How Much Money Will I Need for Retirement?

If the question, "How Much Money Will I Need for Retirement?" confuses you as much as the "fickle fuddled words" in the song, "The Space Between" by the Dave Matthews Band, then it's time to sit down and do the math.

Life Expectancy

While none of us knows how long we will live and what the real cost of living will be when we finally retire, there are some approximation methods we can use to come up with ballpark figures. You will need to figure out your life expectancy, which you can do with a life expectancy calculator. To be on the safe side, plan to live until the ripe age 90.

Lifestyle: Now and Later

One way to figure out how much money you will need for retirement is to consider the lifestyle you lead now and the one you want to lead during retirement. We all want to be comfortable, without having to worry about basic expenses. Consider that you will need at least 80 percent of your current income during retirement.

Retirement Income

Where will your retirement income come from? Calculate how much money you will receive from any pension funds, retirement plans or investments. Also include your your expected Social Security Benefits. Be sure to include any current savings and your expected return on investment.

Debt and Retirement

What types of debt will you have after you retire? Ideally, you should go into retirement with no debt. Start planning accordingly by paying down your high interest debt first (including credit cards) now.

Retirement Calculators

You can use these online calculators:
Finance Retirement Calculator
When Should I Begin Saving For Retirement?
What Is My Projected Net Worth?
How Does Inflation Impact My Retirement Income Needs?

Retirement Savings Examples

A 25-year-old making $30,000 a year who expects to retire at the age of 65 and expects to live until the age of 80 should plan to have $1.2 million at retirement (the equivalent of $347,136 today).

A 45-year-old making $60,000 a year who expects to retire at the age of 65 and expects to live until the age of 80 should plan to have $1.3 million at retirement (the equivalent of $706,889 today).

Set Yourself Up for Retirement

The best ways to prepare yourself now for your retirement are easier to understand than they may be to implement:

• pay down your high-interest debt
• spend less money now
• save more money now
• consider a more aggressive investment strategy if retirement is more than 30 years away

Sources

Life Expectancy Calculator, Social Security Administration, http://www.ssa.gov/OACT/population/longevity.html
Social Security Retirement Estimator, http://www.ssa.gov/estimator
Yahoo Finance Calculators, http://finance.yahoo.com/calculator/retirement/ret-02