How to Calculate Your Retirement Income Needs and Create a Savings Plan

The retirement life sounds pretty good when you are working sun up to sundown to create a nice life for your family. You work so hard so you can spend your golden years basking in the sun, reading good books, and traveling the world.

Let’s be real. None of that can come to fruition if you do not have the money to live a luxurious life after retirement. Plan first for retirement by calculating how much you are going to need to live the way you imagine.

Next, design a savings plan that is reasonable. Begin saving early to give yourself flexibility through investing and planning for retirement.

It all starts now. We can guide you through your retirement goals and help you create a savings plan.

Calculate Your Retirement Income Needs

We’re not all going to live until we’re 100. You have a family history and your current health status to help you estimate how long you will live. Keep that number in mind as you calculate how much money you will need to save for retirement.

Estimate Your Retirement Expenses

So many factors go into calculating retirement expenses. Do you plan to have your home paid off by then? How much money should you set aside for inflation or emergencies?

Take a breath and start with what you know. Basic living expenses like rent or taxes on a paid-off home, groceries, toiletries, and gas and maintenance for your vehicle should all play into the equation. Take a guess on healthcare expenses.

Do not forget to plan for a few luxuries here and there, like visiting grandchildren, taking a few international trips, and buying that car you always wanted. Give yourself a final range for what you need for a year multiplied by the number of years you expect to live.

Determine Your Retirement Income Sources

Where will your retirement money come from? Include social security benefits, pensions, 401(k) plans, IRA accounts, and any other retirement savings or investments in your calculations.

Using the average growth of each one, what will each source total by the time of retirement? The good news is that your investments will continue to grow even when you reach the age of retirement.

It is recommended that you take out 4% from your retirement savings each year, so the other funds will remain and keep growing.

Calculate the Retirement Income Gap

You have your numbers: your estimated retirement expenses and income. Which number is larger? You should ideally have a higher retirement income than expenses. But if the expenses are larger than the estimated retirement income, you have a retirement income gap.

Do not panic if you have a large retirement income gap. There is still time. Instead, curate a plan to save money and close the gap to reach your retirement income goals.

Create a Savings Plan

Making a retirement savings plan takes careful planning to reach your financial goals. It’s always good to meet with a financial advisor to ensure you are saving enough to have a comfortable and enjoyable retirement.

Determine Your Retirement Savings Goal

Valuable tools are available called retirement calculators for determining how much money you will need to save to reach your retirement savings goals. Increase your chance of success by seeking professional advice to make sure you have your ducks in a row.

You never want to find out decades later that you were misled and have too little money in your retirement funds. Use your lump sum of how much money you need to save to garner a better idea of what you need to do next.

Determine Your Monthly Savings

Envision how much money you need to save each month by performing some calculations. Initially, divide the lump sum needed for retirement by the number of years you have until retirement.

Now that you have an annual savings goal, narrow it down further to a monthly savings goal by dividing that number by 12. Finally, you are left with the amount of money you need to save each month in order to reach your retirement goals.

Identify Your Savings Strategies

How are you going to save that money each month? Pinpoint the savings strategies that will maximize your savings. This could include maxing out retirement contributions, looking into catch-up contributions, and investments in bonds, stocks, and even real estate.

Increase your savings by reducing expenses. Living a life of luxury now will only be short-lived if you have to cut down on your expenses and live on a tight budget during the retirement years. Find a balance between living comfortably now and responsibly saving for the future.

Regularly Monitor Your Progress

With your monthly savings goal in front of you, monitor how often you reach that goal. Consistently failing to reach the goal means you need to make adjustments to your savings strategies.

Regularly review your retirement savings annually, at least, to ensure you are on track to reaching your financial goals. Track metrics to determine how to change things up to increase your savings. For instance, if you see an investment consistently falling short, pull out of that investment and put your money into more successful asset classes.

Conclusion

Set yourself up for success with your retirement savings by creating a plan and sticking to that plan. Your estimations will ensure your expected retirement income is enough to support your expected retirement expenses.

Stack your toolbox with a financial advisor to confirm your calculations and ensure you are on the right path to reaching your retirement savings goals. As a team, you can estimate your retirement needs, calculate an overall retirement savings goal, select the right savings strategies, and continually monitor your retirement savings progress.

Start early and practice discipline as you plan for comfort and enjoyment in your future.