How to Calculate Retirement Savings
Learning how to calculate retirement savings will save you from financial woe in what should be your golden years. Many Americans are forced to work past the age of 67 because they underestimated the importance of saving for retirement in their youths. How much you save for retirement depends on several factors, including your current age, your expected retirement age, and your desired lifestyle in retirement.
- Decide when you would like to retire. Choosing a retirement age is a simple and necessary first step in calculating retirement savings. If you begin seriously saving for retirement in your 40s, you will need to save more aggressively than someone who started saving in their twenties. Someone who would like to retire early, say in their 50s, will need to begin saving for retirement early, ideally in their early twenties.
- Estimate how many years you will spend in retirement. If you plan to retire at age 65 and your family history and lifestyle indicate you will live to your mid-80s, you must calculate retirement savings for at least twenty years of living expenses. The longer you expect to live, the more money you must save for retirement.
- Figure out what you will be spending in retirement. Some financial experts advise building a retirement fund that will allow you to live on 85% of your pre-retirement income. However, a better idea is to make educated estimates about what your living expenses will be in retirement and plan your savings around that amount. Although many people do spend less after they retire, many others spend either the same, or more, than they were spending while they worked.