Recently, someone asked me if a million dollars was enough to retire. The answer is yes, and no. A million dollars could represent a lifetime of retirement income to some but only a few years of income to others. The better question to ask, is how much of my income do I need to replace in retirement?
Most people need to replace about 70-80% of their income in retirement. The reason you don’t need to replace 100% of your income is because a lot of your expenses go down when you get to retirement. For example, you’re not contributing to your retirement plan anymore, you’re not buying lunch at work every day, you’re not buying clothes for work, and the list goes on. In order to figure out exactly how much income you need to replace, we need to start to think about what our expenses will be.
To determine our expenses in retirement we need to look at two categories; our fixed expenses and our discretionary expenses. Fixed expenses are expenses you know you will have each month or year. Things like utilities, gas, insurance, and groceries. Discretionary expenses are things that you don’t necessarily need but want. Things like vacations, club memberships, and hobbies. If you’re younger, and you’re budgeting for the first time, shoot high. Try to include all of things you’ve always wanted to do. As you get closer to retirement make sure your expenses are realistic and match up with the income you expect to receive.
Budgeting for retirement isn’t the most exciting thing in the world but it’s crucial to any retirement plan. If you’re not sure where to begin or if you would like some help getting started feel free to contact me anytime.
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The road doesn’t wait, get started today.