That's a BIG question, and one that is impossible to answer as a blanket statement for the masses, as each individual's situation is unique. It depends on a multitude of factors, including at what age you plan on leaving the workforce, your life expectancy, your health, what you want to do during your golden years, and how well you've prepared during your working years. Will you be financially responsible for your grown children or your parents? Will you have a mortgage? Is your idea of retirement spending quiet time with a book in a hammock in your back yard, or will you take on expensive hobbies or be travelling the world? Will you work part-time?
Financial professionals across the board constantly use figures like 70-80% of your income, but perhaps a better way of figuring out what you will need is identifying the retirement lifestyle that you want and work backwards from there. Here's how to estimate what you'll need:
1. First things first:
- Take a 12-month running average of your current expenses to determine a true annual cost.
- Multiply that number by the number of years you plan on living in retirement and add 3% each year for inflation.
- Total up what you already have in retirement, savings and investment accounts
- Total up all of your guaranteed retirement income (Social Security, pensions, annuities)
- Subtract the number in Step 2 from the number in Step 1. What you have left over is how much you'll need to save. Keep in mind that some of your expenses will decrease (like work-related commuting expenses, retirement contributions and income taxes) while some of your expenses will increase (like health, dental, and long-term care, as well as entertainment, travel, and hobbies)
While the number may seem daunting at first, don't underestimate the power of time and compound interest. The key is to start saving sooner rather than later!
Bio: As the President and CEO of TZG Financial, Mike is doing what he professionally loves the most: building relationships and providing his clients with financial security. Mike has been featured in many publications, including Money, US News & World Report, The Huffington Post, Time, Reader's Digest, Men's Health, MSN and Yahoo Finance. He is a verified Top Contributor on www.moneytips.com, and is a member of both the National Ethics Association and the National Veteran-Owned Business Association.
Business email: SafeMoney@TZGFinancial.com