How Much Money Do You Need To Retire? | Get Financial Freedom Tips | Transform Your Financial Future


Tuesday, July 4, 2017

How Much Money Do You Need To Retire?

Your retirement may seem like a long way in the future when you are struggling to raise a young family or to get a mortgage to buy your first home. Saving for retirement is an unpalatable thought and something that people in their twenties and thirties are simply not interested in dealing with. By your forties, you may be using your money to invest in a business and paying to help your kids through college. Then you hit your fifties and retirement does not seem so far away! Now you feel like it may be too late to do anything about it!

How Much Money Do You Need To Retire

There are many psychological barriers to thinking about your retirement. No-one really wants to think about getting old because it has connotations of lost mobility, ill health, and even loneliness. At the same time, if you are struggling financially, the thought of losing some of your income into a retirement fund can be pretty scary.

You can overcome some of these barriers by arming yourself with some facts and figures. This allows you to quantify the situation and put some plans in place. It will also reassure you that you are not over-saving for your retirement and missing out on enjoying your younger years.

How much money will you need to live when you are retired?

Retired people have very similar costs to everyone else! They need to pay to put a roof over their heads, they need to eat and they need to heat and light their home. They may want to run a vehicle and they may want to have the odd meal out and even a holiday! This all adds up to quite a large sum.      
You can calculate a rough estimate of your retirement expenses. Start off by using your current monthly take-home pay as a starting place. Ask yourself if you are managing to maintain a reasonable lifestyle on that. Then start making some adjustments.

What expenses are provided by your employer that you will have to cover when you are no longer employed? Does your employer provide accommodation, a vehicle or health insurance as part of your employment package? Calculate what this would cost and add them on to your monthly wage.

Then add on extra retirement expenses such as travel, or extra money for health care expenses. Add on a small amount each month that you will need to put aside to cover major expenses such as house and car repairs. 

Now you can start taking some money off your subtotal. These are the expenses that will decrease or disappear when you are retired. Traveling expenses to and from work can be removed. Add up what dressing for work costs you. Do you have to buy a couple of new suits and pairs of shoes each week? Do you pay out for dry-cleaning bills? You may also have to pay for ongoing professional development and membership of professional organizations and this will cease when you retire. If you have debts that will be fully paid by the time you retire you can remove the monthly payments for these too. Monthly mortgage payments and car loans are typical examples.

Finally, you can make the assumption that your kids will be financially independent by that time in your life and so you can remove what you spend on them. Of course, the reality of the situation may be very different but you should hope that they will be supporting themselves to some extent.

Don’t forget that if you have a spouse or a partner you will need to take their earnings and needs into account and you may be able to cut the living expenses in half. You may also be expecting an inheritance, for example if you have elderly relatives who have indicated that they are going to bequeath property or goods to you.

Calculating what your retirement plan will give you

Retirement can be enjoyable, relaxing time, but only if you can afford it. If your retirement has greatly reduced your income, you may feel the need to take out a mortgage on your home. However, a traditional home loan requires incremental repayments beginning almost when you initially borrow the money. When you get a loan by contacting a reverse-mortgage lender, you will have no such repayment obligation. The only obligation you will have is to live in the home and retain ownership of it for as long as the loan lasts. During the loan duration, you will still be the homeowner and have to pay taxes and other home-related expenses, so the lender will do a credit check on you to see if you are capable of doing so. If you are approved, the loan balance will not be owed back until you move off the property. Now that you are clear about how much money you need to be comfortable in your retirement you are ready to investigate various income streams.

It is very useful to use the profit sharing calculator. To use this calculator effectively you must have JavaScript installed on your PC. You may also need to adjust your settings to ‘Allow Blocked Content’ when using the Internet Explorer temporarily. The calculator will give you two significant facilities. The first is that all your payments and incomes will be subject to tax deferral. Secondly, you are provided with the matching payment by a few employers in your account. Employer’s payments range from 0% to 100% of your contribution to the savings account. You can, of course, alter the age of retirement. You can get a significantly better return by delaying retirement by a few years. At the end of the calculation, you will have a perfect savings plan at the time of retirement. 

You may want to supplement your retirement income by investing in property but this is not necessarily an easy option. There are the initial costs of purchasing the property as well as the set-up costs. The income is not guaranteed. The property may be vacant for a few months at a time or you may end up with a bad tenant who does not pay the rent on time. They may even cause damage to the property and leave you with a huge repair bill.

Rented properties have ongoing costs. There may be insurance and maintenance costs and some landlords pay for window cleaning or garden maintenance. If you manage the property yourself, you need to be physically capable of getting there are carrying out the repairs. If you use a management agency, they will take a proportion of the monthly rent and so you may not get as much as you thought you would.

Whatever your income stream in retirement, it is worth making plans and putting a safety net in place. If you don’t like the thought of old age you will certainly not like the thought of being poor in old age!


  1. Hello Denny, well calculated financial expenses when we retire. The profit sharing calculator you've mentioned in this post. Is this for free software? I really agree with what you said that it is really important to be prepared especially when retirement comes.

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