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Whether you call it retirement or financial freedom, how you prepare for it is the same: save early and often. Just how much you need depends largely on your future lifestyle and how much it\u2019ll cost.<\/p>\n
One way to get a rough idea of how much you\u2019d need is to paint a picture of your retirement. With this information as a guideline, you can then calculate how much you\u2019d need to save and invest regularly to reach your goal.<\/p>\n
Here are a few questions to help you get started:<\/p>\n
Where do you plan to live during retirement?<\/strong><\/p>\n The cost of living depends on what country, city, and neighbourhood you live in. Having a sense of where you plan to live will help you estimate the day-to-day expenses you\u2019ll have when you retire.<\/p>\n What type of lifestyle do you envision during your retirement?<\/strong><\/p>\n On top of where you want to live, another factor that strongly influences how much you need to save for retirement is the lifestyle you want. Retirement looks different for many people.<\/p>\n While someone might want to live quietly, another person might want to travel the world 6 months a year. And depending on how extravagantly or simply you want to live, you\u2019ll need to account for the associated expenses and include them in your retirement plan.<\/p>\n What do you want to accomplish during retirement?<\/strong><\/p>\n Just because you\u2019re retired doesn\u2019t mean you won\u2019t have more dreams, goals, and ideas. That\u2019s why some people prefer the term \u201cfinancial freedom\u201d rather than \u201cretirement\u201d.<\/p>\n Maybe you want to turn a hobby into a business or learn how to golf. These things cost money, so you should account for them when you\u2019re estimating your retirement expenses. Even if you don\u2019t have a specific project in mind, still account for \u201cplay money\u201d as you decide your savings target for retirement.<\/p>\n Do you want to leave money for future generations?<\/strong><\/p>\n This is one way you can leave a legacy for your loved ones. If you plan to pass on some assets to your family or contribute to a cause you care about, include this amount in your retirement savings target.<\/p>\n What expenses can you eliminate in retirement?<\/strong><\/p>\n In retirement, you won\u2019t need to contribute to your retirement portfolios. And, you\u2019ll also probably have paid off your mortgages and other loans. Your taxes will also likely be lower since you might not earning an active income and you will qualify for lower taxes. You can subtract these expenses, and perhaps others, as you estimate your monthly retirement expenses.<\/p>\n Ready to put your money to work?<\/strong><\/p>\n Other things to consider when calculating your retirement savings target<\/p>\n Once you have a sense of how much your dream retirement lifestyle will cost you, you\u2019ll have to consider a few more factors:<\/p>\n Set aside money for medical expenses in retirement<\/strong><\/p>\n It\u2019s definitely not pleasant to think about the health problems that come with age. Still, it\u2019s better to be prepared for how much it might cost.<\/p>\n Setting aside funds for out-of-pocket medical expenses saves you from having to dip into funds meant for your other retirement expenses. Health insurance premiums increase with age, so include that in your expenses, too.<\/p>\n Remember to consider inflation in retirement<\/strong><\/p>\n Once you estimate your monthly retirement expenses, you\u2019ll need to adjust that estimate for inflation. Inflation is generally about 2% per annum. In other words, a dollar loses 2 cents per year in its purchasing power.<\/p>\n So if you base your retirement savings target on today\u2019s value of money, you\u2019re going to find yourself with not nearly as much spending power as you want.<\/p>\n Calculate how long you want your retirement funds to last<\/strong><\/p>\n The next question is, how many retirement years do you need to pay for? Asking yourself how long you want your retirement savings to last sounds morbid, as well as imprecise – after all, none of us knows when we\u2019re going to die. But, the reason you\u2019re asking is so that you know how early you can retire based on your savings plan and expected lifestyle.<\/p>\n If you want to retire at 50, you can estimate how long you\u2019ll live by referencing your country\u2019s life expectancy while considering other factors, like your health. This indicates how many years your retirement savings should last you – just make sure to add a buffer to cover any uncertainties. Knowing how many years you\u2019d need your money to last can help you decide whether to retire sooner with maybe less in savings or later with more in savings.<\/p>\n Set yourself up now for financial freedom<\/strong><\/p>\n Whether you retire or continue working, financial freedom gives you the option to choose how to spend your time without having to rely on employment income.<\/p>\n To reach financial freedom, you\u2019ll first need to set a target income amount for your financial freedom years. There are plenty of tools that calculate how much you\u2019d need to reach financial freedom, taking into account your expenses and inflation.<\/p>\n These tools consolidates your assets, liabilities, and savings, and calculates a target amount for reaching financial freedom. It\u2019ll also indicate whether you\u2019re on track to reach your goal. Then, you can put it into action with a monthly investment plan all in the same app.<\/p>\n If your target amount and savings plan seems daunting, you may need to adjust the lifestyle you\u2019re aiming for. Of course, you\u2019re never locked into the lifestyle you envision now; you may decide to live elsewhere or do different activities. And that\u2019s OK. You can always update your financial plan to accommodate your needs.<\/p>\n Planning and saving for your retirement now is really about buying the freedom of choice. You can choose what to do with your money and your time later on.<\/p>\n","protected":false},"excerpt":{"rendered":" Whether you call it retirement or financial freedom, how you prepare for it is the same: save early and often. 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