Part 2: How to calculate how much annual income you’ll need.

Take a moment to review your estimated retirement expense budget. Have you included needs, wants and lifestyle expectations? Have you included large items such as vehicle replacement or home maintenance? Once you’ve included them, calculate the total annual amount. (Note that this is an after tax requirement and depending on the source of funds for your retirement income, you will need to draw out enough to pay any required taxes and funds to cover your budget.)

What other resources will you have? Government pension, employer pension or other savings? Do you plan to downsize your home and use the difference in equity as savings to contribute to your retirement lifestyle? Calculate what annual income you will have and compare it to your annual expenditures. What is the difference? The difference is what you require in income from your savings to cover your expenses.

Now that you know this number, use a bank retirement calculator to find out how much you need to save on an annual basis to achieve this goal. Remember, this is a target and you can always adjust your lifestyle! Convert the amount to a monthly number. Don’t let large numbers scare you. Knowledge is power and now that you have an idea what your expectations will cost you can experiment with the numbers and figure out how you’ll achieve your goals.

1. Review
2. Calculate an annual figure and calculate a monthly amount.
3. Subtract other income you expect (pension)
4. Use a calculator to obtain a target annual savings
5. Convert it to a monthly number

The number may seem large and scary but it’s important to start somewhere and increase your savings when you can.

Next week – a case study and how to do it.