How Much Money Do I Really Need to Retire?

No matter how old you are, retirement planning probably seems like something that you know you should be doing but just can't wrap your head around at this point. However, the question of how much money you will need to retire is certainly one that has occurred to you, even if you have never tried to figure out the answer.

Here is a quick way to estimate what you will need to save in order to retire comfortably: 

Calculate your current living expenses. You will need approximately 65 to 70% of that amount each year during retirement. This could change depending on the lifestyle you hope to have - will you travel extensively? Do you have health problems that may worsen, resulting in rising medical costs? Consider these in your estimation. 

Do you intend to continue working? Even a part-time job as a senior can help you defer some of the costs of retirement. 

Look at your financial picture to determine how much money will come from guaranteed sources such as social security or pensions. As many people have experienced in the current economic situation, "guaranteed" is a relative term. However, this is useful for planning purposes. 

Account for inflation. 

Estimate how long you will be retired. This may require consulting with your physician or a life expectancy calculator. Although it isn't a very fun thing to think about, a realistic estimate will ensure that you have funds to take care of yourself as you age. 

Make a plan. Based on your age and these calculations, you can establish savings targets for each month or year. Keep track of your progress and adjust the plan as necessary. 

Rule of Fifteen. Sound like too much to handle? Not to worry. If you are a young investor, the general rule of thumb is that you should be aiming to save 15% of your income each year. That amount does not have to come exclusively from your post-tax dollars, but can be a combination of your contributions to a 401(k) along with those of your employers and other savings accounts.

If you follow these suggestions consistently, and get good advice from a financial consultant, this gives you the best chance to ensure that you are not overlooking any major factors in your plan and that you are on the right track to enjoyable retirement years.