Planning for Retirement? 3 Questions Everyone Needs to be Asking

If you haven’t given much thought to retirement, you should. One of the most important things you can do to ensure that you will have enough in retirement is to plan. Run the numbers, set your goals, and adjust your budget accordingly. Here’s 3 questions everyone should ask themselves about retirement.


Step 1: How much do I need?

You can’t successfully plan for retirement if you have no idea how much you will need. A great place to start is your budget. You should be tracking your expenses, and if you’re not, start now. The EveryDollar app is a great tool for tracking expenses. Look over your monthly expenses, and average how much you spend. You can then consider scenarios that may increase or decrease this amount. Will you have a pension? Do you plan on down-sizing your house? Do you plan to travel? Will your house be paid off? These are scenarios that could impact how much you will actually need in retirement. Once you have made adjustments, and determined your estimated annual expenses, multiply this amount by 25. This is the amount you will need to become financially independent. I generally review this step annually when I look at my annual expenses at the end of the year. Financial situations and desires change, so it’s best to stay up-to-date when planning.

Step 2: How much do I have?

This step can be an epiphany. It definitely was for us when we initially calculated our net worth about 4 years ago. Realizing that you have a negative net worth can really motivate a person to get their finances in order. It’s impossible to calculate how much you need to save every month to reach your goal, if you don’t know where your finances currently stand. Some people may be ahead, and others may find themselves with a negative net worth. To determine your net worth,first list all of your assets, how much they’re worth, and then add them up. These include bank accounts, investment accounts, and real estate. Next, list all of your liabilities, what you owe, and add them up. These will include your mortgage balances, personal loans, auto loans, credit cards, and student loans. Last, subtract your liabilities from your assets. This amount is your net worth. Subtract your net worth from your FI amount that you calculated in step one, and this is how much you have left to save before you retire. A fantastic tool to utilize is Personal Capital. This free money management tool allows you to keep track of your assets and liabilities all from one place without having to log in to each individual account. Just link all of your accounts, and view them all from the dashboard.  This financial tool has saved me so much time.

Step 3: How much should I save?

Based on your age, when you plan to retire, and your current net worth, you can determine how much you need to be saving monthly to meet your retirement goals. You can use an investment calculator to determine this. I usually estimate a 7% return rate. I use Dave Ramsey’s investment calculator. Once you have figured out how much you should be saving, you can plan accordingly.

Hopefully after these 3 steps, you can now develop a strategy to meet your retirement goals. Maybe you are ahead of schedule, and you can retire early, or maybe you realize that you need to be a lot more aggressive with your savings. Wherever you stand, you have taken the most crucial step by determining how much you should be saving every month. Now you can focus on an even bigger dilemma: where do you put the money?