Tips on financially preparing for your retirement
How much you need to save for retirement depends on your estimated yearly living expenses once you stop working full-time. Here are tips on how to estimate future financial needs.
- Gather a month’s worth of bills, ATM slips, and credit card receipts. Total the amounts omitting expenses that you don’t anticipate having after retirement such as college tuitions, mortgage payments, credit card debt, disability insurance premiums, etc.
- Multiply your monthly sum by 12 for an annual total.
- Inflation and rising prices affect the value of a dollar so it won’t go as far when you retire. Take your current annual total and see what the equivalent will be in the year you plan to retire. Use an online inflation calculator such as the one on the Bureau of Labor Statistics website.
- Subtract your estimated annual Social Security benefit, any estimated annual pension, and annuity payouts. You can calculate your Social Security benefit at SSA.gov
- You now have an idea of how much income you’ll need in your first year of retirement. The next question is, how many years of this income will be enough? It’s impossible to predict life expectancy but get an idea, use a life expectancy calculator such as the one on the Social Security website at https://www.ssa.gov/planners/lifeexpectancy.html
- Multiply your annual retirement income by the number of years of life expectancy. This will give a rough estimate of how much you’ll need to save by retirement. If it seems high, you’ll have to cut back on your post-retirement living expenses. Of course, during retirement your savings will need to be invested properly so it keeps pace with inflation.
- Your goal should be to save at least the amount you calculated. The ideal plan is to save a sum that when invested conservatively at 5%, will provide you with the needed yearly income that allows you to leave your principal intact and pass as much as possible to heirs.