How Much Do You Need to InvestConventional wisdom has been that a retiree could expect to spend 20-30% less per year than during his or her working years.
While that may still be the case for many retirees set on settling into a simpler life, there are plenty of retirees who are ready to reward themselves after 40 years of working 9 to 5. Many will spend more money in retirement than they did during their working years.
So the amount of money you must invest for retirement depends on what kind of lifestyle you envision for yourself after your earn the proverbial gold watch. It also depends on when you start investing.
Everyone's dreams and financial circumstances vary. For a more personalized estimate of what you'll need, complete our Retirement Worksheet.
When working out a plan, remember to work in terms of today's dollars. Forgetting about the effects of inflation on your spending and your income over time can make the plan difficult to comprehend. For instance, if inflation runs at 3% annually, today's $50,000 salary will be the equivalent of about $140,000 in annual income if you retire 35 years from now. Because of that, it's important that your investments for retirement stay well ahead of the rate of inflation.
Today's retirees are often more active than those a generation ago. During the first several years of retirement, they spend as much as 20% more than they did during their working years.
Planning for an event that will take place 25 years or more from now and last another 25 years after that is difficult. Don't let it overwhelm you.
Consider the lifestyle you want in your early retirement years, and then plan on what you'll need for the first few years of retirement and start investing for them. As you get older, your activity and expenses may decrease, so if you plan your spending for the first few years of retirement, you'll likely be living well below your means as you enter your golden years.