Personal Finance,Retirement,Tips & Tricks

4 Steps To Figure Out How Much You May Need In Retirement

29 Oct , 2015  

Nikhil (Nik) Sreedhar
Follow Me

Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
Follow Me

You might have heard that you need to calculate how much money you will need in order to have a successful retirement. But how do you know what you’ll need?  Does anyone have a crystal ball to look into the future?  It’s actually easier than you might think to be scientific about planning for your retirement.

One of the main things you need to do is keep this personal.  Remember – it’s not your neighbour’s retirement plan – it’s yours.


Step 1: Determine Your Monthly Expenses

Right now, it can be hard to think about how much your expenses will be each month.  There are online tools you can use that will help you estimate your expenses, but it’s also probably easier than you might think, particularly if you plan to stay in your house.  You know how much you spend on utilities each month and you know how often rate increases happen.

Be sure to add in enough to cover your retirement costs like community college tuition or travel costs.  And, though we don’t like to talk about it, you will also need to factor in medical expenses, because let’s face it – medical costs don’t go down as we age.

One tricky part is estimating how much you will end up paying in taxes.  This is where a professional investment advisor can help you.  Also – depending on when you plan on retiring, you could need to set aside a different amount each month.  Retiring older means you can rely more on interest income and investment growth versus retiring younger.


Step 2:  How Much Income Will You Have That Is Fixed?

Fixed incomes from pension plans or government retirement programs will typically have a set amount per month that rises periodically thanks to cost of living adjustments.  This income is virtually certain so you can set that figure aside and focus on the remainder of what you need to save.


Step 3: Fill Out The Income Gap

Now that you know an estimated amount you will need to spend each month, and you know how much is coming in from steady income sources, you can start to focus on filling in that gap.  This is what your investments will need to do.  Remember, you will gain interest income each year, but it can fluctuate based on market conditions, so save more than you think you need to.


Step 4: Keep Mind Of Inflation.

Your income will need to account for inflation.  It’s best to take a long-term average of the last ten years or so to determine how much extra money inflation will take of your retirement income. The other hard part is guessing how old you will live to be. Continue to estimate inflation throughout your entire retirement to be sure you account for everything possible.

Though no one has a perfect way of knowing what the future will bring, or how expensive it will be, there are some very good estimates that can be done to determine how much you will need to save each month now to have the retirement you want later.


, , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *