Defining what you want and setting your long-term goals is a step that many people forget to take. It has been said that most people don’t plan to fail…they simply fail to plan! If you are not aiming at anything you are probably going to get just that, anything! Though it’s tempting to skip this step, figuring out what you want in life is the foundation upon which to build your dreams and plans. One of the most important questions that you need to ask yourself is: “How much money do I need to retire?”
The answer to this question may be different for each person. This blog post will shed light on the most important things to consider when trying to figure out how much you will need in retirement.
How Much Money Will You Need When You Decide to Retire?
Here are a few things to consider when trying to determine how much you will need for retirement:
How Much Money Do You Need for Your Basic Expenses?
The first step in figuring out how much you will need to live during retirement is to figure out your current cost of living. This will help you come up with a budget and plan that will increase your chances of living comfortably in retirement.
It is certainly something that needs to be accounted for in any retirement plan. If inflation is running at 3% it will take twice as much to buy something in 24 years as it does today. The most recent reading of inflation according to the Bureau of Labor Statistics has inflation rising at an annual clip of 6.8%! At that rate in a little less than 11 years what you buy today will cost twice as much. The point being, that any plan that does not consider inflation is missing an important factor to contemplate.
How Much Money Do You Need for Medical Costs?
Medical expenses are one of the most important things to consider when trying to figure out how much you need for retirement. Most people spend more on medical care towards the end of their lives, so including this expense in your retirement budget is vital.
What Kind of Lifestyle Do You Want in Retirement?
Once you have figured out your essential and discretionary expenses, it’s time to include your long-term goals in your retirement budget. If you plan on spending a lot of money on golfing or traveling in later years, then you should include this expense in your retirement budget as well.
Where Will You Live in Retirement?
If you have a fixed income, you may not have much choice about where you will retire. If you have options, it’s a good idea to plan out where you would like to live in retirement. If you will be spending more time in one area, you may be able to find a house that you can rent for a reasonable amount. If you will be living in different places, you may want to plan on purchasing a vacation home. The more you know about where you want to live, the easier it will be to figure out how much you will need when you retire.
What If You’re Not Sure How Much You Need?
If you’re not sure how much you will need to live in retirement, you’re not alone. This is the case for most people. The first step is to take a full look at your current expenses and see how much of your monthly income is allocated towards your savings. This is a strong indicator of how much you will need in your retirement fund, if you want to live your current lifestyle in the future.
The factors listed above will give you a rough estimate of how much you need to live comfortably in retirement. Remember there are a variety of things that will influence the amount you will need in retirement. If you are not comfortable with this number, you may need to figure out ways to cut back on your expenses or figure out ways to increase your income. The more you save towards your retirement fund, the more comfortable your life will be in retirement.
Should you need help planning out your retirement financial goals, talk to LPL fiduciary, Michael R. Rose is one of the best Albuquerque financial planners and is always happy to guide his clients towards their financial goals.