How much money do I need to retire? Follow these three steps and you can come up with your answer:
- What will my annual expenses be in retirement?
- What will my annual social security and defined benefit plans distributions be?
- Subtract 1 from 2 and multiply times 25.
This formula: (Annual Expenses – annual benefits) X 25 allows that you will draw down 4% of your savings annually.
Go to The Estimator site for Social Security and the site will guide you through some questions and give you and estimate on your social security benefits you will receive. If you have an account or want to create one click my Social Security.
If you are a member of a defined benefit plan determine what the benefit will be from that plan and add the forecasted social security benefits to that number.
Now comes the hard part, what will your expenses be in retirement?
Annual Expenses in Retirement
Know that your expenses during retirement will be, well, differed, and obviously the less you spend during retirement the less you have to save FOR retirement. As my friend Terri Manning often says, “If you want to hear God laugh, tell her your plans,” and I also believe whole heartedly that no battle plan survived the first shot fired; none the less to not have a plan is total disaster.
Here are a few budget templates that may help you from the Huffington Post, that are general and not specific to a retirement plan.
For a more simple budget to get started try this:
Do the Math
Once you have a budget in mind, your goal should be to have twenty five times the amount left by taking your annual benefits from your annual budget. IF you are short $30,000 a year you will need to have $750,000 in retirement savings. But now that you know that you can add extra wages, try to improve your returns, and of course cut expenses.
Good Luck, RetirementNEXT!