With Social Security funds dwindling and the cost of living rising throughout many parts of the country, the idea of retiring while retaining a decent lifestyle might seem just plain impossible to some. Fortunately, with proper planning and investing, you can set yourself up for the comfortable retirement that you’ve always dreamed of having. The question is: How much money will you actually need for retirement?
Jim Barker of Barker Insurance Services is a personal financial representative who specializes in helping clients plan for and meet their retirement goals. Barker’s clients often ask him that question, and one to which he simply cannot offer a single, all-encompassing answer. The reality is that there is no set formula for how much money you’ll need for retirement. People looking to retire are bound to have varying expenses and different sets of needs. Some financial experts suggest having 60% to 90% of your pre-retirement income available on a yearly basis during retirement, but these figures greatly depend on individual circumstances. While it can be difficult to determine exactly what your retirement expenses are going to be, Barkers suggests that you ask yourself the following questions to help come up with some numbers:
Where do I want to live?
When you imagine yourself as retired, where do you see yourself living? Will you hang on to that four-bedroom house with an acre of land, or will you downsize and purchase a more modest condo? Will you reside in a place where the cost of living is high, or will you relocate to someplace more affordable? Since housing tends to be a person’s single greatest expense, answers to these questions will help establish how much money you’ll need once you’re no longer working.
Will I have any debt?
A good way to develop a retirement budget is to imagine your situation from a debt-related perspective. Do you see yourself still having a mortgage once you’re retired, or will you probably own your home in full? Will you still be making payments on items such as automobiles and furniture, or do you expect to have those things paid off by then? By analyzing the ins and outs of your monthly expenses, you’ll get a better idea as to how much income you’ll need to pay your bills accordingly.
Will I still be supporting my children?
These days, more and more people are waiting until their thirties and forties to have children. What this means is that many parents are finding themselves in the position of making college tuition payments well into their sixties. When you think about how much money you’ll need for retirement, it’s important to take your entire family into consideration. You might end up having to support your children in ways other than simply paying tuition. Remember, not all college graduates get jobs as soon as they get their diplomas. Plenty of recent college grads have started moving back home to save money and ride out the poor economy; and while such a trend might correlate to the current state of the country’s financial affairs, who’s to say that another economic crisis won’t hit just as you’re gearing up to retire?
What kind of lifestyle do I want to have?
When you picture yourself during retirement, how do you see yourself spending your days? Are you babysitting the grandchildren, joining a bridge club, and occasionally hitting the golf course? Or are you traveling the world, expanding your fine wine collection, and spending lots of time at the theater? While you don’t necessarily have to fall under either extreme, these are questions that you do need to ask yourself in order to come up with some figures that will enable you to make the most out of your retirement years.
Of course, no matter how much number crunching you do, you probably won’t be able to truly determine the cost of retirement until you actually find yourself in the situation. Therefore, your best bet might be to simply save as much money as you can for the future without depriving yourself too much during the present. It might sound overwhelming or too good to be true, but with the proper planning and the right amount of savings, you can eventually make your retirement dreams a reality.
