Determining how much money you need to retire will require careful scrutiny of your spending habits as well as a bit of number crunching. The most important step you can take to determine how much money you will need to retire is taking the time to come up with a realistic estimate of how much you will spend each year in retirement. (Your retirement age will also have a big impact on how much you'll need.)
Once you have an estimate of your retirement expenses, you can use online retirement income calculators to help you with rest. Whether you use an online calculator or you crunch the numbers by hand, here are the steps you will need to go through to determine how much money you need to retire.
4 Steps To Determine How Much Money You Will Need To Retire:
1. Estimate Your Retirement Expenses
To determine how much money you will need to retire, you must first estimate your retirement expenses; how much you think you will spend each year in retirement, including an estimate of taxes you will pay on retirement income. Here is a guide to help you through this process.
2. Figure Out How Much Retirement Income Will Come From Guaranteed Sources
One of the steps you will need to take to determine how much money you will need to retire is to figure out how much retirement income you will have from guaranteed sources. You will then compare that to your estimated retirement expenses.
3. Calculate The Gap Between How Much Money You Need To Retire And The Amount Provided By Guaranteed Sources
The third step used to determine how much money you will need to retire is calculating the gap between retirement expenses and guaranteed sources of retirement income.
4. Factor In Inflation And Life Expectancy In Your Retirement Analysis
Variables like your rate of return on investments, life expectancy, the affects of inflation, and your willingness to spend principal will all have a big impact on the amount of money you will need to retire. To account for these variables you will want to develop both a best and worst case scenario.