There are numerous ways to calculate how much money you’ll need to save to retire comfortably but perhaps the easiest method, is to first determine how much you plan to spend. Retirement expenses are subjective of course and depend on multiple variables, but if you get your spending right, the rest of the math quickly falls into place.
At Valuist, we like simple. Simple saves time and time is our most valuable resource
So, we developed a F.I.R.E (retirement) calculator that accomplishes 4 things:
- The F.I.R.E Calculator analyzes your current retirement savings.
- The F.I.R.E Calculator projects what your current portfolio will be worth during retirement.
- The F.I.R.E Calculator determines how total savings needed to achieve your retirement goals
- The F.I.R.E Calculator figures how much additional savings you need each month in order to achieve your retirement goals.
How To Accurately Project Retirement Spending
During retirement your expenses will likely change significantly, especially if you are retiring at an older age. The person retiring at age 45 will have a much different outlook than someone retiring at age 65. The key to accurately projecting your retirement savings requirements is to frequently budget, to analyze your current spending and to understand how your expenses will change when you are ready to retire.
In order to accurately determine what your spending will look like during retirement, there are several factors to consider, including:
- Housing Expenses: Will you own your home or will you continue to pay a mortgage? When is the final payment? In order to accurately account for housing costs you will need to determine how much of your savings must be allocated to paying off your property. Alternatively, you can plan for and include your mortgage or rent as an ongoing retirement expense. Housing costs should also include property taxes, utilities, costs to furnish, repairs and maintenance of the property. Check out our post of the True Cost of Buying a Home
- Vehicle Expenses: Vehicle expenses tend to decrease in retirement as you are no longer commuting, but similar to housing expenses if you don’t own your vehicle/s outright you will need to factor in your payment until your car is paid off. Be sure to check out the Valuist article on the True Cost of Buying a Car.
- Medical Care: Medical expenses typically increase in retirement but only if you’re retiring at an older age. Whatever the case, don’t forget to estimate how much your insurance premium and any additional care could cost during retirement.
- Food: If you have been using the free Valuist Budgeting and Net Worth Spreadsheet, you can easily determine how much a year you spend on food (as well as all of your other expenses).
- Vacations, Leisure Activities, Recreation: No matter when you plan to retire, the goal should be to enjoy yourself. To do so comfortably in retirement you should factor in plenty of these outings.
- Other Expenses: Think hard about your lifestyle and how you want to live in retirement and realize that now, when you are young (er) and most productive, you have the opportunity to decide what your retirement will look like. Include a buffer, if necessary, to account for the “what if” scenarios.
Get The F.I.R.E / Retirement Calculator
This calculator, as with all Valuist calculators, is free. The link below will force a copy of the original file to be added to your google drive file. Please review the embedded notes to get the best results from this tool.
Get your free copy of the F.I.R.E calculator Here (this link will force you to make a copy of the original file and save it to your google drive).