Exactly How to Calculate the Amount of Money You'll Need in Retirement
Figuring out how much money you'll need to retire comfortably is a difficult task, but it's also an important one. You'll have to accept some margin of error in your calculations and plan accordingly, but there is a relatively clear three-step process that you can use. Even if the numbers change over time, the methodology is important -- and going through that process will teach you a lot about the most important retirement planning principles.
Setting a budget can be a challenging exercise for any period several years in the future. You'll have to accept some margin of error on any forecasts, but it's still an important step in retirement planning. Everyone should have a realistic picture of how much cash they'll need each year after they stop working.
Budgeting starts with the costs of basic needs -- food, shelter, transportation, clothing, and so forth. Many retirees have paid off their mortgage, but they still need to consider property taxes, as well as home maintenance expenses. Other people need to build mortgage or rent payments into a monthly budget. Most people spend $300 to $500 each month on groceries, but this can vary over time due to inflation or commodity market conditions. The average person spends $100 to $200 per month on clothing, so that should be reflected in your financial plan. It's also important to consider car payments, maintenance, insurance, and public transportation costs in the baseline.
Source Fool.com
