Figuring out how much you’ll need to retire comfortably can be difficult. Most planners suggest that you calculate your current expenses and figure out how much you need to save to ensure that you will have enough money. But if you’re a long way off from retiring, or if you plan on changing your lifestyle in retirement, that can be a difficult calculation to make.
Envision Your Future
The first thing that you’ll need to do then is envision your retirement lifestyle. Would you like to travel the world in your Golden years? Or would you be content living in the countryside and spending your time tending your garden? Do you want to stay in the house that you’re living in or expect to live in by that age, or would you prefer to downsize to a condo so that you will lower your costs and not have to deal with upkeep? How much would your retirement lifestyle cost in today’s dollars? Experts tend to suggest you need around 80% of your income to maintain your standard of living in retirement.
Consider Your Debt
Do you expect to carry debt into your retirement? While it’s not an ideal situation more and more people are carrying debt into retirement. If you don’t think you’ll be able to buy a house until later in life, you might still have a mortgage when you’re retirement age. Also, if you plan on returning to school after 40 you might have student loans. Be sure to include potential payments for these debts into your budget if you think you might have them when you retire.
Factor in Inflation
Sure, you might know how much money you’ll need in today’s dollars to live your retirement dream but what does that mean for 20, 30, or 40 years from now when you retire? Well, that means you need a retirement calculator that factors in inflation.
Add it Up
Add up all your expenses (including servicing your debt) and use the retirement calculator to determine what you need to have. The next thing you need to do is figure out how much you need to save. Start by…
Counting Government Money
Go to the Social Security website to determine how much you’re likely to get paid when you retire. That is if you think it’s still going to be there when you’re ready to draw on Social Security.
Remembering Your Pension or Pensions
Pensions might be going the way of the Dodo bird, but I have one so I’m assuming that there are other millennials who have won the job lottery out there and have encountered one of these rare and mythical beasts. The biggest difference that the Millennial generation with pensions might face is that they might end up with more than one when they retire. Since Millennials are known for moving from job to job, if we’re in careers where pensions are still part of our compensation package, we might have more than one by the time we retire. Be sure to add up how much you can expect to have in that account and find out how much that will pay you when you retire.
Figure Out Your Number
As a rule, you can generally take out 4% to 4.5% per year from your retirement savings without having to worry about depleting your account and therefore outliving your money. Let’s say you have $1 million saved – that means you can take out $40,000 per year. If, for example, you have expenses that will add up to $80,000 before tax and you expect to get $40,000 from your pension and government benefits, then you will need $1,000,000. Please reread this section with a Dr. Evil accent. Remember to place your pinky near your mouth.
You’ve probably come up with a figure that is very large and seems impossible. You might have to readjust your retirement expectations or you might have to find ways to make it work.
Come Up with a Plan
Crying isn’t productive, so once you’ve dried your tears it’s time to come up with a plan. I’d suggest seeing a fee only financial advisor who can help you come up with a plan that will ensure that you’ll meet your financial goals. Most of them have tissues in their offices as well. Two birds with one stone?