One of the important stages in common mans life is the retirement stage. It is the stage where one’s income seizes to stop from all the sources. So, it is very much important to start saving for your post-retirement age. But how much one needs to save?
One rule of thumb is that retirees will need approximately 80% of their pre-retirement salaries to maintain their lifestyles in retirement. However, depending on your own situation and the type of retirement you hope to have, that number may be higher or lower.
Fortunately, there are several factors that can help you work toward a retirement savings goal. Some of them are given below :
The first factor to consider is the age at which you expect to retire. In reality, many people anticipate that they will retire later than they actually do; unexpected issues, such as health problems or workplace changes (downsizing, etc.), tend to stand in their way. Of course, the earlier you retire the more money you will need to last throughout retirement. It’s important to prepare for unanticipated occurrences that could force you into an early retirement.
Although you can’t know what the duration of your life will be, there are a few factors that may give you a hint.
You should take into account your family history — how long your relatives have lived and diseases that are common in your family — as well as your own past and present health issues. Also consider that life spans are becoming longer with recent medical developments. More people will be living to age 70, or perhaps even longer. When calculating how much you need to save, you need to factor in the number of years you will spend in retirement.
Another factor to consider is the cost of health care. Health-care costs have been rising much faster than general inflation, and fewer employers are offering health benefits to retirees. Long-term care is another consideration.
Factoring in higher costs for health care during retirement is vital, and you might want to consider purchasing long-term-care insurance to help protect your assets.
Another important consideration is your desired retirement lifestyle. Do you want to travel? Are you planning to be involved in philanthropic endeavors? Will you have an expensive country club membership? Are there any hobbies you would like to pursue? The answers to these questions can help you decide what additional costs your ideal retirement will require.
If you think you have accounted for every possibility when constructing a savings goal but forget this vital component, your savings could be far from sufficient. Inflation has the potential to lower the value of your savings from year to year, significantly reducing your purchasing power over time. It is important for your savings to keep pace with or exceed inflation.
After considering all these factors, you should have a much better idea of how much you need to save for retirement.
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