How Much to Save for Retirement

To figure out exactly how much to save for retirement, you’ll need to see into the future. To make sure you have enough money to retire, well, winning the lottery wouldn’t hurt. But even without psychic powers or lucky numbers, you can build a decent retirement savings.

WalletPop has lots of tools to help you identify a dollar amount you’ll need to save for retirement – including this direct advice from the Dolans here (http://www.walletpop.com/blog/2009/09/04/ask-the-dolans-how-much-money-do-i-need-to-retire/).

You’ll need to prepare to crunch numbers effectively. Start by playing genie and estimating how much money you’ll need to save to live on each year after you retire. Use your current annual expenses as a starting point, adjusting for anticipated decreases and increases in spending (you may plan to downsize to a smaller home, but increase spending on trips and gifts for family).

Expenses may change as you age, so calculate savings based on a figure for the first 15 years of retirement, and one for the next, and so on, and add it all up. Take into account the costs of a less independent lifestyle, such as long-term care and assisted living, as well as unexpected expenses.

Factor in the income you think you’ll earn during retirement (as well as pension or social security payments). And don’t forget taxes and inflation. If doing all of this sounds like a yearlong assignment, check out this quick worksheet from the Dolans: http://dolans.com/article/42846/4-Simple-Steps-to-Planning-for-a-Rich-Retirement/ . A hint: they figure you’ll need 70% of your job income.

Now play genie for another few moments to decide how many years you’ll be using your retirement savings. This requires making a guess of when you’ll retire and how long you’ll live. Then turn to the factors you have more certainty on: how much money you earn, how much money you save, and over what period of time. Be realistic: there are always going to be expenses -- a wedding, school loans, tuition -- to put a chink in your retirement-savings goals. And be cautious: Don’t count on a huge bonus. Try to commit to a minimum contribution, increasing it when you can.

Once you’ve gone through these items, you’ll have an idea of your retirement needs and your capacity. And you’ll be on your way to making them meet the day you bid farewell to your cubicle forever.