How much money will I need in retirement?
Answers | 1
Financial professionals across the board constantly use a 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:
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 bottom number from the top. 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)
This is a fairly simple way of estimating future needs and will serve as a solid estimating tool. 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 than later!