Figuring out exactly how much to save for retirement is quite a challenge. After all, you’re saving for something that won’t happen for years or decades. How can you possibly know how much money you’ll need that far in the future? Without a crystal ball, you can’t get an exact number — but you be sure you’re in the ballpark.
Think through your dreams
Everyone has a different idea of the ideal retirement. While you can’t know exactly how you’ll spend your golden years, you can narrow the field a bit. Think about the kind of activities you’d most enjoy during retirement. Do you want to stay in your family home, or do you want to move to a villa in Tuscany? Will you travel everywhere from Antwerp to Zimbabwe, or mostly stay near home? Would you rather live the high life with lots of restaurants, plays, and fancy parties, or live simply and spend quiet time with loved ones? If you have a general idea of what you be doing during your retirement years, you’ll also be able to get a sense of how much money you’ll need to fund those activities.
Do the math
If your planned retirement will involve free-to-cheap activities and a low-cost housing situation, you can probably live comfortably on 70% to 80% of your current income. Most of your expenses will decrease in retirement, with the likely exception of medical expenses. If you plan to indulge in all the activities you don’t have the time or money for now, budget for at least 100% of your current income (if not more). Adding up your probable retirement expenses can help you come up with a more accurate income requirement: Just compare your projected retirement expenses with your current expenses to see what percentage of current income you’ll need. However you identify your retirement income requirements, the next step is to figure out how much you need to save in order to reach that level of income; luckily, a retirement calculator makes figuring this out a snap.
You’ve figured out how much money you’ll need and consequently how much you should be saving each month to hit that goal. Compare that number to the amount…