Calculating Your Retirement Nest Egg
Saving for retirement can help to ensure you have enough for your basic living expenses as well as any extras you desire. Knowing how much to stockpile may seem confusing, but it doesn’t have to be.
Current Expenditures
You can estimate your current yearly costs by calculating your monthly expenses and multiplying by twelve. For a more in-depth calculation, review your previous year’s tax return. Look at your after-tax income and subtract all funds you put into savings or gave to charity. This will give you a rough estimate of your current yearly expenses. In future years, your spending will rise with inflation, but your income should keep pace.
Non-Retirement Expenses
Next, calculate expenses you will not have in your retirement years. Many retirees no longer have a mortgage if their home is paid off or if they move to a smaller dwelling. You also will not need funds for your children’s care if you expect them to have be living independently by that time. In addition, consider any work-related expenses such as daily transportation and work clothing.
Retirement Expenses
During your later years you may see a rise in some expenses. Perhaps you wish to spend time traveling. Your medical expenses may also increase with age. Also, take into account if you intend to help your children with expenses even after they have reached adulthood.
Your Estimate
With your estimated expenses, you can calculate how much you will need for each year of retirement. Subtract your non-retirement expenses from your current costs and then add your projected additional expenses.
So, how many years should you save for? The current life expectancy is 77.9 years. You may, however, want to save with an expectation of 90 as more people are living into their 90s. Subtract your planned retirement age from 90 and multiply your yearly savings figure by that number of years. This should be your retirement savings goal. Use this figure to regulate how much you are saving each year in your retirement accounts.
Tags: Estate Planning, financial planning, retirement planning
