How much you will need for retirement will depend upon, among other things, what kind of lifestyle you want to have when you retire. Do you plan to travel the world? If so, you may need more savings than anticipated. Do you already have a substantial nest egg saved for retirement? Or do you have very little currently saved for retirement? If the latter is the case, you may need to increase your savings rate and save more money now for retirement. Here are some tips on how to calculate how much you will need for retirement.
Determine how much money you will need to retire. A good rule of thumb is that you will need about 60 to 80 percent of your later working years' income. There are a lot of assumptions included in this figure such as your house being paid off and social security providing the income amount expected.
Estimate extra expenses that you will need upon retiring. Do you plan on traveling extensively? Do you or your spouse have an illness that is progressive?
Take into account inflation. History suggests around a 3 percent inflation rate, so make sure you factor that in your calculations.
Decide where you are going to live when you retire. If you are going to retire in a city with a higher cost of living, you will need more income for retirement.
Consider all of your sources. This includes your 401K, Roth IRAs, savings accounts, mutual funds, assets such as your home, company pension plans, inheritance and social security benefits.
Calculate your age that you want to retire. If you retire at an earlier age, you will need to supplement your social security, pension and 401K income.
- If you haven't started saving for retirement yet, it is not too late. A good rule of thumb is to save 15 percent of your income for retirement.
- Don't rely on the benefits from social security.
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