“How much do I need to retire?”

That question is asked by millions of Americans every year, if not every day.

And while it’s important to pose this question at some point in your life, coming up with the right answer—a dollar amount that allows you to enjoy your golden years in comfort—can be a real challenge, particularly with rising life expectancies and an often-unpredictable future.

How Do I Figure Out How Much I Need to Retire?

Many financial experts recommend aiming between $1 million to $1.5 million when building your nest egg, while others suggest savings plans that add up to 10-12 times your current income.

But for people nearing retirement—and even for some as far as 20-30 years out—such numbers may do nothing more than create a sense of panic or dread, a feelingthat quickly becomes counterproductive when trying to map out a plan for the future.

Figuring Out YOUR Number

Coming up with a real, useful answer to “how much do I need to retire?” requires a closer look at a number of factors—those that can help you determine the savings goals to shoot for when planning your retirement.

Things to consider when calculating your optimal retirement number include:

Future Living Costs

Creating a budget and figuring out what you’re spending today can provide a good indicator of what you’ll need each year of retirement. Your total expenses should provide a good baseline number from which to start building your savings plan—as well as to maintain the lifestyle and comfort you’re used to once you stop working.

If you plan on traveling extensively or making home renovations once you retire, be sure to factor in those costs as well.

How Long You’ll Live

It may seem a little morbid, but accounting for how long you may live after retirement is essential to growing a nest egg that goes as far as possible. Because people are living so much longer these days, it’s important to consider longevity when defining your savings goals.

Planning for 30 years of retirement is generally a good rule-of-thumb, though this number may be adjusted depending on current average lifespan, individual health, family history, etc.

Social Security

Though social security benefits may not provide enough to live comfortably throughout retirement, they can provide a source of income that—when estimated and factored into your planning—can help your optimal retirement number become a little more manageable.

Post-Retirement Taxes

Believe it or not, taxes don’t go away after you retire. Most income you make from things like social security, investments, pensions, IRAs, and 401(k)s is subject to state and federal taxes—a bite many may not count on or plan for as they map out their retirement.

If a pension, annuity distribution, 401k or IRA withdrawals are part of your retirement planning process, be sure you understand how much each is subject to post-retirement taxes—and adjust accordingly.

 

Taxes can have a major impact on your retirement planning process, and Liberty Tax® is here to help. Learn more by calling 1-866-871-1040, or visit your local Liberty Tax® location today.

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