Retirement planning is not something most people look forward to, but it is a necessary fact of life. If you don’t want to work during your retirement years, you need to determine how much money you need to save for retirement, and that takes careful planning.
Here’s some tips to help you plan and save money for retirement:
Tip 1: Figure out how much money you need to spend. To estimate your retirement expenses yourself, begin with a baseline which is your current monthly income, then deduct expenses that you currently have that will disappear after retirement. For examples, payments toward your home if the home will be paid off by retirement or the amount you pay toward your 401(k).
Tip 2: Consider changes in your lifestyle. If you are going to travel, then some expenses might increase. However, you might also decide you need to spend less on commuting, clothing, and groceries. Plan these costs and savings accordingly.
Tip 3: Calculate your annual income gap. Determine how much income you will receive from your current retirement savings, including Social Security, your pension and any retirement accounts you already have. Compare that monthly income with your estimated monthly expenses. Multiply that number by 12 to get your yearly income gap.
Tip 4: Calculate how much you will need to save. Assume you will want to withdraw 4 percent from your retirement savings per year. Multiply your annual income gap by 25 to estimate 25 years of living past retirement. This will tell you how much more you need to save using your 401(k) or IRA between now and retirement in order to have enough.
By following these tips and determining how much money you need to save for retirement, you’ll be able to set your goals, plan and make adjustments when necessary, and not worry about the future.