Retirement is around the corner, Aaron turned 40 years old a few weeks ago and I’m not that far behind him. Now that we are officially old, retirement is becoming a real concept.
I want it to be a welcome idea, not a scary concept.
Over the last few years, we’ve concentrated on paying off all of our consumer debt. As a result, I’ve mostly ignored my retirement funding.
Now that we finally have the debt gone it is time to refocus on retirement.
In order to adequately fund for retirement, you need to have a vision of your future lifestyle. I believe this is the most important step toward retirement planning.
For us, our retirement vision is focused on three areas:
- Tons of time with family (especially grandkids)
- Financial freedom to serve a mission for our church
- Travel, travel and travel – and I’m talking some exotic fun crazy locations
Everyone will have different goals for retirement, the key is to sit down, figure them out and write them down.
My list above is general, but based on these priorities I have a more detailed plan laid out.
By the time we are ready to retire our home will be paid for and we will have no debt. This means that our living expenses will be minimal and in theory we won’t need as much for retirement.
I need to do additional research but based on current spending and general lifestyle wants, I believe that for us, an income of at least 72,000 annual would be sufficient. My goal will be higher, but I know that we could easily survive on $6,000 a month.
Take the time to research the costs of your future plans and make a realistic budget based on future healthcare costs, home pricing, vehicle needs, inflation and all the other stuff that may impact you in retirement.
Once you have determined your estimated retirement costs – add at least 20-30% to the number you’ve determined to account for all the stuff you’ve forgotten.
There are a ton of retirement calculators available, but my personal favorite is found on Chris Hogan’s website (he is associated with Dave Ramsey). Their Retirement IQ Calculator is easy to use and lets you include a variety of factors. You’ll have to enter your email address, but in return you get a PDF document that allows you to personalize your retirement goals.
For example, if I input the following values:
- Starting Retirement Investment: $125,000
- Estimated Rate of Return: 12%
- Estimated Inflation Rate: 2.75%
- Estimated Monthly Income: $6,000
I will need to contribute $5,049 per month for 10 years to have income of $6,000
I will need to contribute $2,108 per month for 15 years to have income of $6,000
I will need to contribute $711 per month for 20 years to have income of $6,000
Gotta love the power of compounding interest.
So all of this writing is to highly recommend that you start saving towards retirement now. Check out this article on starting your 401K account.
***Editors note: Chris Hogan recently came out with his first book called “Retire Inspire: It’s Not An Age, It’s a Financial Number“. I just finished it and highly recommend it to anyone interested in this subject. The writing is simple and easy to understand, the stories are great and it really will inspire you to save for retirement.
Photo Credit: Nick Harris
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