How much will I need for retirement?
It’s not easy to determine exactly how much you will need to save for retirement. But you can—and should—set a savings goal based on when you want to retire, how long you expect to be retired and how much income you think you’ll need.
First, set realistic goals that are measureable. It’s not enough to have a goal to retire early and live comfortably. What is the age you hope to retire and what does comfortable mean? Does it mean that you will travel or eat at fancy restaurants every week? These specifics will help you determine how much money you’ll need.
You should plan on needing at least 70 percent of your current income during retirement. You could even require as much as 90 percent, so look at your expenses and determine which ones will—or could—go away. Typically when you retire, your living costs go down. You may have paid off your home. You won’t have work-related expenses such as commuting, child-care, clothing, and eating out. You may be in a lower tax bracket.
On the other hand, other costs may go up. Medical costs could increase. More spare time may be spent on hobbies, which may cost more. You may purchase that second home which carries expenses. Don’t forget to include all expenses, including taxes. Once you’ve identified your anticipated expenses, look at your sources of retirement income. Obtain your Social Security Statement from the Social Security Administration. This will provide you with a good estimate of the retirement, disability and survivor benefits that you are likely to receive based on your earnings history. You should also check this annually to make sure that your earnings history is correct.
Review your pension or other employer-sponsored retirement plans for an estimate of benefits. If you’re not participating in your employer’s plan, start today!
If your anticipated income isn’t sufficient to cover your anticipated expenses, you’ll need to start saving more to close that gap. Look at your current budget and determine where you might be able to cut back to save more for retirement. The easiest thing to do is increase the contributions to your retirement plan at work. Another option is to open an IRA.