How much money you will need to save every year to attain your retirement goals all depends on a number of personal factors which include: your life expectancy; desired lifestyle; choice to help your family financially; health care costs; inflation; taxes; and also your average return on investment in your retirement account.
Thus, it’s important to sit down and write-out your individual
retirement goals. Retirement planning could be as simple or complicated as you
make it and working with a financial planner can help this process immensely.
Life Expectancy
Major factor in determining how much you’ll need to retire is how
many years you’ll live off of your retirement income. If you only plan to need
two years’ worth of retirement income, your needs will be much less than somebody
who needs 30 years of retirement income. You should overestimate the number of
years you will need retirement income. You don't want to get into a situation
where you are outliving your retirement income.
Age of Retirement
The age you choose to instigate your retirement influences how
much money you need to save in order to offer your desired retirement income. The
later you retire, the less you have to save every month. This is because your
investments will have more time to escalate before you draw on them. If you
choose to retire later, you can begin selectively liquidating high-performance
equity positions to lock in your profits.
Retirement Income
Most retirees should aim to replace approximately 70% of their
pre-retirement income. If you're making $50,000 per year before retirement,
you'll need at least $35,000 per year in retirement income. But the good news
is that Social Security benefits will assist you towards this goal. Several
online retirement calculators can help you determine how much you need to save
to provide a certain level of income in retirement. Find a link to one in the
Resources section.
Social Security Benefits
Social Security benefits could be a major source of income for you
to influence into your retirement plan; though, you will still need to replace
your income during retirement with other sources. Social Security benefits will
replace approximately 43% of pre-retirement income for a single-filer who makes
$60,000 a year before retirement. The more you earn, the less of your income
Social Security benefits would replace in retirement and vice versa. For
married couples, this Social Security may replace more or less pre-retirement
income, depending on whether both spouses worked beforehand, their earnings,
and whether spousal benefits are available.
Retirement Expenses
The amount of expenses you have in retirement also impacts how
much money you need to save to provide your desired retirement income. While
some expenses should decrease during retirement, others will increase. For
example, most retirees have their home mortgage paid off and no longer have to
eat out for lunch every day at work. Commuting expenses may also be gone.
However, expenses for leisure activities such as golf and travel may increase.
Thus, you need to carefully consider the costs associated with your desired
lifestyle as you estimate how much income you'll need during retirement.
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