Everyone knows that it’s important to save for retirement, but there are several factors that actually affect how much money you will need. Although you could calculate your necessary savings by a specific percentage, doing so neglects other important considerations — the same percentage won’t be right for each person. Your necessary retirement funds should be based on your unique situation.
Knowing what matters to you during retirement can help you alter your saving goals and plan for the future. If you want to attain the ideal retirement, you can start by asking yourself several different questions. It’s important to consider whether you want to keep working after you retire, where you want to live, and whether you hope to travel or participate in other expensive hobbies. Answering such questions will help you to determine how much you need to save in order to support your ideal retirement, as well as which aspects of retirement living are important to you. With that said, here are five questions to ask yourself.
Do you plan to keep working?
If you enjoy work, you may plan to keep working part time after you retire from your full-time job. This might include putting in part-time hours for the same company, working as a contractor, or starting a completely different part-time job. Many people find that continuing to work during retirement is an ideal situation for them because they like being busy, or they enjoy the work that they do. According to a Merrill Lynch study, 72% of those older than 50 want to work in retirement. Others feel that working is a financial necessity. Determining whether or not you want to keep working will affect your retirement budget once you actually retire, as well as how much you need to save beforehand.
Do you want to be near family?
Many retirees decide to move closer to family, either to spend more time with their kids and grandchildren or to have more help as they age. If you plan to move to be closer to family, you need to factor in the costs of doing so. You will have to sell your house or finish your lease, and pack and move all of your belongings (or pay someone else to do it.)
Selling your house can take time, so it’s a good idea to plan ahead if you are hoping to move. You should also factor in the cost of living in the area that you hope to move to. You can try comparing your current cost of living to your desired area with this Cost of Living comparison by Relocation Essentials. If the place where you are moving is much more expensive, you also need to factor that into your retirement savings plan, in order to achieve that part of your retirement dream.
Do you hope to travel?
Traveling can be expensive, but it is a common hobby for retirees. Once you finish working full time, it can be fun to travel and to see new places. If you do plan to travel, though, it’s best to try to anticipate how often you might want to travel and where you will want to go. You will need to save the funds necessary to travel or find a way to build them into your regular budget.
If instead of traveling once in a while, you are hoping to move to a completely different climate, you will also want to factor costs for living in a different climate. If you want to move somewhere hotter, then you may have higher air conditioning bills. You also may face less transportation options if you are moving to a more remote location. CNN has a quiz that can help you determine your dream retirement.
Which activities are important to you?
Your anticipated hobbies and activities will affect where you want to live. If you hope to explore your love of horse racing once you retire, then you might be planning to move closer to Kentucky, or another state with a fun race track. If you love photography, you might want to move to an area with abundant natural beauty. In addition to affecting where you want to live, your activities and interests will also alter your budget. If you have expensive hobbies, you need to save more for those hobbies.
You also should consider long-term goals for your health and activity level. There are several different kinds of retirement communities, and some encourage a lot of socializing and participation from retirees, whereas others do not. Even if you see yourself moving into one way down the line, you should factor it into your savings plan. Or you should factor in other living expenses if you don’t plan to live in a retirement community.
Do you plan to live at the same level as you do now?
All the factors that go into planning for your ideal retirement include some consideration of potential cost. However, it’s especially important to also consider how the cost of your dream retirement will compare to your current spending. If you think that you will come close to your pre-retirement spending, you will need to figure out how you are going to fund your lifestyle. Once you stop working full time, you will not have the same income as you did pre-retirement, so your extra income will need to come from working, savings, or investments.
According to Smart401K, in order to calculate your replacement ratio, you should consider tax expenses, savings expenses, shelter expenses, education expenses, and health care expenses, as well as several other items. Even if you anticipate spending less than you spent pre-retirement (which many people do), you should still determine how much money you will need.
Many people attempt to calculate just how much money they will need once they retire, but it’s difficult to do this properly if you don’t consider the questions above. You may not be able to afford to participate in every activity you want to or move to an exotic location far away, but recognizing your ideal retirement ahead of time will help you come as close as possible to living your dream.