Do you know how much money you need for retirement? Most people don’t. Without at least an estimated goal you have no idea if you are on track or not. You might not be saving enough – or you might be saving too much! Here’s how to estimate your retirement needs for your financial planning.

How much money do I need to retire?

Below is a step-by-step walkthrough of the steps you can use to estimate what your goal should be for retirement savings. If you’re not a do-it-yourself planner for your finances, we can help. Helping people understand these types of processes are a small part of what we do as fee-only financial planners. Just reach out to us and let’s talk about how we can help you.

“How much money do I need to retire?”

That’s a great question that few people actually take time to answer.

Everyone above the age of 20 should go through the exercise of estimating their big financial goal needs. One of those biggest financial goals – for everyone – will be retirement. Sure, this will almost certainly need to be adjusted over time, but everyone needs a starting point. Without a goal, you have no idea if you are anywhere near on track to attain the desired result.

Since retirement is not the only financial goal, but the one that all of us will need to deal with at some point, let’s focus there today. Here are the steps needed to figure out just how much money you need for retirement.

First step: Understand your cash flow (have a budget)

The fact that so few people budget tells me that most people don’t have any idea of their retirement needs. Having a budget not only helps you pay off debt and achieve other financial goals. It is also a key part of the retirement planning process.

Once you have a “today” budget you can look at it and make estimated changes for what it might look like once you’re retired. Here are a couple of common adjustments to consider:

  • Does your budget today have you putting $1,000/month into your retirement savings? If so, you should be able to remove that since in retirement you will be drawing down funds, not adding to them.
  • Does your budget have you paying $2,000/month for a home mortgage or other debt that you expect to have paid-off by retirement? If so, you can make that adjustment.
  • Do you plan to do additional travel when you retire? Take some time to think about that and how much it might cost in addition to your current living expenses.

On the flip side…

  • Do you over-spend your budget – specifically are you adding to your current debt? If so, that’s a sign that you need to adjust some spending or that you need a higher level of income.
  • Does your employer currently pay for your health insurance? If so, you definitely need to add a category to cover that future expense. You should also consider a second category beyond insurance to cover co-pays, medicine, and other potential out-of-pocket medical expenses.

Those are just a couple of budget adjustments you might want to consider. Of course, you need the budget first before adjusting, so if you don’t budget already, go get started! Here is a helpful post with three tips for successful budgeting.

My favorite budgeting tool is Quicken for Windows. I’ve used Quicken for many, many years and haven’t found anything else with as much flexibility – and budgets need to be flexible. There are some decent online tools but seriously, none match using Quicken. Quicken does now have an online interface similar to Mint, so if you prefer that option, it’s included in the fee. Quicken starts at just $35/year (February 2020).

OK. For simplicity let’s say that you’ve decided your annual budget for a comfortable retirement – based on today’s dollars – is $80,000. Yours might really be just half of that, or it might be double that. Just pretend for a while though to help pull this all together.

Next step: How much will you get from Social Security?

If you haven’t checked on your social security records lately, go do that today. It’s very simple and another important part of proper retirement planning.

Our previous post on How to Estimate Your Social Security Benefits walks you through the process if you aren’t familiar with MySocialSecurity site and data.

Now, some of you will ask…

“Will Social Security still be around when I retire?”

None of us can tell the future of course, but the likelihood of Social Security failing is very low. It would be a political nightmare for whoever was in offi