What Will Your Retirement Needs Look Like?

Retirement Needs

A Simple Guide To Determine Your Retirement Needs.

It’s hard to hit a target that you cannot see. For that reason, it is smart to know how much your retirement needs will be so you will know how much you need to save.

The idea of sitting down and coming up with a number that represents how much you will need during retirement to live well sounds overwhelming. It is impossible to really know to the penny what you will need years from now.

However, there are basic considerations that when taken into account, will help you make a reasonable and good plan so that you can save toward a goal that is real. Take a look at these guidelines.


First, the bad news: There really is no single number that would guarantee everyone an adequate retirement. It depends on many factors, including your desired standard of living, your expenses (including any medical costs) and your target retirement age.

Now for the good news: It’s entirely possible to determine a reasonable number for your own retirement needs. All it involves is answering a few questions and doing some number crunching. Providing you plan ahead and estimate on the conservative side, it’s entirely possible for you to accumulate a nest egg sufficient to last you through your golden years.

There are several key tasks you need to complete before you can determine what size of nest egg you’ll need in order to fund your retirement. These include the following:

Decide the age at which you want to retire.

Decide the annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 80% of your current annual salary in order to maintain your standard of living. (To learn more about how to do this, see Determining Your Post-Work Income.)

Add up the current market value of all your savings and investments.

Determine a realistic annualized real rate of return (net of inflation) on your investments. Conservatively assume inflation will be 4% annually. A realistic rate of return would be 6-10%. Again, estimate on the low end to be on the safe side.

If you have a company pension plan, obtain an estimate of its value from your plan provider.

Estimate the value of your social security benefits. U.S. residents can obtain their estimated benefits at the Social Security Administration (SSA) website.
– via Investopedia

Changes In Lifestyle Will Effect Your Retirement Needs

For most people their expenses during the larger part of their working lives are higher because of a variety of life circumstances.

Buying a house and paying a mortgage, for example, means a higher housing cost for 15-30 years than you will have after retirement and after your mortgage is paid off.

Raising children and putting them through college requires a much higher monthly expense than you will have after your children are grown.

Here is a discussion that will help you think through what lifestyle changes you expect and how they will impact your retirement needs.

To some extent, retirement planners take such considerations into account. For instance, many recommend that you save enough to replace 80%—not 100%—of your preretirement income over a 30-year retirement. The formula assumes that you will no longer be paying payroll taxes, saving for retirement or covering work costs, and that you may be in a lower tax bracket.

It also assumes that your spending will stay constant (adjusted for inflation) throughout a 30-year span, as opposed to fluctuating according to your circumstances. That assumption is no truer after you retire than it is before, says David Blanchett, head of retirement research at Morningstar, and it can lead you to overestimate your income target. In fact, many families can get by on only 60% of preretirement income.

For my part, I mostly bring my lunch to work and prepare my other meals, so I don’t see my food costs going down much. Few would accuse me of spending lavishly on work outfits—no savings there. Because my company subsidizes my commute, my transportation costs could actually go up. But since I plan to downsize and retire my mortgage, my housing expenses will certainly go down. Overall, I think my own replacement rate will be closer to 70%. I am going to run the numbers to be sure.
– via www.kiplinger.com

How much do you think you will need in retirement?

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