4 Questions to Figure Out How Much Money You Need to Retire
That is a hard question, which I can only answer with a lot more questions!
Question 1: Timeline
The first question you need to ask yourself is: when do you want to retire? This will help you figure out how much time you have to get where you want to be.
Question 2: Expenses
Second, what will your living expenses be when you retire? Will you be in a high cost of living area? Do you expect you will have paid off your home already? Or will you have a mortgage or rent payment? Figure out the same for your car. And don’t forget food, utilities, gas and car insurance, along with medical insurance and medical bills.
Question 3: Retirement Goals
Next, what are your retirement goals? What is it that you want to do in retirement? Do you see a life of travel or do you want to stay home? Will you want to do some upgrading to your home or start that business that you always wanted to start? You need to factor in all of these expenses in addition to your normal, day-to-day expenses.
Question 4: Income
Determine what you can expect your Social Security income to be. You can do that by going to the Social Security Administration website and registering with MySocialSecurity. This will allow you access projections from the Social Security Administration.
Also, will you have a pension from a former employer or are you building your own savings in a 401(k) or IRA, or both? This is where your savings should be. If you haven’t started yet, the sooner you start saving the better. Your time is worth more than your money when it comes to retirement savings.
Next Steps for Retirement Planning
This can all be a little (or a lot!) overwhelming. There are experts who can help you run the math on all of this, and they can make projections on the earnings of your savings. This is where time comes into play. The more time you have to save, the harder your money can move you toward your retirement goals.
If it’s within your financial limits, I would recommend a Certified Financial Planner who is Fee Only. They have software that can calculate what you will need in order to get the retirement you want. Certified Financial Planners can be expensive, so shop around and also check with your HR Dept. You might have an employee assistance program that would be discounted.
Linda Jacob is a Certified Financial Planner® and an Accredited Financial Counselor®. Linda began working in the banking industry in high school and put herself through college. After years of growing assets for her clients, her true purpose in life became clear. She was put on earth to help everyone become successful money managers, get out of debt, and reach their financial goals. When Linda isn’t working, she enjoys cooking, golfing, and reading.