To plan realistically, consider the general consensus that you may need to replace 60 percent to 80 percent of your pre-retirement income to keep the standard of living you have now.
A good place to start is to estimate what you spend on essentials such as food, clothes, utilities, insurance and taxes. These expenditures will continue after you retire.
Next, calculate if your day-to-day expenses will decrease and by how much. Perhaps your mortgage will be paid off and your children may be self-sufficient. Your income and Social Security tax liability may drop dramatically as your sources of income change. However, personal expenditures may increase, such as travel, medical costs, etc.
In addition to your day-to-day needs, it’s always a good idea to have funds set aside for an emergency. It is recommended that six months’ of living expenses be set aside in a liquid or semi-liquid account. If you rely on investments in stocks and other equities for your emergency fund, you may risk being forced to sell assets at inopportune times, such as when the market is down.
One of the most important steps in retirement planning is accurately estimating how much income you’ll need. That’s why it is smart to review your financial plan on an annual basis. Give us a call; we’re here to help you move towards a brighter financial future.