How much money do you need to live comfortably?

Financial planning is not a one-size-fits-all endeavor. While your financial needs will be different depending on your stage in life and personal circumstances, there are some general guidelines that apply to everyone.

Financial advisors often recommend having an emergency fund with three to six months’ worth of expenses stored away. But what does that mean in terms of actual dollars? How much money do you need to live comfortably?

Many financial experts say that in order to live a comfortable life, you should have at least $1 million saved by the time you retire. This may sound like a lot, but it’s really not that much when you consider how many years you can expect to live after retirement. If you don’t have $1 million saved right now, don’t panic—there’s still time to get there!

Topic Index
  1. Determine your current financial situation
  2. What’s your monthly cost of living?
  3. How much do you currently have saved?
  4. Which investments offer the best returns?

Determine your current financial situation

As with any project, you need to know where you stand before you can chart your course ahead. Before you can calculate how much you’ll need to retire comfortably, you need to know how much you currently have saved. You also need to know your current monthly expenses, as well as your debt and any other obligations you might have.

Start by creating a budget, listing all monthly expenses. Include things like rent or mortgage payments, utility bills, groceries, and discretionary spending like eating out or going to the movies. Don’t forget to account for any outstanding debts and monthly payments you might have secured with collateral. You might also want to look into your credit score and see where you stand there.

What’s your monthly cost of living?

The amount of money you’ll need to save for retirement really depends on how you plan to live once you’ve stopped working. Do you have children or other dependents? Will they continue to live with you or will they move out? Will you travel more, or take more classes or other enrichment activities?
While everyone’s needs will be a little different, there are a few common expenses that most retirees face:

  •  Health care - Do you have health insurance through an employer? Medicare? Or will you need to purchase a private health insurance policy? You may want to consider inflation when thinking about how much health insurance will cost in the future.
  •  Living arrangements - Do you plan to continue living in your current home? If so, will you need to make any renovations? Will you need to hire a property manager? What about utility bills? If you plan to move to a different location, how much will that cost?

How much do you currently have saved?

The amount of money you have saved right now will have a big influence over how long it takes you to retire. If you’re starting late, it may take you a few extra years to catch up. If you’ve been saving for retirement for a long time, you may be able to retire a little earlier.
Using a retirement calculator, you can estimate how much you need to save in order to retire at a certain age and with a certain amount of money. You can also use a retirement calculator to project how much your savings will grow over time given a certain amount of monthly contributions and a certain return on investment.

Which investments offer the best returns?

Assets that produce higher returns, such as stocks, also carry a higher risk of losing money. Generally speaking, you’ll want to keep the majority of your savings in low-risk investments, like bonds, in order to build up a sufficient nest egg. Once you reach retirement, you can take more risk with the remainder of your portfolio and increase the number of stocks you own.

If you’re saving for retirement now, you’ll want to choose investments that will give you the best return over the longest period of time. In other words, you’ll want to choose the safest investments around.

Retirement can seem like a long way off, but it’s important to start saving for it as soon as possible. Even if you start saving a small amount each month now, the power of compounding will take your savings to new heights. You may not be able to predict how long you’ll live once you’ve retired, but you can be sure it will be longer than you think.

The longer you wait to start saving for retirement, the less comfortable you’ll be once you stop working. How much do you need to live comfortably in retirement? Whatever you need now plus enough to last for as long as you can.

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