Retirement is something that many of us worry about. Most of us want to be comfortable in retirement, commanding the resources to get what we need, as well as live a desired lifestyle.
Do you think that you will have enough money for retirement? Do think that becoming a millionaire will provide you enough in terms of resources? Or could you get by with less?
Photo by PT Money.
Here are some of the things to think about as you consider your retirement picture, and how to improve your situation:
What Do You Want to Do During Retirement?
First of all, you need to decide what expenses you are likely to have in retirement. Think about the things you are likely to spend money on. These items might include:
- Housing (including utilities)
- Health care
- Purchase of various luxury items
Consider the lifestyle you prefer. Start with your current expenses. How much do you spend now to live the lifestyle you want? This is a good place to start, since you will likely have similar expenses in retirement. While you will (hopefully) have paid down your debt, and paid off your mortgage, what you spend on those items will probably be replaced by expenses related to travel, or participating in different hobbies.
Use online retirement calculators to figure out how much you are likely to need during retirement. Don’t forget to calculate inflation as well. Your purchasing power will likely be reduced due to the natural increase in prices over time.
If you have relatively modest wants for retirement, you might be able to get away with a nest egg of between $700,000 and $1 million. Some retirees can live on even less indefinitely (assuming the 4% rule for withdrawal) if they take steps to downsize and live very simply.
On the other hand, if you plan to live a lavish lifestyle, you might need to save up $2 million or more in a nest egg. Think about how you want to live, and plan for that eventuality.
How Much are You Saving?
Two of the most important factors in building up a sufficient nest egg are time and amount saved. Asset allocation is also very important, but all the asset allocation in the world won’t save your retirement if you haven’t been setting aside enough money for a sufficient period of time.
The earlier you start saving for retirement, the better off you’ll be. You also need to consider how much you are setting aside. A couple hundred dollars a month problem isn’t going to cut it — especially if you waited until your 30s to get serious about saving for retirement.
A retirement calculator can help you determine how much you should be setting aside each month to help you reach your long-term retirement goals. Create a plan to help you set aside more each month so that you can build up a nest egg that will allow you to retire comfortably.
Do You Have Other Sources of Income?
It doesn’t always have to be about a huge nest egg. You can also work toward creating multiple sources of income. Having regular, diverse income can help alleviate the need for a $1 million nest egg. Dividend stocks, royalties, income from a business or rental property, or a monetized web site can all help support you in retirement. If you are afraid that you won’t enjoy complete retirement from the workforce altogether, you can also work part-time, or become a consultant.
Add up what you are likely to need each month, and consider how you can create income streams that can help cover those costs. Estimate what you might have available from a more traditional nest egg, as well as what you are likely to see in Social Security benefits. Begin developing income sources that can fill the gap.
Thinking about these issues now is vital if you want to retire comfortably. Be clear about the kind of retirement you hope to have, and create a plan to make it happen.
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.