Retirement Planning

 

How much do you need to save for retirement?

One of the hardest parts about preparing for retirement is thinking about life as a 70-something. A lot of people get so overwhelmed about saving for an unknown future, that they end up not saving anything at all. Thankfully, planning for retirement is not overly onerous, but you will need a road map — one that can evolve overtime — to keep you on track.

The first place to start is to think about what your life might look like in retirement. Sit down with a pen and paper and write down your retirement goals.

Then think about how much everything will cost. We don’t know what prices will be like in the future, and in recent years inflation has run below the Fed’s benchmark of 2%, but the average inflation rate in the U.S. over the past century (1913-2013) was 3.22%. So plan for higher prices in the decades ahead. You’ll also want to factor in your day-to-day expenses, like housing costs, food, and health care. Remember, some of the costly expenses you have now, such as a mortgage or childcare costs, will no longer exist, which could result in a decrease in your overall expenses as you near retirement.

Next, add up all the income you might receive in your post-working years. Factor in pension income if you have one, social security payments, and any other dollars, such as rental income from a property, that may come your way. Match up revenue and expenses and you’ll get a good idea of what you’ll need to set aside for every year of your retirement.

Here are some things you should factor into your calculations:

●      Housing costs, including rent or a mortgage, heating, water, and maintenance

●      Health-care costs (Fidelity estimates that the average couple will need $295,000 in today’s dollars for medical expenses in retirement, excluding long-term care.)

●      Day-to-day living, such as food, clothing, transportation

●      Entertainment, including restaurants, movies, plays

●      Travel, including flights, hotels, gas if driving

●      Possible life insurance

What’s the magic number to hit for a golden retirement?

Over the years, finance experts have said that people need to save $1 million — that’s recently climbed to $2 million as the cost of living and age demographics have changed. Some advise that you need to save 80% to 90% of your annual pre-retirement income, or that you need to save 12 times your pre-retirement salary. Those numbers and formulas can be a guide, but they’re not gospel — everyone’s situation will be different.