How To Start Thinking About Saving Up For Retirement
Everybody will eventually want to retire from work and enjoy a healthy, financially stable retirement. The question “How much money do I need for retirement?” is nothing to be afraid of. Start thinking about it now and you will be a great position to retire with grace and dignity.
Factors To Determine Your Financial Retirement Needs
When asking yourself “How much money do I need for retirement,” there are several factors that can help you find the answer. Let’s look at a few of the most important things to keep in mind.
1. Monthly Expenses
The amount of money that you spend each month is the most basic factor in figuring out how to retire comfortably. This amount varies quite a bit from person to person.
Here are a few things to consider in your assessment of monthly expenses:
- Food Costs
- Transportation Costs
- Entertainment Costs
2. Charitable Causes
Some people regularly donate to charity and may want to continue to do so in retirement. This may not be a steady monthly bill, but could be calculated on a year-to-year basis. For example, some people donate a percentage of their income to their religious institution. Even if not actively working a job and generating new income, some amount of money could be factored into retirement costs to continue these contributions.
3. One Time Expenses
Just because you are retired doesn’t mean you stop having fun! Large one-time expenses such as vacations, new gadgets, or other sporadic expenditures should be factored into your plans. A good way to do this is to look at the last few years of your life and calculate all of the big one-time expenses. Averaging these costs over a three year period can give you an idea of what to expect in the future.
Thinking About The Scope of Your Retirement
Not all retirements are equal. Some people want to retire as early as possible, and may save money aggressively in the hopes of retiring in their late fifties or early sixties. Others hope to work well into old age and may not truly retire until they are well into their eighties.
Having an idea of what age you want to retire is a key element in determining how much money you will need for retirement. The average life expectancy for Americans today is in the mid-seventies, and it is not uncommon for people to live well into their nineties thanks to advances in medical technology.
To really start setting goals for retirement you should first think about what age you will retire at. Whatever that number is, figure out how many years you’ll be retired if you live until ninety, or even until 100. You should aim to have enough money put aside to live comfortably for that many years.
This article outlines a few ways to start thinking about your financial needs for retirement. There are some other things to think about:
- Inflation rates
- How investing affects your retirement plans
- How your tax situation changes when you are retired
By thinking about your retirement finances a few decades before retiring, you are setting yourself up for a successful and relaxed retirement. A little bit of time and effort now will go a long way in ensuring your continued happiness down the road.