Many people have heard that they need to save $1 million to retire comfortably. While this isn’t necessarily a bad goal, it isn’t accurate for everyone.
In fact, each person will have slightly different requirements. You’ll need to account for factors like where you’ll live, your current health, your age at retirement, and much more.
If you are trying to figure out how much you need to retire comfortably, here’s how to get started.
Living Expenses to Retire Comfortably
The first step to solving this riddle is to determine what your living expenses will look like in retirement. Often, they won’t entirely resemble where you are today.
Certain debts, like mortgages, may be paid off while your daily activity-oriented spending may climb. If you intend to travel, then your costs could be dramatically different depending on where you’ll go and for how long.
Previously, wisdom said to plan to replace 70 to 80 percent of your working-related income in retirement, but some people may need 100 percent while others only 60. Don’t assume that your spending is going to go down. Instead, take a moment and do the math. It’s worth the effort.
Life of Your Nest Egg
How long your retirement savings will last is another essential part of this equation. Not only may it dictate when you should retire, but it can also give you an indication of what shifts in your spending will mean to your long-term financial situation.
There are some handy calculators that will help you anticipate how long your current nest egg will last, such as the one by The Motley Fool. This gives you valuable information regarding where you stand today and if you are on track to meet your needs.
What If I Fell Short
If your nest egg didn’t last (or you don’t have one yet), then you need to figure out what it will take to reach that magic point.
While there’s no way to predict future interest rates or inflation, you can still perform these important calculations. You can use a handy online calculator, such as the one at Bankrate, and enter your parameters. Play it safe by not overestimating your annual yield or underestimate inflation, as it is better to be conservative and end up saving too much than not enough.
Once you run the calculation, you should have a good idea of what you need to retire comfortably. Then, you can make smart choices going forward to reach that required amount.
Don’t forget; you are making some assumptions in these calculations. This means you’ll need to revisit your goals regularly and reexamine the numbers to make sure you are going down the right road.
After all, circumstances change. You may find your projected expenses will be higher or lower, or you get a windfall that lets you get ahead. Regardless, rechecking these calculations often is a wise move to ensure you have the financial future you hope to have.
Looking for more great articles from Engineering Your Finances? Give these a try:
- Traditional or Roth IRAs – Which are Best?
- Should You Rethink Whether to Postpone Retirement?
- What Savers Do with Their Work Bonuses
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals