How much money do you need to retire? This is probably one of the most significant questions facing workers approaching retirement age, and it’s not simple to answer. Some experts will tell you that you will need 80 percent, 85 percent or even 100 percent of your pre-retirement income to live comfortably during retirement. Other sources report that you need some level of savings, such as $1 million, $1.5 million or eleven times your ending salary to be able to finance your retirement. But the question of how much money you need to retire can’t be answered by a one-size-fits-all formula. There are at least seven questions you need to ask — and answer — before you can determine how much money you need to retire.
[See: 10 Costs to Include in Your Retirement Budget.]
1. At what age do you want to retire? Obviously, the earlier you hope to retire, the more you will need to have saved. Even if you have a target age in mind, you might find yourself entering retirement earlier than expected. Many people retire sooner than planned due to factors such as unexpected downsizing, an injury or health issue or a tempting early retirement incentive package.
2. Where do you plan to live after you retire? If you are thinking about moving, you have to consider the cost of living in your new location, the expenses of selling your current home and buying a new one and the costs of the move itself. Maintaining two homes for seasonal migration could increase your retirement costs, unless you are able to successfully rent out both properties when you are not residing there. If you are planning to move away from children and grandchildren, don’t forget to factor in travel costs for occasional visits.
3. Do you plan to downsize? If you plan to move to a smaller home, you will probably realize savings in your utility and home maintenance bills. Hopefully, you won’t have a mortgage. But some retirees choose to move someplace more upscale than their current surroundings, which can increase retirement costs.
[See: 50 Affordable Places to Buy a Retirement Home in 2016.]
4. What are your travel plans? While some retirees are content to stay home, others are ready to use their newfound free time to travel. Travel costs can vary considerably depending on whether you want to take luxurious international trips or prefer short jaunts closer to home. If you plan to own a recreational vehicle and travel the country extensively, don’t forget to factor in the cost of the RV as well as the gasoline and maintenance costs.
5. What hobbies and activities do you plan to engage in during retirement? Some leisure activities cost a lot of money, such as country club memberships or greens fees. On the other hand, your hobbies may provide a source of additional income, such as selling books you write or artwork you create. Remember to include recreation costs in your retirement budget.
6. Do you anticipate any financial windfalls? An influx of money from the sale of your home, an inheritance or the sale of your business will help compensate for a shortfall in retirement savings. However, you don’t necessarily want to count on this influx of cash until you receive it.
7. Do you anticipate any financial hardships? You may have to care for an aging parent or a special needs child or relative, and you or your spouse could develop health issues of your own. Caregiving costs could add significantly to your retirement financial needs.
[See: 10 Ways to Get Ready for Retirement After Age 50.]
Just as it is simplistic to assert that you need a certain level of income during your working years, it is equally simplistic to say that you need a certain percentage of your pre-retirement income after you retire. Such figures are averages or ballpark guidelines, designed to apply to average people. In order to effectively estimate how much money you will need to retire you might need to address many other considerations. There may be factors that are unique to your life and your desires. There is no specific monetary income figure that equates to happiness and comfort in retirement. Certainly, having a larger income removes some challenges associated with having a smaller income, but it doesn’t by itself bring happiness — especially in retirement.
Dave Hughes is the founder of Retire Fabulously.
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7 Reasons Retirement Income Formulas May Not Work For You originally appeared on usnews.com
