Calculate retirement
needs
If
you’re like most people, you probably have an idea of how and when
you’d like to retire. Perhaps you envision traveling around the world,
mastering a new skill, or starting a business. Or maybe you want to
volunteer in your community or just relax and read. Of course, both the
age at which you expect to retire and the lifestyle you plan have an
impact on how much you’ll need to live comfortably. For instance,
you’ll need more income if you plan to travel or have expensive hobbies
and less if you plan to work part-time.
To
meet your retirement goals, you first need to figure out how much
you’ll need. The general rule is that you’ll need about 75% to 85% of
your pre-retirement income each year to maintain your standard of
living. For example, if you earn $70,000 per year, you’ll need $52,500
of income in the first year of retirement to replace 75% of your
salary, or $59,500 of income to replace 85% of your salary.
In each of the following years you’ll need more to compensate for the rate of
inflation.
For example, if inflation boosts the cost of living by 3% during the
first year you’re retired, you’ll need $1,785 more the next year, or
$61,285 — based on the 85% guideline — just to stay even.
Another
factor you’ll want to consider is your life expectancy. While you can’t
predict exactly how long you will live, you can make a ballpark
estimate based on family history, your personal health habits, and
actuarial tables, which provide the average number of years of life
remaining for people who have reached a certain age.
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