Calculating Retirement Savings: How to Add Up Your Financial Future Success

Roger Harris |
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How much money do I need to retire?

This is probably the question financial planners are asked the most when clients walk in to discuss retirement freedom. A simple question, in theory, but not an easy answer. Understanding what your optimal retirement savings are means peace of mind in your golden years.

So how do you plan for financial success? Most financial professionals agree that you can plan for your future by answering a few questions, and start with honest expectations of how you want your standard of living to be. This is referred to as the, “life-cycle consumption smoothing and it holds that the key to effective retirement planning is to try to keep your standard of living as consistent as possible for your entire life. In other words, you don’t want to live it up while you’re working—spending all your money on fancy clothes and expensive cars—only to retire into poverty. But neither do you want to scrimp and save your entire life so you can live like a king for a decade or two before you die.1" The key is finding the right balance for your lifestyle while you’re working, and remain consistent throughout retirement. "The truth is you’re never living on 100% of your income—there’s always a certain portion that has to go to taxes, your kids’ education, the mortgage and other fixed expenses. During our prime working years, those expenses are particularly high, so most of us live on something like 40% of our pre-tax incomes. Those expenses drop once the house is paid off and the kids move out, so when you retire, you can live on a much smaller income, but still have the same standard of living or better.2

If you’re in Canada, The University of Calgary created an incredible (and free) retirements calculator called canada.esplanner.com. “The tool calculates how much you should spend, save, and insure each year to maintain your living standard. It can also show you how changing jobs, contributing to retirement accounts, having children, moving homes, retiring early, waiting to collect pension benefits, and other personal financial decisions will affect your sustainable living-standard.3

If you’re in the United States, most financial institutions have their own version of a retirement savings calculator to give you a starting estimate of how much to save. CNN Money created an interesting tool that provides a snapshot into retirement saving goals based on your income, current age, retirement age, and savings rate. Although this is only an estimate, it is a great starting point to see if you are on or off track before it is too late.

Resources

1. http://www.moneysense.ca/save/retirement/retirement-savings-calculator/

2. http://www.moneysense.ca/save/retirement/retirement-savings-calculator/

3. http://canada.esplanner.com/

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2022 Advisor Websites.