The first thing to think about as you consider your retirement scenario is, how much will I need to retire? How much is enough? To determine this, you first need to answer the question: “What am I spending now?”
This is the primary factor in determining whether you will have enough to retire comfortably because your current spending patterns are an indicator of how you will spend in retirement. People become comfortable with a certain lifestyle and, generally, will not dramatically alter that lifestyle when they retire.
48% of couples don't know how much they need to save to maintain their current lifestyle in retirement.
25% of couples expected to help an adult child in retirement.
To determine what your income requirements will be for retirement, start by tallying your current expenses. To evaluate and compare current and estimated retirement expenses, use the Current and Future Expense worksheet. Keep the following tips in mind.
Inflation erodes your purchasing power. Even modest inflation of 2-3% will cause your expenses to double during your retirement years. Further, the types of investments you will own during retirement will impact your long-term rate of return. If you’re a conservative to modest investor, assume an average annual rate of return in the low to middle single digits during retirement.
Life expectancy is another important assumption. If you live for a long time in retirement, you’ll need to enter retirement with a larger nest egg. Consider your family longevity history and your lifestyle behaviours. A conservative projection assumes that you may live longer than anticipated. Keep in mind that many retirement planning calculators default to a life expectancy of age 90.
Finally, it may be wise to assume that your actual expense levels later in retirement might differ significantly from your projected income requirements. Hence, you should run multiple retirement scenarios with the retirement calculator below to control for different expense levels later in retirement. For example, one scenario with less costs if you will travel less and maybe one with greater costs if you will need more medical-type care.