Like most folks, you may have already thought about how much money you’ll need throughout the rest of your retirement. Also, you may have probably wondered why you’ve never come across a specific amount yourself. Read on to finally find out that magic number you’ll need to reach in order to retire comfortably!
Defining A Comfortable Retirement
The first step is to determine what a “comfortable” retirement is for you. Although everyone is different, you’ll still be able to answer this with a little bit of math. To help you out, here are three basic things to think about when calculating the amount you’ll need for retirement:
Basic Necessities: To meet those essentials with a basic pension, you must first specify your monthly needs then multiply by 12. These needs usually include mortgage, insurance, groceries, automobile fees, utilities, and extra expenses.
Additional Luxuries: If you’re inclined towards the luxurious life, you must specify your desired pursuits and calculate their estimated costs based upon frequency, supplies needed, and other associated factors. Then, add their costs to your monthly funds. These indulgences can involve your hobbies, a rest house, a yacht, or travels.
Inflation: Also, you will have to consider inflation. Nowadays, lots of information can be accessed to aid in establishing a sensible inflation assessment. Still, 3-4% is a good enough long-term inflation figure you can utilize for your calculations.
Rule Of Thumb For Retirement Savings
The generally held criterion for retirement planning is that you must have, at minimum, 80% of the annual wages you acquired from working—often called “replacement income.” For instance, if you earned $50K annually while employed, you must have around $40K per year prepared for your retirement.
That’s a good start. Multiplying that sum by the average after retirement life expectancy will help you resolve the overall minimum amount you’ll need. Any figure more than that, and you’re generally in safe territory.
How Much Should I Save Each Month?
After learning what your goal must be, you must now find out the exact amount of money you should save every month. There are a lot of retirement calculators available online, but one we suggest is MSN Money, which is pretty straightforward. Simply type in variables, such as your present age, aspired retirement age, present-day salary, and the sum you hope to replace once you retire.
For example, let’s say your age is 30, and your desired retirement age is 65. Also, you’re expecting to live at least 25 years following your retirement (age 90). You earn $50K annually and would be satisfied with 80% of your pre-retirement wages. Considering an investment return of 6%—a reasonably conventional rate—and a 3% inflation rate through time, you will have to save $1,437 each month to reach your goal.
This way of calculating will put you on the right track. However, you still have to look into other possible sources of revenue and any liabilities to ensure further that comfortable retirement you’re aiming for.
