Nothing lasts forever, and that includes your years working at a regular job. Eventually, time comes creeping up to you and hands you a figurative gold watch and says “You’re done”. Then begins retirement: no desk job! No responsibilities! No dealing with bosses or co-workers! But also, unfortunately, hey, no money!
If you still have bills, debts, and a mortgage to deal with, then you need to make sure you have money to function with. Not to mention that you’d like to actually be able to enjoy your retirement by going out and doing things, traveling, what have you.
Here are some of the things to take into consideration when figuring out how much you need for retirement. You may also want to use this retirement calculator to help come up with a realistic figure.
What Are Your Debts?
Are you still paying off your house? Do you still have outstanding balances on credit cards? What about a car loan, or a debt consolidation loan? If you have any of these, remember that even though you’re retiring, your responsibilities aren’t. You’re still liable for these things.
Even if you own your house outright, there’s still things like homeowners insurance and property taxes to contend with.
What Are Your Assets?
Have you been saving for retirement? Do you have an IRA or a 401K? For that matter, are you one of the lucky ones that has been at their company for so long that you will get a pension when you retire? These are the kinds of assets that need to be taken into consideration (and if you don’t have them, by the way, it’s not too late to start!). You hear people talking about having a nest egg, well, do you have yours?
Having assets that you can rely on will help mitigate the amount of actual cash you need to put aside in, say, some sort of long-term savings plan. Also, remember that having money deducted from your paycheck and placed in a 401K or IRA will lower your tax bill, because you get taxed after those contributions have been deducted.
Don’t rely on Social Security alone. It won’t realistically cover your expenses.
What Kind of Expenses Will You Incur?
As a retiree, you don’t have to worry about work-related expenses anymore, like gas and wear and tear on your car. You’re also not paying the usual payroll taxes. As for kids, and we all know what expensive propositions they are, you’re free of that responsibility by now (if you’re not, something is very, very wrong).
Even taking into account the fewer expenses, as well as things like senior citizens discounts, you still need to make sure that you have enough money for those expenses like utilities, house-related costs, your car, etc. Speaking of expenses, there’s one that deserves its very own heading.
There’s no delicate way to say this, so let’s shoot from the hip. As you age, your body breaks down. As your body breaks down, it needs medical attention. The older you get, the more you’ll have to rely on modern medicine to ensure a good quality of life. Although there are things like Medicare to help you out, you need to take into consideration the likelihood of needing to supplement that with other money sources.
So How Much DO You Need?
Ask ten different financial institutions, and you’ll get ten different answers. Fidelity Investments, for instance, uses an 8X formula, where they say you should save eight times your ending salary in order to ensure that you won’t run out of money within 25 years of your retirement.
US News’ Money pages cite experts who say you need to save between 75 and 80 percent of your pre-retirement income in order to maintain your standard of living.
Ultimately, there’s no one magic answer. You need to take into consideration assets, liabilities, benefits, and your own unique lifestyle choices and demands. But the one truth that applies to everyone and anyone is that you need to start saving now and get those finances under control, so that those retiring years are a joy, not a trial.