How to Plan and Calculate Your Retirement Savings

Elderly Couples talking about finance with piggy bank

The idea of withdrawing from active working life is overwhelming, even scary. Yes, you’re excited to travel the world, pick up new hobbies, or simply relax. But financial worries are almost always at the back of the mind.

Here’s the thing: Life after retirement doesn’t have to be difficult. With a few smart steps and consistent habits, you can take control of your future. Let’s take a closer look at how you can plan and calculate your retirement savings.

Define Your Retirement Goals

Before you start crunching numbers or opening accounts, ask yourself, What does retirement actually look life for me? Everyone has a different vision, and that’s totally fine. Many people wish to live a quiet life by the beach, while others want to fulfill official grandparent duties.

Next, think about when you wish to retire. The official age is 65, but many people retire as early as in their 50s. Again, that’s totally fine!

Lastly, what kind of retirement lifestyle do you want? Will you be maintaining your current living standards, or spending more on travel or hobbies? The questions are tough, but they’ll help in the next steps.

Determine Your Retirement Income Resources

Now that you’ve clarified your retirement goals, it’s time to figure out where exactly the income will come from. You will not have a paycheck anymore, but the money needs to flow straight for stress-free living.

The most common source of income after retirement is Social Security or a pension. This doesn’t cover all the expenses, but it is still a steady source of income.

Then, you have your retirement savings accounts. This includes:

Individual Retirement Account (IRA)
Roth IRA
401(k)

As you near retirement, it is common to worry, how long will my money last in retirement? The best thing you can do is use a retirement calculator. All you have to do is enter your cumulative savings, monthly spending, Social Security benefits, and retirement income to have detailed insights into where you stand.

Calculate How Much You Need to Save

So, how much money do you actually need to retire? It varies. There is no one-size-fits-all approach, but you can use simple methods to get an estimate.

For instance, the general rule of thumb is 4%. It suggests that you should aim to withdraw no more than 4% of your total retirement savings. You can keep lowering the 4% limit as years go by.

Trying to figure out how much you need to save or how much you need to invest is challenging. This is why many affluent families turn to wealth management services like Creative Planning. They have a team of professionals who will thoroughly understand your retirement goals and create a personalized plan.

Consider Your Tax Burden

Just as you can’t ignore inflation, you can’t overlook the post-retirement tax burden. All your 401(k) withdrawals and savings accounts will be taxed. Hopefully, the income you’ve earned on these investments will help cover taxes.

You should also consider property taxes to ensure compliance. Hiring a wealth management company can be helpful here as well. They’ll suggest strategies for tax efficiency and reduced burden.