How Much Do You Actually Need for Retirement?

It might seem rather difficult to determine exactly how much money you need for retirement, as there are so many variables that come into play. However, it’s great to get a start at determining how much money you really need to retire no matter what age you are. Planning for retirement as early as possible is a good way to be prepared for when it comes time to retire. Use these steps to get a pretty good idea of how much money you’ll actually need for retirement.

1.     Calculate a figure of about 75% of your current annual living expenses. While financial planners may argue on the perfect number, you should be able to live off of 75%, or possibly less, of your current income if you do not have any mortgage, rent or housing expenses, work-related expenses, no debt and if your children will all be financially independent. 

2.     Calculate what expenses you will subtract or add in retirement. Keep in mind any expenses you may have or may not have in retirement when compared to pre-retirement. Consider whether you plan on traveling more or less, if you might have any costly medical expenses and if you plan on relocating whether you retire. You should also keep in mind how much money you have already put away for your retirement, such as in a 401(k) account or other retirement planning account and whether you still plan on working once you’ve retired.

3.     Remember inflation. As there is always inflation, you want to keep in mind that the amount of money you use in the beginning of your retirement might be less than you will need to live at that comfort level several years into your retirement. In addition to keeping inflation in mind after retirement, you also need to account for inflation before you retire. If you are not planning to retire for another decade or two, you want to keep in mind how much inflation might increase so you have enough saved up for your retirement.

4.     Expect to live a long life. Plan on living a long life when it comes to thinking about how long you will be in retirement for. It’s always better to have more than enough saved up than not enough, of course.

5.     Keep your heirs in mind.You will likely want to leave something for your children, grandchildren or for charity, so it is important to keep in mind how much you want to leave for them when you begin to calculate how much money you will need for retirement.

6.     Determine your retirement savings. Once you have figured out all of these factors, you can now calculate approximately how much you will need for retirement. You can calculate your retirement savings by hand, use a spreadsheet or even use a retirement calculator found online to help you determine how much money you will need saved to retire comfortably.

11 thoughts on “How Much Do You Actually Need for Retirement?

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  3. I agree with your breakdown, except for the fact that I’d love to achieve a “sustainable” retirement, namely Financial Independence. If that happened then my expenses would be FAR less than the 75% that I’m currently living at, which includes aggressively paying off a mortgage and starting a business.

  4. You write, “if you do not have any mortgage, rent or housing expenses, work-related expenses, no debt and if your children will all be financially independent.”

    Guess what? That will be such a small percentage of retirees who have all those things listed, 75% is WAY TOO LOW! People should shoot for 100% of income so they can pay all bills and MAYBE have some left each month for saving in their emergency fund.

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  10. Great way to approach this problem. However 75% may be too low when it comes to calculations. As for inheritances and the like, estate planning with a qualified estate planner is a requirement for those who want their family to be protected and to insure that there family fortune goes to their family or charity as they wish.

  11. Save 20% of your gross income and work until 70. Then, only withdraw 4% a year from your retirement savings. In other words, give us your money and don’t ask for it back. Great plan – for those profiting off our savings while invested and those who will profit off of what’s left when we need healthcare and assisted living at the end of our lives. Kind of like a horse’s life in the old days – work until you drop and then the glue factory. What happened to the happy people having drinks under palm trees in the advertisements we watched touting a long and happy retirement? It’s all a giant scam.

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