4 Steps to Determining How Much Money You Need to Retire

Knowing how much money to retire with is sometimes difficult. When trying to plan for something that is far away in the future, you will have to look at many different variables. Here are some steps that you will need to take in order to determine how much money you need to retire.

1. Living Expenses

One of the first things that you will need to determine is how much money you are going to spend on living expenses when you retire. Think about what you will be doing when you retire and spend some time with this process. You need to consider every potential expense that you will have on a regular basis. You will not be able to think of everything that you could possibly spend money on, but you need to get as close as possible. Think about your living expenses, your grocery bill, your utilities and anything else that you might need. If you are going to be moving to another location, you need to determine how much real estate is going to cost in an area. If you are going to be renting, you need to get an idea of how much the market rent is in that location.

2. Inflation

When you determine how much money you think you are going to need to live in retirement, you also need to factor inflation into your calculations. Inflation can be a big problem for those that are trying to plan for retirement if it is ignored. You should plan on an average of 3% per year for inflation. If you do not take into consideration the impact of inflation on your retirement portfolio, you will definitely not be saving enough money to live on. 

3. Medical Considerations

With the uncertainty of the medical system, it can be very difficult to make any predictions about how much money you are going to be spending on medical care in the future. However, you need to try to get as close as you possibly can. For many senior citizens, medical expenses is a large part of their budget. You need to determine what type of insurance coverage you are going to be utilizing. If you plan on using Medicare, you need to also consider whether you are going to need a Medigap policy. Consider how much money you will need for deductibles and co-pays every year.

4. Recreation

On top of your regular living expenses, you also want to factor in a certain amount of money for recreation expenses. After all, the purpose of retiring is so that you can enjoy yourself for a few years without having to worry about working. You need to factor enough money so that you will be able to travel and live in the way that you choose to live. If you can, allow enough money to have some miscellaneous expenses every month. 

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