Published By Janet Gershen-Siegel at May 22nd, 2018
Do you know just how much you really should be saving for retirement? Do you have a retirement action plan? Or are you hoping it’s all going to somehow work out? Yes – you need retirement planning.
In Part 1, we looked at basic retirement planning and how Social Security’s contribution fits into the grand scheme of things. Now we’ll look at just how much you will need and how to set a reasonable retirement target date.
CNN has a decent retirement calculator where you can get some ideas as to your financial needs, but that does not take into account every single potential variable. You will always need to consider the following when making a tentative budget:
Typical inflation in the United States is about 1 – 2% per year. Consider that gasoline, for example, averaged at $1.22 per gallon as recently as 1997. Prices tend to go up. Value Penguin reports that average annual household costs in 2013 were nearly $64,000, which works out to about a $5,300 monthly average.
The younger you are the more quite literal bang for your buck you are going to get from your savings. Hence, you can afford to save less. Retirement may feel like it’s a long ways away when you’re under age 30, but starting to save at that age will make saving for retirement that much easier. Furthermore, it will help you to establish a pattern and a habit in your life. You won’t miss money you never see.
Start thinking about how old you want to be when you retire. While you might be interested in retiring early, that is often not feasible for most people. Hence you may want to investigate several different scenarios. What happens if you retire early, at age 55? And what does that do to your Social Security payments? What if you wait until age 60, or 62? Is there an appreciable difference between retiring at age 65 or 67? What if you work even longer, until 70 or even 75?
So if you love your job and it is not too physically taxing, that could be an option – but don’t count on it, for your mid-seventies are when you may start to see major physical changes, including cancer, dealing with cardiac or orthopedic issues, or the onset of Alzheimer’s.
Retirement is a large goal with a lot of moving parts, so it makes sense to break it down into more manageable chunks. Here is where a retirement action plan can truly shine.
Consider a five-year milestone system. If you are 30, then how much do you need to have saved by age 35? 40? If you are a lot closer to a typical retirement age, then you might want to consider milestones every one or two years. Your milestones should take into consideration:
Retirement planning will help ensure your later years are relaxed and comfortable, rather than stress-filled. Early and thorough planning, and saving with an eye toward inflation and unforeseen expenses can make that happen. Share this and tell your friends what you think of how to live your best financial life.