There are many reasons why so many of us work our butts off during our life, and the most common reason is that we want to enjoy our retirement when the time comes. I know we all have a target retirement age, but the problem is that some of us haven’t truly thought about it deeply. Retirement is more than just an age you want to stop working; it’s a financial decision. To prepare for a comfortable retirement life, these are factors you should consider when you start to plan for retirement. Don’t worry, it’s never too early to start.
Okay here’s the deal, costs for things now won’t be the same in 5, 10, or 30 years, and it’s because of a thing called inflation. Inflation is when value of currency changes and therefore affects the costs of goods and services over time. What I’m trying to say is, your purchasing power will be much different in 10 years. If you can luckily score an apartment for only $1,000 in New York now, there’s absolutely no way you can do that by 2030.
Cost of Living
Another factor to consider when planning for retirement is where you plan to live. Expensive cities mean higher cost of living. Higher cost of living means more savings needed. You have to take into consideration costs for living, food, hobbies, healthcare, etc.
This is connected to the second factor I mentioned. Along with the cost of living, you also need to take into account your lifestyle when you retire. Not working means you’ll be spending all of your days at home, and I’m pretty sure you don’t plan on spending the entirety of your retirement indoors. Do you plan on joining clubs? Meeting out with friends for lunch every day? Hosting dinner parties once a week? The more lavish your lifestyle will be, the more money you should have saved up for retirement.
As we get older, there will be more healthcare expenses, whether we like to admit or not, so that’s one thing you should definitely consider. Elderliness requires more trips to the doctor for checkups. Unless you’ve got a really good insurance company that covers all costs, you will need to pay out of pocket more often than not for doctor’s fees, meds, and the like.
Lastly, we have social security. How much will you be receiving from social security? Will that be enough to support you throughout your retirement? If not, how much should you add monthly and how much money should you save up then?
As soon as you start taking these factors into consideration, it’ll be easier for you to figure out how much you’ll need every year to support your retirement, and from there you can work backwards to identifying your nest egg size.