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How to Calculate What Someone Needs for Retirement

Torrey Thompson

Torrey Thompson, a general manager at Amerilife and Health Services, works in the retirement planning field. In addition to recruiting and training new agents, Torrey Thompson regularly conducts retirement seminars for the public and helps them make informed decisions regarding their financial futures.

There are many rules of thumb relating to retirement, such as people should save at least $1 million or have 10 to 12 times their current income in savings by the time they stop working. While these basic rules can be helpful, they don’t always apply to everyone.

Instead, people should calculate how much their living costs will be after retirement. This is best done by first creating a budget of current expenses, such as home and car payments, debt payments, and grocery costs. Some of these costs, such as certain debt payments, will decrease or disappear by the time a person retires. However, people cannot assume that an expense will be gone after retirement. Instead, they should look at the payments they are making and figure out whether they can realistically eliminate the debt by retirement or not. At this point, a realist savings and investments goal can be defined.
Beyond figuring out living costs, people should also include the cost of inflation over time. Inflation doesn’t usually occur rapidly, but it can still negatively impact a person’s retirement savings if they don’t calculate for the steady increase in the cost of groceries, utilities, and other everyday expenses.

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