Knowing how much you need gives you a very clear destination. When you know how much you need, you can plan and save more effectively.
In this post, I will give you things to think about when this question comes to mind.
How long do you plan on working?
The length of your employment plays a huge role when determining how much you need to save for retirement. If you want to start enjoying the fruits of your labor sooner, you will need your money to last longer, and, thus, you need to have more saved.
If you plan on working well into your sixes and maybe even your seventies, you probably don’t need to save as much. Some people genuinely love what they do and never want to retire. I, myself, love my job and I will probably work in some capacity forever unless my health forces me to retire.
Lifestyle during retirement
What do you want to do for your second act? Do you want to travel? Do you want to relocate to a warmer climate? Or do you want to stay near your grandkids and the rest of your family?
The life you lead during retirement will have a large impact on your spending and, in turn, your savings. If you plan on traveling, you will definitely need to save more. If you relocate to Florida or Arizona, for instance, you could probably get away with using the proceeds from the sale of your current home to buy your new residence.
Staying where you are, where you are near your family is, most likely, the most affordable option. No moving or traveling expenses, and you get to spend more time with the ones you love.
Life expectancy has been on the rise for the last century. With the advances in medicine and the changes in diet and habits, people are living much longer. This means retirement could last 30+ years. Wil your retirement savings last?
How much of your income do you plan on replacing? The recommended percentage is 80% of your pre-retirement income. This number will change depending on how much you made during your career and the lifestyle you choose for retirement.
If you made a lot of money during your working years and plan on living modestly during retirement, you probably don’t need to replace 80%.
This number can also change if you are fortunate enough to receive a pension from a previous employer.
If you are having trouble calculating how much you need to save for retirement, use an online retirement calculator.
Develop a Plan
Once you have crunched the numbers, talked about the kind of life you envision, and figured out how much you will need for retirement, it’s time to create a plan. Figure out how much you must save per month to meet your goal, and find out which investments will yield the best results for the amount of risk you are comfortable with. Make sure you write it down. Seeing it on paper or on a screen keeps it in front of you as a reminder.
Saving for retirement can be challenging. Knowing exactly how much you will need during your golden years can help. This gives you a concrete number to work and plan for. Answer some of these questions when figuring out how much you need during retirement.
Note: This article is for informational purposes only. Consult with a financial professional regarding your personal financial situation. Do not make decisions based solely on what you read or hear.