Saving and investing money is the foundation of retirement planning. However, while saving is critical, it is only part of the picture. To have a successful retirement, it is also important to understand your projected retirement lifestyle as well as to calculate your estimated income after you stop working. Many of us save money, but once we enter retirement we fail to properly plan for how that savings translates to income to cover expenses. How do you know when you have enough to fund your retirement?
The critical issue in understanding how much money you need in retirement is to consider your lifestyle. Paramount in this consideration is including your life partner or spouse in the discussion. Working with your partner, ask yourselves where will you live in retirement; what activities are important to both of you; when should you collect Social Security; what are your living expenses and how will your retirement savings generate an income stream; and what is your strategy to address long-term health care expenses. Also, have plans that address the likelihood of one spouse outliving the other. If you are single, you will still need to address many of these issues.
Assessing your retirement needs allows you to begin plotting your expenses. In retirement, your expenses need to be covered by your income stream. Your income stream is the sum of any estimated income from a pension or an annuity (if you have one), the income from retirement savings accounts such as IRAs and 401(k) plans, and Social Security payments. If your income stream fails to cover your projected expenses, you will need to adjust your plans.
Your vision of retirement affects your potential expenses. Understand your expenses and do the necessary math. Plan to live within your means. Continue to save, but also do not shy away from calculating your projected lifestyle and be flexible as you work to generate an income to cover your golden years.
Source: CBS News (http://www.cbsnews.com/8301-505146_162-57586255/when-can-you-afford-to-retire/)