Estimate Your Retirement Needs Based on Your Spending, Not Income
There are many different ways to estimate how much money you will need to retire , but many of the so-called “rules” are based on your income. If you want a more accurate picture of your retirement needs, calculate them based on your spending.
As personal finance site Money Boss points out, calculating your retirement needs based on your typical income can go a long way if your spending doesn’t match your income level (and if you’re saving enough, by definition, it shouldn’t be). ). Instead, take a look at your spending levels to get an idea of how much you need to spend on retirement:
Let’s say you make $ 50,000 a year but spend $ 60,000. In this case, your income lowers your lifestyle by $ 10,000 per year. If you base your retirement needs on your income, you will feel bad.
On the other hand, if you are a finance boss who is saving half of your earnings, you will only spend $ 25,000 out of your $ 50,000 paycheck. If your retirement needs depend on your income, you can save a lot more than you need to. You will work long after you can safely retire.
Of course, in both cases, you are dealing with issues like inflation or the fact that (ideally) you still won’t be paying for your home or other long-term debts after you retire. However, assessing your spending habits – how much you want to travel, how expensive it is to live in your area, etc. – can give you a better idea of what target you need to shoot at.
Traditional Advice WRONG: Here’s How Much You Should Really Save For Retirement | Money Boss via Rockstar Finance