Ready for retirement? Find out how much money you really need

As retirement approaches, many individuals are eager to enjoy their golden years on their terms. However, to ensure a comfortable retirement, careful financial planning is essential. One crucial step in the process is determining the exact amount of money needed for retirement.

To begin, experts suggest starting with current living expenses. Consider that most of these expenses, such as groceries, restaurant meals, and utility bills, will likely remain consistent after retirement. If you own a car, you’ll still need to budget for auto insurance and possible car payments. Public transportation and ride-hailing costs should also be considered. Additionally, it’s important to factor in expenses like cell phone bills, cable TV subscriptions, streaming services, and unforeseen costs like clothing, gifts, home repairs, and pet care.

Once the monthly expenses are tallied, it’s crucial to deduct the costs directly associated with work, such as commuting expenses and work-related clothing. After making this adjustment, it’s important to add an expense category for new retirement activities, such as hobbies, travel, and entertainment.

One of the most difficult retirement costs to anticipate is housing. If you own a mortgage-free home, you’re in luck. However, if you’ll be making house payments or renting during retirement, it’s crucial to ensure you can cover those expenses, especially considering the potential for rising rents.

Following this process, most people will find that their retirement monthly spending will fall somewhere between 80% and 100% of their current expenses.

While the bottom-up budgeting approach is a solid starting point, it’s also helpful to consider two simple rules of thumb. First, financial planners suggest accumulating between 10 and 25 times one’s current yearly salary in retirement savings to maintain their standard of living. This wide range accounts for individual variations in investment and saving strategies. Additionally, retirees can typically withdraw around 4% of their retirement savings per year and still make it last for 30 years, although this estimate may vary depending on investment performance.

It’s important to note that Social Security benefits will likely provide additional income during retirement, even if it’s not a substantial amount.

While it’s impossible to predict the future, taking the time to develop a budget can help avoid financial pitfalls in retirement. Even if adjustments are necessary after retiring, having a plan in place is crucial for a secure retirement.