How Much Income do you need in Retirement?
Define your vision of retirement
As you begin thinking about your personal vision of retirement, list your retirement plans and goals and then prioritize them. This will help you visualize how you’d like to spend your time in retirement and how your personal lifestyle choices may affect your income needs in retirement.
Retirement Priorities may include:
- Spend time with the family
- Work part time
- Pursue a favourite pastime.
Remember that retirement is shared between you and your loved ones. While you may hope to travel the world, your spouse or partner may want to see your grandchildren off to school each morning. Now is the time to make sure you are on the same page with anyone who plays a key role in your life.
Factor retirement risks into your overall retirement income strategy
Retirement considerations are changing— retirees are living longer, fewer companies offer pension plans, and Social Security benefits may not be your primary source of retirement income. And, that’s why it’s more important than ever to consider the factors which play a primary role in planning your retirement income and expenses:
- Living longer – We are living longer than ever before and it’s important to understand the risk of outliving your retirement savings.
- Inflation – Inflation lowers the purchasing power of your dollar, so be sure to factor inflation into your overall retirement saving goal.
- Market volatility – Your investment assets may lose value if the financial markets decline.
Other potential risks to your retirement income are the rising cost of health care and care generally. while it’s important to educate yourself about market and event-driven risks, it’s equally important to put your money to work and Structure your retirement investments in a manner that will help mitigate these risks.
How much money should I spend in retirement?
The next step is to estimate expenses and income needs in retirement each year. While many industry experts suggest you’ll need about 80% of your annual income to live a comfortable retirement before retirement, you may need more or less depending on your personal retirement goals and projected retirement expenses.
Dividing your expenses into the following three categories can help you to plan for your retirement income needs.
- Essential expenses are basic, ongoing expenses like food, mortgage or rent payments, transportation, insurance premiums, taxes, health insurance and other non discretionary living expenses.
- Discretionary expenses include nonessential expenses such as entertainment, travel, recreation, donations to charity giving and major purchases. Since these expenses are not essential, you can adjust them if your lifestyle or financial situation changes.
- Unexpected expenses include various long-term and unexpected expenses, such as extra health care needs, long-term care services and personal emergencies.
As you plan your retirement budget, remember that a truly realistic approach to retirement planning doesn’t just allow for changes in your personal and financial circumstances, it takes them as a given. That’s why it’s important to have a dynamic spending strategy — one that you can adjust as your circumstances change. Here are a few steps you can take today:
- Find a retirement worksheet on line, print it and fill it out to help plan your retirement expenses and income sources.
- Create a personalised budget. How will your budget change when you retire?
- Track the purchases you make using VISA cards, debit cards, Bill Pay, and cheques. How will your spending patterns change in retirement?