If you’re not counting down the days until you can retire, you’re surely counting down the dollars. Most people spend the majority of their working lives stacking one dollar atop the next, hoping that their efforts will one day guarantee them a stable future in which they do not have to wake up before 10 a.m.. Yes, retirement is the distant goal of many a worker, but few people know exactly how much money they will need before they can finally punch out of work for the last time.
The reason there is so little information in the way of hard numbers is that there are too many variables for a rigid formula to apply to everyone. Everyone’s needs and lifestyle are different, and often the further you are from your actual retirement, the harder it can be to predict a concrete goal. Spending does typically decrease after retirement, so you should be able to live on approximately the same amount you currently do if not slightly less. You can click on this link to find out more.
However, the unknown is a constant hindrance to extrapolation. Factors such as health and financial commitments made on the road to retirement have a marked effect on the target amount. For instance, you may need much less income to finance your day to day activities after retirement, but a move to a nursing home or an unexpected maintenance expense on your home, property or hobbies could quickly drain your retirement stash and negate your years of careful planning. You could also live for days or decades after you retire, so a definite answer to your question is difficult if not impossible to come by.
Therefore, the amount you need for your retirement is less of a number and more of a formula. Since we have already established that your current salary is enough for you to live on, it should serve as a base for your calculations. Ideally, you should save at least the equivalent of a full year’s salary every three years to keep on track for retirement.
For example, a 30 year old worker earning an average of $50,000/yr with a target retirement age of 65 can save well over $600,000 just in principal using this strategy if he starts right now. This type of gradual process allows room for potential changes in pay rate and employer while still maintaining a workable strategy that will ensure you do not outlive your savings.
A growing concern is the availability of Social Security for distant retirees. While the system initially supplemented the pensions, savings and other income of retired senior citizens, the program is rapidly exhausting its funding and its future is highly uncertain.
While previous generations of retirees could factor Social Security income into their retirement strategy, younger workers will likely not be so lucky and have to fund their retirement without outside assistance, greatly increasing the amount necessary to retire.
Personal choice is another determining factor in the required sum of a viable retirement fund. Some choose to lead quiet, homebound lives after retiring from the working world while some dedicate their golden years to adventure and expensive leisure. Obviously, you will need to save more if you plan on traveling the world after you retire as opposed to spending your retirement years knitting.
Nailing down a definite goal for your retirement savings can be an intimidating prospect. The uncertain and constantly changing nature of life makes peering decades into the future an inexact science at best. However, there are some guidelines and best practices than can help you get at least some idea of how much you will need to retire comfortably.