You know how important it is to plan for your retirement, but where do you start? One of your first steps should be estimation on how much income you’ll need to fund your retirement. This is not as easy as it sounds, because planning for retirement is not an accurate planning. Your specific needs depend on your goals and many other factors. Many financial professionals suggest that you’ll need about 70 percent of your current annual income to fund your retirement. This can be a good starting point, but will that figure work for you? It depends on how close you are to retiring. If you’re young and retirement is still many years away, that figure probably won’t be a reliable estimate of your income needs. That’s because a lot may change between now and the time you retire. As you near retirement, the gap between your present needs and your future needs may narrow. But remember; use your current income only as a general guideline, even if retirement is right around the corner. To calculate your retirement needs, you’ll have to take some additional income. Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses. That’s why estimating these expenses is a big piece of the retirement planning. But you may have a tough time deciding all of your expenses and figuring how much you’ll be spending in each area, especially if retirement is still far off. To get started, below are some common retirement expenses:
Food and clothing
- Housing: Rent or mortgage payments, property taxes, property upkeep and repairs
- Utilities: Gas, electric, water, telephone, cable TV
- Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation
- Insurance: Medical, dental, life, disability, long-term care
- Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
- Taxes: Federal and state income tax, capital gains tax
- Debts: Personal loans, business loans, credit card payments
- Education: Children’s or grandchildren’s college expenses
Decide the period you’ll retire to determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to determine how long your retirement will be. Why? The longer your retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire. This decision typically revolves around your personal goals and financial state.
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