Figure out how to calculate the amount you’ll have saved for when you retire and what you need to be comfortable.
We all want to retire with a comfortable amount of money, but how much is comfortable for the lifestyle we live?
Experts say you should save at least 1 to 2 million dollars in order to live a comfortable life after retirement. But is that amount realistic? You definitely don’t need millions, I can tell you that.
By age 65, most people retire with about $164k. That’s a big difference from a million dollars, so is that number too low or is 1 million too high? Well, you have to understand that everyone’s lifestyle varies and people may not spend as much as others or have bills like others. If you want to find out how much is enough to be comfortable for you at retirement, there are several things you need to know to calculate that amount.
Use this link from Bankrate to calculate it: https://www.bankrate.com/retirement/retirement-plan-calculator/
Here is a list of important information to get an estimate on that comfortable retirement money:
Current age and age of retirement
This information will determine how long you will have until retirement and how long you have to work on your savings. The average age that people retire is around 65 years, but you can decide when you want to retire or what’s most realistic.
Annual household income
This doesn’t have to just be how much you’re bringing to the table. Maybe you have a spouse or partner you expect to be with for the rest of your life, or maybe family members you plan to live with, you can add the amount to the income. If you are unsure of the longevity of their stay or contribution, you can just stick with your income to be more realistic.
Annual & current retirement savings
It’s okay if you don’t have any current savings, but if you want to get started at building a retirement fund, it’s best to start now with what you can. For the annual retirement savings, you’re going to take the percentage of what you make that you plan on saving every year. If you want a realistic number, you probably should be conservative with the percentage.
Expected income increase
If you have an idea of what your income will raise by the time of retirement, you can see what your outcome can look like with that guesstimate. If you’re not really sure if your income will increase at all, the safe bet is to keep the percentage at 0%.
Income required at retirement
This is indicating how much of your income you spend now and if you’ll be spending the same amount at retirement.
Years of retirement income
This essentially means the duration of time from when you retire to when you die. The average life expectancy in the US is around 80 years old, so you can use that or you can look in your family history to have a good guess at how long you might live.
Rate of return before and during retirement
If you have investments or social security, this is how much money average you are getting back from it. It could be better to lower the expected amount during retirement because you may not want to risk a lot during that time and have access to more money.
Expected rate of inflation
This is hard to predict, but this will be the rate of inflation when you retire. Currently, the rate is around 7.5%, but there’s a good chance that it can go back to around 3%. If you want to stay conservative, you can always raise the percentage or plug in different numbers to see the possibilities.
When you enter all of this information into the calculator, it will estimate how much you’ll have at retirement and then how much you will have at the end of your retirement, which means life expectancy or ultimately how much you’ll have left after you die. Obviously the number can always change because life is naturally unpredictable and your income/savings circumstances can change.
You can always go back to use the calculator and put the current information to stay up to date with your predicted outcome. You can also try to plan ahead by playing around with the numbers to see what you need to do to get your desired amount for retirement. You can watch this video to get visual guidance on how to use the calculator, or if you have any more questions, I’m more than happy to help you find the answers!