How to Determine Your Income Needs For Retirement Planning

Are you wondering about how much you’re going to need saved for when you retire?

It’s a common question that a lot of people have, young and old. Some of the more common variations that I get on this question are, What is the amount of income that I’m going to need in retirement? or, How do I figure out what my retirement income needs are going to be?

It’s a tough question, but the toughest part about answering it is that there is no clear cut answer.  There is no universal formula, some general mathematical rule of thumb,  or some magic number that you need.

Your retirement income needed all depends on your unique situation. And that is what makes financial planning an ongoing process.  It’s not just a one time, quick, snap-shot solution where, “Okay, bam!  This is how much money you’re going to need and you’re all good.” Here are a couple of the different items that you need to consider when you’re trying to figure out what your retirement income needs are going to be.

Pay Your Bills

First and foremost, you have to figure out what are your needs are, meaning how much do you need each month to pay the bills? How much do you need to take care of your health insurance or if you still have a house payment, if you still have debt, if you want to do vacations? It all comes down to trying to identify that. That’s tough for a lot of people, because a lot of us do not budget. A lot of us don’t have a good sense of knowing exactly where our money is going each month. If you don’t have a good handle on your budget, then trying to identify your income need is almost impossible.

How do you do it? You can try to shoot from the hip, which a lot of my clients try to do. But I make them go home, sit down and start looking at where all their money is going per month. What are the things that they have to have each month to buy? Without doing that inventory, without doing that research into their own lives, it makes it tremendously difficult to try to figure out what their retirement-income needs are going to be. That is the first step and, I assure you it’s probably the hardest because a lot of people don’t do it. They just don’t take the time to figure that out.

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