One of the most common questions concerning retirement, is “how much money will I need to retire”. This question is extremely important and forms the foundation of retirement planning. Despite the fact that the answer to this question can become complex, it’s not as difficult to figure out as you might think.
Define Your Retirement Lifestyle and Goals
Just like developing your comprehensive financial plan, retirement planning starts with defining your goals and lifestyle. Once you have a clear sense of how you want to live your life, you will be able to determine how much it will probably cost.
Some topics to plan for include when to retire (age and year), what activities to enjoy (housing, vacations and gifts) and how long you will be retired (I assume to live to 100 for financial planning purposes). Retirement planning is all about determining how much money you will need to cover your expenses. Thus it’s imperative that you calculate how much your lifestyle will cost.
In addition to retirement expenses, its a good idea to take the time to decide if you would like to pass any left over assets to your heirs. If you would like to leave some assets to your loved ones, you will need to ensure that you have enough money to live your desired lifestyle during retirement and have enough left over to pass through your estate.
Determine How To Finance Your Retirement
Once you have determined your desired lifestyle during retirement, its time to figure out how to finance it. Hopefully you have acquired enough assets in your lifetime to fully fund your retirement. A few retirement income source examples include your savings, investment, Social Security and IRAs. These sources of income will need to be enough to maintain your desired standard of living, so take the time and estimate your income during retirement.
Estimating your retirement income can be a little tricky, however after a little research you should be close enough to the right answer. Once have estimated your future income and expenses, its time to determine if you will have enough to live the life you want. If you have performed the necessary calculations and have found that you will have enough to meet all of your goals, congratulations! If not, you might need to revise your retirement plan and expectations.
Fix Any Retirement Planning Shortfalls
If you have done the math and figured out that you might not have enough money to live the life you want during retirement, you are not alone and still have a few choices. First you could decide to go on fewer vacations or move into a smaller residence. You could also make the decision to keep your car longer than you expected. These ideas will help you reduce some of your expenses during retirement. Second, you could change your income situation.
Many potential retirees are postponing retirement for a few years in-order to save a few extra dollars before they leave the workforce. Lastly, you could decide to take up some easy part-time job to supplement your existing retirement income.
As illustrated in this article, answering the question “how much do I need to retire” is rather straight forward. First, determine your goals and desired lifestyle. Next, figure out how much that lifestyle will cost during your retirement. Then calculate your income sources and their amount during retirement. Finally, determine if you have enough money to live the life you want and if not make adjustment so you can.