How Much Do You Actually Need For Retirement?

Beginning planning for retirement as soon as possible is a smart idea. You’ll inevitably want to retire from the workforce at some point in your life, and you’ll need resources to support your living out your golden years comfortably.

However, you may find yourself asking “How much do I need for retirement?”. That’s a good question and an important one. Many financial planning experts recommend saving 10%-15% of your income each year to go towards retirement, but situations and requirements vary greatly. Let’s dive into some steps to take and things to consider ensuring you plan for your best retirement.

Consider the Future

How much you’ll need to save for retirement depends a lot on your future plans and what expenses you predict you’ll have.

To get a better perspective of this, lay out your expected spending. Begin with your current expenses and determine if you plan on changing any of them, or if you expect something to increase or decrease in cost.

Once you’ve laid out the necessary expenditures, list anything you want to do in retirement. Things like traveling, big purchases, or activities you’d like to spend your time doing should make up this list. Estimate how much you expect these things to cost.

Once you have the information above, you’ll need to multiply it out based on when you plan on retiring and your life expectancy once you do so. Also, include anything you already have saved up. This step will give you a general idea of how much you can expect to need for living during retirement.

Social Security benefits you’ve earned throughout your work history will assist with a monthly stipend; however, it isn’t typically a high number that you’ll receive. It’s better to plan for most of your retirement to not be based on how much you’ll receive in benefits.

Make Cuts

While laying out your future retirement plan, you may find that you won’t be able to reasonably save enough to accommodate your current lifestyle and the things you’d like to do. Running into this is entirely reasonable, and it’s important that you’re looking at things now so you can plan realistically.

Determining if you need to make any changes to your retirement plan can be made easier by using a retirement calculator. Calculators offered on financial websites will use general and broad algorithms to accommodate most people, so you may find it misses the mark in some ways. But this is ok, as the calculators really should be used as a starting point on which to build.

When you’re looking at making cuts in anticipated spending, be sure to consider things that may disappear by the time you retire. Most commonly, these things can be mortgages, car payments, student loans, or other debts.

Save, Save, Save

Financial planners will generally recommend that you save between 70%-90% of your current income to live off, multiplied by how many years you plan to use your savings. That’s a wide gap and can change substantially depending on your current plans and your anticipated needs during retirement.

It’s important to decide what amount you’ll feel comfortable living off during your retirement. Once you have that number, you’ll need to make sure you’re on track to save that much. Because your final number is generally going to be large, even on the most conservative of budgets, it can feel daunting. It’s essential that you utilize all retirement tools available to you to maximize your savings as much as possible. Check in with your employer on any 401k benefits or pensions available. If you don’t have any retirement benefits available through work, you can open an independent retirement account (IRA), which has the advantage of offering certain tax breaks.