Everyone has to retire at one point in their life. When the time ultimately comes to retire, whether the process goes well or not will depend on how much money an individual has put aside for retirement. Many governments offer retirement plans and pensions for civil servants. However, depending on the state of the economy and living expenses, government funds can be sorely inadequate to retire comfortably. Especially if you want to be a retiree on a sun-kissed island and spend the last days of your life in a seafront mansion, you will definitely need to have a private retirement fund.

It Depends…

Most people start putting aside money when they get close to retirement. Most young people do not know how to save for how much cost retire comfortablyretirement.  Even worse, many workers are baffled when it comes to determining how much it would cost to retire. The money one needs for retirement depends on individual preferences. For example, if one wants to retire at an exotic locale as opposed to continuing to live in a family-owned home, then that person will have to set aside hefty amounts per month in a savings account. If not, people still need to save in case emergency medical bills or unexpected family emergencies happen in the future.

Estimate the Amount Needed

There are several ways to calculate the cost of retirement. Obviously, these will be estimates rather than exact numbers. Therefore, it’s always best to consider these calculations as extremely conservative estimates and aim to save more.

To calculate the amount you need to save for retirement, first consider your income upon retirement. You can get a reliable figure from your employer. Add your current savings, returns from short term investments, and other sources of funding to this figure. Now deduct the expenses you will no longer have to bear upon retirement, such as mortgage payments, children’s expenses, income taxes and other loan payments if any. With the right taxes estimators, you should be able to narrow down what those deductions mean for you financially. Experts say that upon retirement the average worker’s living expenses decline by about 70 to 80 percent. Subtract this amount from the net income and you can have a reliable figure you need to retire with all your basic needs covered.

Sample Calculation

Here is an example of calculating for retirement: Imagine you need 5,000 dollars per month for groceries, clothes and housing upon retirement. Say you receive 1,500 dollars from social security and pension each, so you have 3,000 dollars of disposable income each month as a retiree. Now, you will need to save at least 2,000 dollars more per month to meet your basic requirements. That’s 600,000 dollars per year that you need. If you have 20 more years until retirement, you will need at least 1, 200, 000 dollars in your retirement fund by the time you are 60 (or 65). You will have to plan saving accordingly.

Then again, retiring comfortably is not the same as retiring basically. If you want to cruise around the world or travel, these expenses will need to be calculated in advance. Check the current prices for the house you want to buy or a cruise you’d want to book, and consider the inflation. In a decade or two from now on, you would need to pay more for these. Or less, depending on the economy. Therefore, you might need to consider investing to beef up your future income for retirement.