Retirement may be a ways off, but that shouldn’t stop you from dreaming about how you’ll spend your golden years.
If you start planning and saving now, making those dreams a reality is possible. Figuring out how much money you’ll need to live your best version of retirement—and making sure it lasts for as long as you need it—is a great place to start.
Estimate your expenses
Take a look at your current expenses and place them into two categories: needs and wants. You need to pay for things like utilities, housing, groceries, and insurance. Do you plan on having a mortgage in retirement? And what about health care? You’ll want to make sure you have enough money to cover the essentials you pay for today, and any new expenses you may have down the road.
Then there are wants—the fun stuff. These are things like travel, dinners out, and personal splurges. How important are wants to your lifestyle now? Do you hope to continue (or enhance) your lifestyle in retirement?
There’s also inflation to consider. Most things you buy will cost more in 20 years (or longer) than they do now, so finding ways to help your retirement savings keep pace is key.
Determine your income sources
You’ll want to sort your money into two categories here as well: “for sure” income and “adjustable” income. For sure income is guaranteed money you know you’ll have for as long as you need it. This includes Social Security, a pension plan, or an annuity.
Adjustable income is everything else. It includes things like investments, your 401(k), IRA, part- time work, and all other sources of income that aren’t guaranteed. Because this income may be dependent on the market or other factors, it can fluctuate.
Bridging the gap
Creating a retirement saving strategy now can help ensure you’ll have enough money to meet all your needs and wants. Of course, if you have a 401(k) or IRA contributing the maximum annual amount can put you in great shape for the future. It’s also a good idea to build your personal savings if you can. One way to do this is by purchasing a variable annuity. It lets you save money tax-deferred, with no IRS contribution limits.
When you’re ready, you’ll be able to turn a portion of this combined savings into guaranteed income, helping you bridge any future gaps that your adjustable income doesn’t cover.