In Part 1 of our retirement guide, we show you how to easily calculate the amount of how much money do you really need to retire, no matter what your age.
Determining how much money you need in order to have a decent retirement is one of the most written about topics in personal finance. For every article published there is an opinion or a rule of thumb that is put forth. While these opinions and rules might make for enjoyable reading, they don’t help you answer a very simple yet very important question—how much money do you really need for retirement? Follow these guidelines to arrive at a realistic answer:
Make your best guess as to when you will retire. As a small-business owner, you may decide that your retirement plan is to work at your company until you kick the bucket at your desk. But what if something happens along the way, like a health situation or bad business luck, that forces you to retire earlier than planned? The purpose of saving for retirement is to have flexibility. You can always choose to keep working until the end and leave your savings to your children or to charity, but if you can’t, then you should be prepared for that, too. Unless you have a specific age in mind, assume a retirement age of 65 if you are over 50 and 67 if you are under 50.
Assume your retirement will have two phases. The amount of money that you need for retirement will mainly be a function of how much you plan to spend once you retire. I suggest splitting this up into two phases: up to age 75 and after age 75. As medical improvements enhance the quality of life, you will have the ability and desire to engage in an active lifestyle even as you age. Today many people in their early seventies travel, throw parties, remodel houses, engage in charitable work and more. Budgeting for retirement as if it were a monolithic stage in life isn’t realistic. At some point you will want to slow down and then your expenditures will go down in most areas.
