guarantee
Next, make a note of the retirement income that you can guarantee. Guaranteed forms of retirement income include Social Security, regular annuity payments, pensions, etc. This is the income you can depend on after you’re retirement. Add up the total amount that you will have coming each year during your retirement.
Step #3 – Figure Out the Gap
Now it’s time to figure out the gap between the amount you plan to spend each year and the guaranteed income you’ll have coming in during retirement. The amount you come up with is the amount that you need to have saved to make sure you have enough for a comfortable retirement. This money can come from your investments, savings, 401k plans, IRAs, etc.
Step #4 – Be Sure to Factor in Your Life Expectancy and Inflation
Of course, as you are making these calculations, be sure to factor in your life expectancy and inflation. These variables will have a huge influence on the total amount you need for retirement. Remember, you don’t want to base your retirement on an amount of money that only works out in a best-case scenario. Once you factor in life expectancy and inflation, you may need to save a bit more or work a little longer, but it will ensure that your retirement plan financially stable so you don’t have to worry financially once you retire.
Spending some time now figuring out how much money you need for retirement will keep you from making big financial mistakes that ruin your retirement. Use these steps and you’ll have a good estimate of what you’ll need.