1.  The Rule of Thumb Method

 

You need about 80% of your pre-retirement income during retirement.  So, if you are earning $50,000 a year just before you retire, you can estimate that you’ll need around $40,000 of income in retirement.  The idea is that you’ll need less income when you retire because you’ll probably have less expenses. This method assumes you won't have a mortgage, dependents or putting money aside to save for retirement anymore.  While the 80% rule of thumb gives you a quick estimate, it’s usually far from perfect.  Some actually need MORE money in retirement to buy a new house, do extensive traveling, or because they are faced with a medical issues that increases health care expenses.

 

2.  The Detailed Expense Method (Our preferred method)

 

The best way to estimate how much money you’ll need is by looking at your expected income & expenses in retirement.

First, identify your retirement income sources.

 

• What is your estimated Social Security benefit? 

• Will you be receiving a pension?

• How much will you have saved for retirement?

 

Then, think about what your expenses will look like.

 

• Will you still be paying off your mortgage?

• Will you be moving or making any large purchases?

• What is your life expectancy and how long does your money need to last?

• Don't forget the enemies of wealth TAXES & INFLATION

 

Once you've started to formulate and estimate, you will begin to see how much money you’ll need to have to cover these expenses. You may find it’s much less than expected but it's possible it could be even more than expected.  From there you can consider what your projected retirement income will be and see how much of a surplus or deficit you have.

 

What if You Don't Have Enough???

 

If it looks like you haven't saved enough yet, it's time to start planning NOW to begin making changes. It doesn't matter if you're 30 years from retirement or just a few years - taking action now will lead to improvement..

 

The longer your money has to grow, the better off you'll be. Compounding interest is an amazing thing, so don't let time pass you by.

For those who may already be ready to retire, you might find it better to delay retirement or receiving Social Security.  You will be surprised at how much another year or two of work can help your situation. It might not be ideal, but when you factor in the money earned plus potential benefits like health insurance, 401(k), etc., it could be more than worth it.  Contact us now to schedule an appointment to find out what the right path for you is.