If you’re like most people, you have
an idea of how you’d like to retire — whether you want
to move to a new environment, travel, volunteer your time to a
cause that’s important to you, or simply relax.
To meet those goals, you have to be realistic
about how much money you’ll need and where it will come from.
Start by examining the income you live on now. The general rule
of thumb is that in retirement you’ll need 70% to 80% of
your pre-retirement income — more if you have expensive hobbies
or plan to travel extensively. For example, if you earn $70,000
per year, you'll need $56,000 of income in the first year of retirement
to replace 80% of your salary.
And that’s just the first year. In each
of the following years you’ll need even 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 $1,680 more
the next year, or $57,680 — based on the previous example — just
to stay even.
The inflation bite
If you’re planning on a 20-year retirement, you’ll
need more than double the income in the 20th year than you
do in the first, just to keep pace with inflation.
