Please see retirement budget template link at the end of article.
What’s the image you have in your mind of your retirement years? Maybe you simply envision days of relaxation, or perhaps you have a more specific goal in mind—traveling to Europe, or moving across the country in order to be closer to your children or grandchildren.
Whatever your dream may be, in order to reach it, it’s crucial to set clear income goals and a retirement budget. The figure you come up with will provide a goal to work toward and help you decide how much you’ll need to save now in order to live comfortably when you stop working.
It may initially seem daunting to figure out what your retirement financial needs will be. But arriving at a general target doesn’t mean anything is set in stone. After you set a starting point you can always alter it down the road as your life situation changes.
A good way to start thinking about your income goals is to pretend as if you are retiring tomorrow. How much would your monthly check need to be? You could state your goal as either a sum of money or as a portion of your salary.
To come up with this figure, start with your basic monthly living expenses, including food, shelter, utilities, clothing, taxes, insurance, transportation. Also be sure to factor in costs of any family members who depend on you, as well as the rate of inflation, which has averaged 2.5% over the past 20 years.
Some of your expenses may decrease in retirement, if your mortgage or other debts are paid off. But keep in mind with the extra time on your hands you’ll probably want to have more income for travel and leisure activities. Try to set a realistic budget according to your discretionary desires that will allow you to enjoy your well-earned freedom.
Also remember that when you hit your 70s and beyond, you will likely be spending more on healthcare, which can have a substantial impact on your retirement savings. Be sure to factor in a cushion of funds that will cover such expenses.
Note: if you’re having a hard time setting your retirement goals, use the attached budgeting spreadsheet to help you arrive at that number. This tool will help you be realistic about your financial needs and wants so you’ll have more than enough to enjoy your golden years:
