Money is an essential component of retirement planning. You may find yourself asking “how much money do I need to retire?” The answer might seem simple, but it’s very complex.
With that in mind, let’s look at some factors in deciding how much money is needed for your retirement planning.
You will want to consider the costs related to maintaining your home and your lifestyle in your retirement years. This includes housing, transportation, food, healthcare, entertainment and incidentals such as insurance coverage as well as personal care items and those little every day purchases you make.
You will want to take into consideration inflation as well as your life expectancy in your planning and retirement goals. For example, are you planning to retire and live modestly? Are you planning to retire and live extravagantly in your hobbies and travels?
You don’t have to feel overwhelmed in this listing of all these items. Instead, use it as a basis in your retirement planning and what you need for funds in retirement. How do you even start beyond this list?
You use a budget right? If not, you need to work on one now. It can be complex or simple, but the goal is to know what you spend currently in every aspect of your life. This budget then becomes the groundwork for what your future retirement budget may look like. Don’t forget that some bills may be annual or quarterly, so make sure you take these into account.
Your budget should be like a living document that is continually tweaked and changed as your own needs and expenses change. Consider for retirement the costs that will decrease as well, such as student loans or mortgages.
You will also want to consider what increased expenses you will have in retirement. This can include hobbies you want to explore; travels and adventures you want to take; items you will want to check off your bucket list. Furthermore, don’t forget about increased healthcare costs and needs in retirement. This can include long-term healthcare in home or in assisted living facilities. While these are topics and decisions that aren’t always pleasant to discuss, they are important conversations to have, especially with any of your adult children.
Know that your retirement planning for the future can be adapted. Your financial projects today won’t be the same as what you project next year. Keep your documents and plans updated, especially as time passes, life and dreams change and even bucket items are crossed off.
Research what you expect for income through your personal retirement plans, pensions and Social Security benefits. Online retirement calculators, such as the one provided by AARP, are great resources for calculating your needs. Just remember to give yourself wiggle room and expect to review the retirement calculator as you near retirement and even in your retirement years as your needs change.