Retirement is something that many people are excited about. After years of working hard, you will reach a point in your life that you will want to stop working to live comfortably while on retirement. Your vision of your retirement life may be different from your colleagues. And the amount of money you will need to live a substantial life during your retirement years may be more or less than others. Whatever you plan, you need to estimate how much money you will need to spend each month during retirement.
You can start by calculating the basics. Assess your current living conditions and calculate how much you will need to spend each month in payings, buying groceries, and other necessities. This is the most essential step you need to take once you approach your retirement years.
If you have plans of traveling or investing in a property, you will need to save more money. Your retirement age should be considered because it will determine the amount of money you will need. If you wish to retire early, you need to start saving in your late 20s instead of working for much longer.
To find out how much you will need for retirement, follow these four steps to help you come up with your own estimate.
- Calculate your yearly expenses
The first thing that you need to do is to calculate how much you will spend each year in retirement including the loans from your legal moneylender as well as the taxes you will pay on retirement income. Look into how much you spend each month on different things such as food, clothing or utility bills. Multiply your estimated monthly expenses by 12 to get the base annual amount. Spend time to take note of your rough estimates for each category of expenses. Make room for allowances that may occur such as car registration or insurance payments and also consider repair and medical expenses
- Add your income acquired from guaranteed income
Guaranteed income means benefits from Social Security and pensions. The number of benefits under Social Security may vary according to your income during your working years. If you see these as a stable source of income you can include it in your yearly savings fund. This could work to your advantage when you have a guaranteed source of income because you won’t have to spend more of your savings to cover for your daily expenses. Most likely, when you run the numbers, your guaranteed income from Social Security and pension may not be enough to give you a comfortable retirement life. So you must really build your retirement funds by focusing on investing your money.
- Know how much is the gap between your income and expenses
In this step, you need to compare your income versus your estimated expenses during retirement and fill the gap. For example, you have a $30,000 of estimated yearly retirement income from Social Security and pension, and your expenses are calculated as $35,000 then your gap is $5,000 – you will need to withdraw this amount from your savings or investments each year.
- Expect the worst-case scenario
When planning for early retirement, anything can happen such as inflation. Inflation is when prices of commodities increase over time. Your income from Social Security and pension may not be adequate to cover your living expenses. You may have to withdraw money from your retirement savings. A great way to adapt to these kinds of changes is to diversify your retirement savings by investing in stocks or real estate. It is best to consult with a financial advisor to come up with strategies on how to protect yourself from inflation.
In order to determine how much money you need to retire is less than half the battle. If you really want to live a comfortable retirement lifestyle, you need to earn more money.
Here are some of the best strategies we can suggest:
- Establish multiple income streams so you don’t have to rely on only one source of revenue
- Start your own business. You can start by opening a business related to your passion.
- Go freelancing. You can increase your cash flow by doing some freelance work such as content writing, web designing, or graphic design.
Just in case you think that you haven’t saved enough just think of this approach: cut down on spending, increase your earnings.
Always have a backup plan to fail-proof your future. Be willing to adjust some things on your life to achieve your retirement goals.