How Much Money Will You Need to Retire

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How Much Money Will You Need to Retire
October 01, 2008
Tom Servo

Retirement is something most people think about, but have you ever considered how much money you will need to save before you retire? Not saving enough money for retirement could lead to many problems. The sooner you start preparing for retirement, the easier it will be. In this article,
I will explain some simple ways to start calculating how much money you will need for retirement.

The first thing you need to do is evaluate your annual cost of living. How much money do you spend/need per year to living comfortably? Do you, or will you have a mortgage to pay after you retire? Will you be paying for your children to go to college? How often do you travel, and how much do you spend on vacations? How much do you spend a year on groceries, gas, water, electric? You should ask yourself all of these questions, and determine the amounts. Remember, your retirement fund needs to cover all of these necessities and habits.

The next step is to estimate how long you plan on retiring. Most people assume they'll retire by age 65, but maybe you plan on retiring at 55 or 45. Are you a healthy person? Do you plan on living to be 80, 90 or 100 years old? If you plan to retire at 65 and live to be 80, then you will need enough money to cover your annual cost of living for at least 15 years.

By now, you should have a good approximation of how much money you will need for retirement. The next step is to take a look at how much you are currently investing into your retirement fund. Are you saving enough each year to reach your goal? If you're not, it may be time to start thinking about adjusting your retirement plan. Either that, or start looking for a higher paying job.

Another element that should always be carefully considered is inflation. Every year, the cost of living in America increases. The amount of money you spend per year now, might not be the same in another 10, 20, or 30 years. In fact, you should just assume that it definitely will not. I'm not an expert in the subject of economics, but I would suggest doing some research to understand how much inflation may increase by the time you reach retirement.

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