How Much Do I Need to Save for Retirement?

 As you’ve probably heard it said before, it’s never too early to start planning for retirement.  How much do you need to save to be comfortable after you stop working?  What factors should you consider to help in the planning process?
The traditional approach to calculate spending needs in retirement is to use a percentage of pre-retirement income as a guide.
That percentage is usually between 70 percent and 80 percent.  But we all have our own particular circumstances that need to be taken into consideration as well.  One consideration is how children may affect your monetary requirements.  Although your children will likely be adults by the time you retire, you may want to help pay for a wedding, or you may find that your children need to move back home for a while.  Will they need help with your grandchildren?  Where will you live when you retire?  If you relocate, costs of living may be more or less than you are paying now.  And while future costs such as housing, food and transportation can be reasonably estimated, medical costs can be unpredictable.  Retirees tend to spend more on leisure during the early retirement years and more on health in the later retirement years.
How will your spending needs change during retirement?  There are a number of new research studies that provide us with a clearer picture of how spending changes during retirement.  While it is important to remember that our own requirements may be different from the average, knowing how spending trends change as we age can be a useful tool in planning for retirement.  According to one survey, retirees on average, spend 33 percent less at age 75 than at age 65, and this trend continues as we continue to age.  This decrease in spending happens voluntarily, not because people are running out of money.  To predict how much your own spending will change during retirement, consider such factors as how decreasing energy levels will impact travel and other interests.  The amount spent on travel, hobbies and eating out tends to decline as we age.
Overall, planning for retirement is complicated and imprecise.  But combining the lessons learned from conventional wisdom with your own particular circumstances gives you a good place to start.
Jerald Schneider is a Certified Public Accountant providing tax, accounting and financial advice for more than 25 years.  He can be reached at 661-297-1072 or by e-mail at jerald@jeraldschneider.com.