How much money do you need to retire? Most financial experts agree that people need an average of 50 percent to 70 percent of their pre-retirement monthly income in their retirement years to retain their lifestyle. Income from Social Security usually makes up about 20 percent. Some financially savvy individuals shoot for the higher percentage due to the increased health care costs of aging individuals. Increasingly financial planners are suggesting that people target over 70% to account for those costs.
Exactly how much is needed is dependent upon an individual’s goal for his/her retirement years. Many people work part-time jobs or dabble in a home business or hobby to make extra money. Others like to travel or spend their time in leisure activities. When picturing your financial future, determine your wants and needs. Make a list. Once the list is completed, make another one. The second list should outline your assets, savings and investments already on hand.
Planning for retirement is essential. Starting early helps to take the edge off. A saving and investment strategy can make the retirement years much more enjoyable and hassle free.
Because of the uncertainty of Social Security, it may be practical not to count on it as a major source of your retirement income. Use it, instead, as a supplement. Depending on your age when you start planning, there are several factors to consider including some of the following:
How much equity do you have in your house or plan to have by the time retirement comes around? Borrowing against the equity can stave off financial emergencies. Taking too many loans, though, will deplete the equity and there won’t be any for retirement.
Depending on what you are planning for retirment, it’s also possible to sell a house and use the equity to purchase a smaller one, a condo or go into an apartment and put the money into an investment account to draw from.
How much money is there currently in a savings account? Some financial planners suggest that a good base for a future retirement nest egg is to have one year of your working salary in the bank or some other form of investment account such as an IRA, Mutual Fund or Certificate of Deposit, etc.
What do you anticipate your health care costs to be? If you invest in a long-term care account when you’re 40, it’s possible to have over $200,000 in that account by the time retirment kicks in. They are not inexpensive policies. One quote was for about $900 per year. However, they pay for in-home care, nursing home and the like.
Using these questions and others that specifically pertain to your life, determine a dollar amount that will cover you needs and wants. With that figure, factor in the number of years until you plan to retire from your primary occupation. You will have those years to save.
Here is one way to look at retirement when determining how much you will need and how long you will be required to save. If you need $700,00 in your nest egg, you will need to save approximately $28,372 per year, earning six percent per year, if retirement is in fifteen years. That gives you something to aim for.
Even if you do not already have a significant amount of cash on hand, use what you have as a base. If you haven’t even begun to save and retirement isn’t very far off, invest in slightly more aggressive investment opportunities. Of course, there is more risk. If you deposit $10,000 into a Mutual Fund and earn an average of 12 percent per you, you can expect approximately $20,000 to be in that account at the end of six years.
Seek the advice of a professional to help you in your planning if you need to. When consulting a professional, however, keep in mind that some will steer you into investments that put higher commissions in their pockets. Trust the person you’re working with to do what is best for you.
Also, if you’re financially knowledgeable, you can get tips and advice on the Internet. There a various websites that offer tools that can be used to help you calculate your financial needs for retirement.
