Knowing how much money you should put away for retirement can be tough. A lot of people worry that they’re not putting away enough or that they are trying to save too much and leaving themselves out of pocket in the short-term. Being able to accurately estimate your living expenses in retirement is the key to solving this problem.
Once you know how much you need, you have a clear target to aim for and then retirement planning becomes so much easier. If you haven’t done this yet, here’s how to estimate your expenses.
Where Will You Live?
This is the first question to ask because your housing costs are one of your biggest expenses. For a while, you will continue living in your own home and hopefully, the mortgage will be paid off by the time you retire, so you don’t need to worry as much.
However, as you get older and you require more assistance, you need to decide what you are going to do. You could move into a retirement living facility like the The Glen Retirement System where you will have access to amenities and help if you need it. Alternatively, you might decide to stay in your own home and pay for in-home care as and when you need it. Some people also decide that they’re going to downsize their home and live somewhere else when they retire.
Whatever you decide to do, you should start thinking about it now so you can calculate your housing costs.
Do You Want to Travel?
Many people want to travel when they retire, so this needs to be factored into your budget too. Depending on where you would like to go and how often you want to travel, you might need to add another $500 per month to your budget, which is a significant increase.
What Taxes and Fees Will You Owe?
When making your calculations about how much you need to save, it’s important to consider the fees you will pay and any taxes owed on your retirement fund. If you don’t take these into account, you could drastically miscalculate and find yourself in a very tough position.
What Are Your Medical Costs?
You won’t have insurance from your employer once you retire, so you need to factor in medical costs too. Unfortunately, this is very difficult because you cannot predict what medical issues you might face. So, think about what your average medical costs are right now, and then assume that they will increase as you get older, then budget accordingly.
Once you have all of these figures, you will have an idea of what your monthly expenses will be. You can then factor in any income sources you expect to have. Finally, give a rough estimate of how long you expect to live in retirement and you can get a general idea of how much you should be aiming to save.
However, keep in mind that these are only estimations and unexpected expenses will always arise. So, go above and beyond your estimate when setting a savings goal.