How To Calculate Retirement Needs

Businessman sitting and making a financial plan

Financial planners recommend that you start saving for retirement as soon as possible. The problem is knowing how much money you should have when you decide to retire. While there are no solid answers that apply to everyone, there are ways of calculating your personal retirement needs.

Should you settle down or move around?

The first step in figuring out how much money you might need when you retire is to choose a location for your golden years. You could spend your retirement driving around the country and living in a cozy vehicle, or you could just stay at home. If you like lots of company, you might move to a managed retirement community; or, if you are feeling adventurous, you could move to an entirely different corner of the world. Whichever setting you choose, you need to estimate the average monthly cost of rent, property tax, membership fees, gasoline and whatever it is that you need to pay to have a place to live. Multiply the yearly cost of living space by the number of years in between your retirement age and the average life expectancy for your gender. Add a bit more for some wiggle room, and you have a key part of your retirement needs figured out.

When choosing retirement locations, remember to add in two important elements: your family and your required medical care. The ideal place for you is probably within a reasonable traveling distance of both places.

Quality of life

After deciding where you want to live, the rest of your retirement budget is usually easier to figure out; however, you must decide how you want to spend your money on a daily basis. For example, if you like to eat out, account for that cost. When you know how you want to live during your retirement, you should have a good idea of how much money you may need for living expenses.

Although calculating your retirement needs seems daunting, it boils down to a few simple factors. Your retirement needs are the total sum of the amount needed to pay for your housing, living expenses and medical costs, plus a certain amount of discretionary funds. This means that your personal needs depend on your own choices about how you want to live during retirement. In the end, the decisions rest with you.

You must decide how you want to spend your money on a daily basis