How Much Money Will I Need For Retirement?
One of the most difficult calculations to make during retirement planning is how much money will be needed after retirement to live comfortably. It is important to have a financial goal to work towards while saving for retirement to ensure that you will have the money you need to maintain your home, pay your bills, and have enough food to eat after your working years are over. The actual amount that will need to be saved will differ from person to person due to variables in their lifestyle, such as the type of home they live in, how many children or grandchildren they have, and whether they like to travel, but each can use the same calculations to arrive at the amount they will need to save.
To Maintain Your Current Quality Of Life
Many experts recommend that to maintain your current quality of life during your retirement years, you will need to have at least 70% of your current annual income available to spend each year. That means that a person making $50,000 per year in income will need to have at least $35,000 per year of retirement to maintain the quality of life that they currently enjoy. If the person lives for 15 years after they decide to retire, they will need to have at least $525,000 available to ensure that their quality of life does not change during their retirement years.
The reason that less than a person’s total annual income will be needed for each retirement year is that people who are retired do not have the work related expenses that individuals that are still working have. Many people that are employed have to pay for transportation back and forth to work, in the form of car payments, gasoline purchases, or fare for the bus or subway. Other employment related expenses that may not be present during retirement include parking fees, the purchase of work clothing, and meal expenses. These expenses often add up to 20%-30% of a person’s annual income, which can be eliminated from the retirement planning calculations.
To Travel, Move, Or Build A Dream Home
If you intend to travel or build your dream home during your retirement years, you will need to sacrifice now to enjoy your free time later. People that intend to do more during retirement than they did during their working years will need to have 100% or more of their current annual income available for spending during retirement. It is important to take an honest accounting of your current expenses and make educated guesses about how these expenses will change during retirement to calculate the amount of money you will need to have on hand to live comfortably during retirement.
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