A 2-Step Guide to Retirement Planning

There are many different theories about how much you need to save for retirement.

Basically, retirement planning assumptions. You should try to figure out how long you live, what kind will produce long-term returns in the stock market, the "necessary", such as medical bills will be or long term, lifestyle and expect to pay for their expenses. All of these are incredibly difficult to predict.

You no longer have to work to make an estimate of age. Many young people write about the importance of retirement savings, by simply saying: "I love my job, so I work until I'm 70"

But not all recalls are voluntary. Many young people who underestimate their impact on health could affect your ability to work. And many healthy 60 fired get when the economy turns sour. Older people have difficulty an employer willing to hire and train.

(Read more on contribution limits for retirement.)

A rough estimate

Here is a quick guide to estimate how much you need in retirement:

Step 1: First, try to find out how much you want to invest in a given year. Since you know a budget, and what your annual expenses are, you should have a good idea of how it moves.

Note that some of your current expenses are no longer required to retire - for example, pay at home. But you need new editions. The price of car insurance will go up if you are an adult. You need to be on the basis of physical disability or disabilities change the house needs. You can help send their grandchildren to school. You may have to care for a disabled brother. You can travel more easily.

Step 2: Multiply the amount you have to spend in a given year - its annual expenses - 25-33 This area represents the approximate amount that you will need in retirement.

For example, if you will cover $ 40,000 to the annual cost of living that millions of $ 40,000 x 25 = $ 1 retirement as a conservative estimate, or 40,000 x 33 = $ 1 million, $ 32 as a more generous estimate.

Why multiply by 25 to 33? This means that your money is a "real" to obtain power - after inflation - 3 percent (multiplied by 33) to 4 percent (multiplied by 25).

Why?

Legendary investor Warren Buffett said he expects the long-term growth of the U.S. shares at an average annualized period of 7 percent, which is usually a decent life metric in estimating how propose to use arrive portfolio. Inflation in the United States have generally remained stable at around 3 percent in the long run, it is also a case of decent use.

Based on these figures, his statement of "truth" would be 7 percent less than 3 percent inflation, or 4 percent. Because you do not have your money in equity funds - you will be diversified in safer assets such as bonds and cash - I like to use 3 percent metric "real return".

Learn more about the two most important rules of mathematics inch retirement.

The disadvantages of this system

However, this should not be regarded as a very rough guideline. Some retirees find they spend more money, the retirement in the early years, when they travel health and energy abroad, improve your kitchen, buy a sailboat and the Tennis Club. As time passes, retirees sometimes begin to participate in fewer activities, so you spend less money.

Moreover, it is difficult to predict what their tax rates or rate gas and electricity water and sewer rates will be decades from now. It is also almost impossible to guess how many have Medicare or Social Security, especially if you are in their 20s or 30s now.

The conclusion is that it is important to have options and flexibility as you age. When the economy turns sour, when fired at the age of 59, if your health deteriorates or if the gas and energy increase, you will be during his senior year comforted at the high school who has to use a comfortable cushion or safety net.

This is the main reason I dare to the amount you have to overestimate retired easily - even if you love your job and never stop working.