Many of us look forward to retirement. However, as with all things in life, retirement requires money. This means that you need to determine how much money will be required to live your desired lifestyle. As you do your best to figure out how much you need, here are some hints for getting a reasonable idea of what to expect:
What Does Retirement Mean to You?
The first step is deciding what retirement means to you. The “traditional” definition of retirement involves working until you are somewhere between 55 and 65 years old and then quitting to live off money amassed in your nest egg.
For many, though, retirement means something else. It might mean starting a side business and building it so you can leave the rat race at age 40. Perhaps it means building passive income streams so that you can become a digital nomad, traveling the world. And maybe it means quitting your job at 50 and traveling around to visit your grandkids while you live off your nest egg.
Everyone is different, and you need to figure out your own definition of retirement before you start turning to online resources that can help you with the next steps in your retirement journey.
Estimate Your Retirement Expenses
Once you know what you expect to do in retirement, it’s time to estimate your retirement expenses. I like to start by looking at my current expenses. This gives me a rough idea of what to expect in retirement, since the reality is that my expenses will not decrease (the old rule of thumb states that you can live off 75 percent of your current income in retirement); they will just be different.
List out your necessities, and then list out your wants. If you plan to travel a lot, that’s going to be a big expense added to your retirement costs, if you aren’t careful. This is a good time to plan out how you’ll make it happen. Travel costs can be significantly reduced if you make a “home base” for a month or more, and choose your destinations carefully. From food to utilities to housing to hobbies, estimate what it will cost you to live during retirement.
You can also attempt to figure out likely health care costs and the impact inflation is will have on your expenses. These are costs that many people leave out when performing calculations, but they can cut in to your quality of life when they aren’t accounted for.
It seems like a lot to figure out, but it makes sense to sit down and do it. Most Americans haven’t taken the time to perform a retirement needs calculation, and that can put them behind, since they might not be saving enough. There are plenty of online resources and retirement planning apps that can aid you in this process, and if all else fails, a fee-only financial planner that specializes in retirement planning can help you with a one-time assessment that can put you on the right path.
If you haven’t determined your retirement needs yet, there is no better time than now.