How Much Will You Need?

To determine how much you’ll need to retire comfortably, it can be helpful to calculate your monthly expenses, then add more to account for expenses that occur less frequently or irregularly—such as replacing an appliance, buying new tires for your car, and so on. If you’re younger and not yet approaching retirement age, you can use a simple rule of thumb and assume that you’ll likely need about 80% of your pre-retirement income to maintain your current lifestyle. However, consider that this may not hold true for every person. If you want to change your lifestyle during retirement, that may also require you to change your plan. Keep in mind your travel plans and family expenses, and be sure to consider medical expenses, as they are a frequently overlooked aspect of retirement planning for many.

As you get closer to retirement age, it’s helpful to track and record your monthly expenses to get a better idea of what you actually need. Retirement planning is not a once-and-done process. Your progress toward your goals and your plan itself should be reassessed throughout your life, from the time you begin saving right up until you start drawing your first retirement benefits. Any time your financial status changes significantly—for example, if you get a major raise, experience a divorce, have a child, or receive an inheritance—is also a good time to reassess your retirement plan.

Determine Your Sources of Income

Once you have a basic idea of the lifestyle you’d like to have during retirement and you have an approximate estimate of expenses, the next step is to look at all of your potential income streams to make sure you have enough. These include things like distributions from your retirement savings accounts (like 401(k)s or IRAs), pensions, Social Security benefits, annuities, and equity in your home. Though you might think of retirement as a time when you never have to work again, many retirees find it prudent to take on a small part-time job, and some even enjoy the change of pace and the chance to work again.

Another benefit of continuing to work after retirement is that it can help you stretch your money even further—it both reduces the number of years you’ll have to rely on your savings and gives your investments more time to grow before you start making withdrawals. A part-time job may also provide the cushion you need to delay claiming your Social Security benefit for a few years. This can be a good strategy for some people, since your benefit will increase each year you wait to claim it past your full retirement age, up until you reach age 70.

Don’t Forget Your Estate Plan

Estate planning is a separate aspect of retirement planning that is sometimes overlooked, and it typically requires expertise from different types of professionals, like lawyers or accountants. Your estate plan can help prevent those in your family from experiencing any financial hardships after your death and ensures that your assets are distributed in the way you want. This process also generally involves your life insurance plan and some tax planning. For example, if you want to leave certain assets to charity or your family members, there are tax implications involved. A professional experienced in estate planning can help you determine if it would be best to distribute assets as a gift or through the estate process.

It is never too early to start creating a retirement plan. In fact, many experts will tell you the earlier you begin planning, the better. With a plan in place, you can approach your retirement with confidence, not stress and worry, knowing that your needs and those of your family will be met.