Retirement seems so far away, but you know you need to start saving now. But, how much will you need in your nest egg of savings and investments to be comfortable? That depends on how long you want to work, your expected standard of living and how much you already have saved. You will likely be retired for approximately 20 years and the actions you take today will affect the security you’ll have in the future. Consider the following variables that will influence how much you will need for retirement.
1. Retirement Age – How long do you want (or need) to work to have ample savings? If you are targeting Social Security benefits, which can begin as early as 62 and develop to full benefits at 67, you have a timeframe in mind. However, if you accumulate a formidable nest egg, you don’t have to wait until your sixties.
2. Current Savings – How much is your nest egg worth? The more money that is currently earning interest, the better. So, the earlier you start saving, the more likely you are able to retire in style.
3. How quickly is your money growing? – Before retirement, your annual rate of return is very important. Are you earning 5%, 10%? Over time, compounding interest can quadruple your money saved. Growth is unpredictable, but shop around for the best return, which may require a little more risk. After you retire, the rate of return will be lower, requiring a lower risk investment to keep it safe.
4. Other Income – Social Security, pensions and property income must all be considered during nest egg planning. Currently, the average Social Security benefits present less than one-third of your pre-retirement income and who knows if benefits will be reduced (if available at all) when it comes time for you to retire.
5. Retirement Withdrawal – How much of your next egg will you withdraw each year of your retirement? Retirement calculators estimate this as 70 – 90% of your preretirement income. Multiply that number by 20 (the average length in years of retirement) and that is roughly how much you will need. It is thought that you can live on less during retirement, assuming your property is paid off. However, if you plan on vacationing in the tropics every year or living in an exclusive area, that lifestyle will require even more.
This was a guest post by ChicagoBankingRates.com, a site that provides daily updates on the latest Chicago mortgage rates, finance information and more.