How to Calculate How Much You Need to Retire

While many financial experts discuss specific percentages people should aim for to have a fulfilling retirement, the ultimate retirement income formula does not exist. The amount depends on multiple factors, including your current income and the lifestyle you wish to maintain in retirement, which differ for everyone. To make the most informed decision, consider the following aspects when calculating your retirement savings needs.

Retirement Savings Fluctuate Over Time 

Since your income and expenses are likely to change at different stages of your life, your retirement savings will also shift. For instance, if you get married, you should discuss it with your partner to better align your retirement planning strategy. Similarly, your retirement savings plan may alter if you have children.

In any case, the first step is to ponder your goals. Will you lead a simple lifestyle, or do you want to spend more on travel and novel experiences? Will you move? If so, what is the cost of living in that area? If you work part time after retiring, how much extra income with that job supply? 

Once you have a clear plan, you can calculate retirement income based on savings, your annual salary, investment performance, projected raises, inflation, and other factors that may impact your estimated amount.  

After you retire, think about what your retirement will entail, travel, hobbies, this will help you to gauge how much you might need. Your health plays a significant role in this calculation, especially with increasing healthcare costs. For this reason, healthcare planning is another important part of your retirement strategy.

Variables to Include in a Retirement Needs Analysis 

While you will not find a universal retirement income formula, there are several elements that everyone should consider to decide on the best savings approach. Involving the following components at different phases in your retirement planning will help you craft a more effective plan:

Income 

Evaluating income is essential as you reach the pre-retirement stage. At this point, your daily expenses and healthcare needs better reflect how much you will require in retirement. 

However, current income is less consequential if you are beginning your professional life. More than likely, you earn entry- or mid-level wages. Additionally, a career change may cause a decrease in income at this stage.

Spending 

As mentioned, various life stages and milestones come with different expenses. During your working years, you may need to support children, pay a mortgage, and spend more on work-related costs like formal clothing and your commute. In retirement, many of these expenses wane or disappear entirely. 

However, other costs may go up in retirement, such as healthcare or payments to outsource yard work and home maintenance needs. Many retirees also use their nest egg to fund the travel goals they could not fulfill while working, affecting spending habits. While not perfect, your average spending can provide a baseline for understanding future retirement needs. 

Lifestyle 

Even if you started saving for retirement early in life, your lifestyle goals may demand additional strategies to ensure you have the proper amount of income later. If you find your savings plan makes it difficult to afford necessities now, you may need to reconsider your lifestyle. 

For example, if you want to spend more on travel and leisure, move to a state with no income tax or a lower cost of living. Conversely, if you move closer to your children and grandchildren who live in a more expensive state, look into apartments or condos. 

Retirement Age 

According to the U.S. Bureau of Labor Statistics (BLS), the number of workers 75 and older in the labor force may grow to 96.5% by the year 2030. Working full time later in life enables you to keep contributing to your employer-sponsored retirement account and key benefits, like health insurance. You may also work as a consultant in your field for a few years or find a low-key, part-time job to just keep you busy. 

No matter why you continue working, you should assess how that decision will affect your retirement savings. The extra income it provides can be highly beneficial, especially if you got a late start with planning, but note that you may also accrue added expenses, like transportation costs. 

The Retirement Savings Calculator 

While these factors provide an overview of what you need to calculate your retirement savings needs, tools are available for assessing a more concrete amount. By utilizing an online retirement calculator, you may gain insight into how changes to your initial savings plan will impact your nest egg, for better or worse. 

Seek Expert Retirement Planning Guidance  

Trusting in retirement income formulas may not provide as accurate a picture of your retirement savings needs as factoring in all variables and taking a personalized approach. At Park Place Financial, our team of certified financial planners (CFPs) believes in working with clients to craft customized financial plans that suit their unique circumstances. We use a well-constructed process to guide retirement planning, conducting a review of your financial situation to make informed recommendations. Our financial retirement planners also collaborate to give you access to multiple perspectives and levels of expertise. 

Park Place Financial observes its fiduciary duty to act in our client’s best interest, putting your needs above our profits. Contact us today for assistance with your retirement needs analysis or to request your complimentary financial checkup.