If you ask someone how much money they’ll need during retirement, you may receive a variety of answers. Some people say they don’t know, some say they need $1 million dollars. While others say I’ll retire when I die, so it doesn’t matter. Retirement planning isn’t easy, but here are some questions to help you start thinking.
1) Start with some basic goals. When do you want to retire? If you’re not sure, that’s OK. Even if you have your sights set on an age, there’s a good chance you’ll change it in the future. Just pick a date for now to begin calculating whether you’ll have enough money.
2) Second, what will be different about your life when you retire? Some expenses will either decrease or disappear, while others may increase. Will you travel more? How will your health insurance costs change? Many work expenses, like uniforms or auto-related expenses will change. Those expenses may appear easy to calculate. Other expenses are not, but this is a good place to start.
3) Write it down. This isn’t an exercise that you should try to do in your head. Financial advisors or or financial planning software can help you calculate how much you’ll need to save by your retirement date to retire. Be sure to analyze different sources of income such as pensions or Social Security. Soon you’ll have an idea if you’re ahead of the game for retirement or not.
After these three steps, you’ll be on your way to determining how much money you’ll need during retirement. This exercise may not be fun, but it is worth it. If you aren’t on track to have enough money when you retire, it is better to find out sooner, rather than later.