Do I Have Enough to Retire?

Retirement can be an exceptionally rewarding time in your life, but if you're not prepared, it can also be financially stressful. Planning for the future can help ensure that you have enough savings to retire on. How much money will you need? It'll depend on your expenses and lifestyle goals, which is why it pays to put some thought into retirement rather than jump in blindly.

What will your living costs look like in retirement?

Unless retirement is only a year or two away, determining what living expenses you'll face can be challenging. After all, it's hard to know how much things like food and transportation will cost 15 years from now. But while you may not have access to a crystal ball, you can educate yourself on the costs of retirement to come up with a ballpark figure.

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Take healthcare, for instance. According to HealthView Services, a provider of cost-projection software, the average healthy 65-year-old couple will spend a whopping $377,000 on healthcare expenses in retirement. Now your specific costs might exceed this figure or fall below it depending on your coverage and the state of your health, but having an idea of what medical care might cost can help you prepare accordingly.

Similarly, if you're planning to hang onto your home in retirement, you can do your best to estimate your housing expenses down the line. If, for example, you only have 12 more years on your mortgage and you expect to retire in 14 years, you can rest easy knowing that your home loan payments won't need to be part of your budget. On the other hand, you'll still need to account for property taxes (which have a tendency to rise over time), homeowners' insurance, and maintenance, which costs the typical property owner 1% to 4% of his or her home's value. Estimating your housing costs in retirement can help you determine how much income you'll need once you're no longer working.

What are your retirement goals?

One benefit of retirement is having an opportunity to do the things you've always dreamed of doing. But your lifestyle in retirement will play a huge role in determining the amount of savings you'll ultimately need.

Think about it: There's a difference between spending your days gardening, hiking locally, and babysitting the grandkids versus traveling the globe for weeks or months at a time. Once you figure out how you plan to occupy your free time in retirement, you can start working toward a savings target that will help you meet your goals.

What income sources will you have in retirement?

Unless you're among the small percentage of workers with a pension, the burden of funding your retirement will mostly fall on your shoulders. That said, if do you have a pension, you can certainly factor it into your income equation, which might take some of the pressure off from a savings perspective.

Then there's Social Security to think about. Most people can't survive on Social Security alone, since the average benefit will only suffice in replacing about 40% of the typical worker's pre-retirement income. But as long as you recognize that you'll need income outside of Social Security, there's no harm in factoring in those payments as well.

Are your retirement savings on track?

Once you've contemplated your retirement living expenses, lifestyle goals, and income sources, you'll need to take a look at your current savings to see how they'll hold up. This helpful calculator will help you get started:

* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

A few things to keep in mind about this tool:

You'll need to estimate your pre- and post-retirement return on investment. If your portfolio is loaded heavily with stocks, it's fair to assume a 7% average annual return or more. On the other hand, if you're sticking with mostly conservative investments, you may only get a 4% or 5% return. Furthermore, there's a good chance your returns will decrease in retirement, as at that point you'll most likely start shifting to safer options.
You'll need to estimate how many years of retirement your savings will be required to fund. Because people are living longer these days, you may want to plan for a 25- or 30-year retirement to be on the safe side.
Your living expenses and lifestyle goals will help you determine how much income replacement to aim for. Most people need at least 70% of their previous income once they stop working. If you're planning to maintain a frugal lifestyle, a 70% replacement target will probably suffice, but if you're hoping to live it up during your golden years, you should aim for 90% to 100% replacement.

While it might seem like saving for retirement is nothing more than an impossible guessing game, if you put some thought into your goals and read up on the costs seniors face, you're likely to come up with a savings target that will help you achieve your objectives. And from there, it's really a simple matter of seeing where your savings are at and taking steps to ramp up as needed.

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