Determining Your Retirement GoalsThe first step in planning for your retirement is to determine how much money you'll need for retirement; to know that, you first have to determine the retirement lifestyle you want. You'll want to answer these questions:
- How early do you want to retire? The earlier you want to leave the workplace, the less time you will have to get your financial act together and the more time in retirement you will need to fund.
- What other plans will you have? Do you want to buy a sailboat, retirement home, or the camper of your dreams? Does your health suggest you may need more medical care?
- What will inflation do to your income? You need to consider how inflation will change your income needs. In 20 years, a 4 percent inflation rate will more than double the amount of money you'll need to keep your current standard of living.
- What percentage of your current living expenses will you require? You may not need the large home, several cars, or funds to pay for raising children and holding a job. But if you plan to travel or live the country club lifestyle, certain expenses may increase.
When you've determined how much money you'll need to retire on, you'll be able to compare that with your current savings and investments and plan for a way to make up the difference.