When it comes to retirement planning, one of the biggest questions to answer is how much money you will really need to live comfortably during retirement. This number governs nearly every aspect of retirement planning, from setting retirement savings goals to choosing investments for your retirement funds. Many people believe that they will need at least 80 percent of their current monthly income to maintain the same standard of living during their retirement years, but many may be able to make it work on much less.
A survey of recent retirees conducted by the T. Rowe Price Group in 2014 found that the retirees were living on an average of 66 percent of their preretirement income. Of these, 85 percent said that they did not need to spend as much as they were before they retired and 57 percent reported they were living as well or better than they were when they were working. Here is how to determine how much money you really need in retirement savings to live comfortably.
You Are No Longer Supporting Your Children
Supporting children and helping them out financially when they are young adults can eat up a large amount of your income, but when you are no longer supporting your children your cost of living decreases considerably. If your current expenses include the things that you are doing to financially support your children, it is important to remember that you probably will not have these expenses during your retirement years. If you save this money instead of raising your cost of living by partaking in a more expensive lifestyle, your expenses during retirement will be much lower.
You Can Save More Than 10 Percent Of Your Income
If you are making enough money that you can consistently afford to save more than 10 percent of your paycheck, the 80 percent target for retirement savings may be a little high for your lifestyle. In almost all cases, monthly expenses will be lower during the retirement years, so if you are saving more than 10 percent of your income now, you may be able to lower your expenses to 65 percent of your current income during your retirement years. As long as you can keep your lifestyle expenses under control, you should have no problems surviving on the lesser amount.
You Will Not Have A Mortgage Payment
For many people, their most costly monthly expense is their mortgage payment for their home. If your mortgage is due to be paid off before you reach your retirement years, then you will not have to factor this cost into your retirement savings plan. For many people, the cost of their mortgage payment is between 15 percent and 25 percent of their monthly income. This is a considerable drop in expenses, which will translate to more money in your pocket for your other needs.