“Work all you can while you are young and have a nice retirement”. This statement may have been engrained in our minds from a young age. In taking this statement seriously, many of us have already begun a retirement financial plan, but how much do you have to save? There are three main areas to consider before planning your retirement date.
1) Your Current Situation
When beginning to plan for retirement and determining how much you will need to retire comfortably, consideration of your current situation plays a key role in your future. The two main determinants of your situation are your age and your current income.
The average age of retirement is 65, but many opt for retirement at 55. There is no preset age for retirement – these are just averages, as you can retire at any age you choose that is right for you. Your current income, if you have been planning for retirement, is what is left over after money has been placed into your retirement savings. This is what you are able to live on. You can use this total as a guide as how much you need for retirement.
2) Your Individual Goals
This is where you design a retirement plan. Several questions should be considered, one being if you can live on what you currently make, or if you can live on less. Defining your expenses and paying off lingering debt, including a mortgage, can mean more money in your pocket for retirement.
After planning what amount of money you need to live on yearly in relation to your expenses and lifestyle, it is wise to also consider inflation into your retirement financial plan. The average rate of inflation per year can be estimated at three percent.
3) Your Life’s Projections
In planning how much money should be placed on the side for retirement, your life expectancy should be taken into consideration for calculation purposes. The average life expectancy is age 90. Using this figure gives you an idea of how many years you need money for. For example, if you need $25,000 per year in retirement to live comfortably, and retire at age 65, you need $625,000 (90-65=25 x 25,000).
Other projections that play an essential role in how much money you need include social security, pensions, and other retirement plans. If you take into consideration social security, collecting at age 62 will deliver 75 percent of your benefits, with the most being at age 70 with 132 percent. In any retirement plan, the decision on how much to put away is based on the age you want to retire at. Putting away six percent of your earnings is conservative with 10 percent of your earnings being considered aggressive.
The key to retiring comfortably and being financially stable is in the planning. You are never too young or too old to start planning for retirement. Retirement is a nice time to enjoy life and take in the peace that life has to offer. Whether you want to travel or just simply relax without having to be anywhere at any particular time, retirement is made easier with planning.
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