Working out how much you need to save for your retirement is absolutely crucial, and it’s a task that you should start to consider as soon as possible. Planning for retirement can be difficult if you get started late. Getting your financial ducks in a row and working out how much you’re going to need once you remove yourself from the working world means that you’ll need to set money aside each month to meet you goal. Prudent planning can also help you avoid some nasty surprises and be able to look forward to the kind of retirement that you deserve.
Ultimately, you’re never going to be able to determine exactly how much you’ll need, but you can follow the steps below to get your retirement plans on track.
Make a Retirement Plan
Some people picture themselves traveling the world once they retire, some dream about downsizing and moving into the country, and others will simply be looking forward to sitting around and reading each day. The point is that you won’t be able to estimate your financial needs until you can determine how your ideal retirement would look. If you think you might change your mind, err on the side of caution: saving more for retirement is better than not saving enough.
Estimate How Much You’re Going to Spend
It will take some doing, but try to work out a loose budget that you will be able to keep to in the future.
Use your monthly expenses as an average, then think about which costs will go up, down, or disappear entirely (your mortgage might be paid off by then, for instance). Next, list costs you don’t face now that would be part of your ideal retirement plan.
Determine Your Required Income for Retirement Age
Next, you can work out how much you’ll need to bring in each month. The 80% rule is common: it’s 80% of your pre-retirement income. You pre-retirement income is the average expected annual salary of your last 10 years of employment. If that sounds complicated, don’t worry; enough people have come before you and many of them have built retirement calculators.
Use a Retirement Calculator
In the digital age, you can always let an online calculator do the hard work for you, as long as you’re honest about the values you enter. You’ll be provided with an overview of where you stand and what you need to save based on current research, but remember to account for factors unique to your own situation.
It doesn’t matter how exhaustively you estimate your future finances — things change. You might develop a passion for an expensive sport or find that you want to do more traveling. Alternatively, you might come into money from an inheritance that can be put towards your retirement goal to reduce the amount you need to save each month. Just one check each year should be enough to ensure that you’re staying on track.
Find the Best State to Retire In
We think Michigan is a pretty great place to retire, but you might have somewhere else in mind. Even if you start reading lists of the best states to retire in, you should figure out the best state for you to retire in — and center your retirement plan around that. Maybe you’re looking for somewhere quiet and peaceful — with low property taxes — or somewhere with a lot to do.
Wherever you decide, you should research how much it costs to live there and determine if you should be saving more for retirement (even if you plan to retire somewhere that costs less than you’re preparing for, you probably shouldn’t decrease your retirement payments).
Let Us Help You Decide How Much to Save for Retirement
Public Service Credit Union offers complimentary consultations, so don’t hesitate to get in touch for some in-depth advice. We even provide investment services, so we can help you grow your pension pot. Learn more about 401k vs. IRA plans, then visit a PSCU branch in the Detroit area to get started!