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.