How Much Life Insurance Do I Need?
The Role Life Insurance Plays in Your Finances The purpose of life insurance is to...
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Personally, I probably spend way too much time projecting our income and expenses for the years between now and retirement, tweaking our plan, and working on our retirement budget.
If you saw my mondo Excel workbook, your eyes would probably glaze over (my wife certainly does 😊).
Having said that, there’s that well-known quote often attributed to Ben Franklin, “Failing to plan is like planning to fail.”
The first step for your retirement plan (since retirement failure is not an option) is figuring out how much you’ll need in retirement.
Conventional wisdom is that you should expect to spend around 80% of your current spending (give or take 5-10%). However, as is often the case with one-size-fits-all advice, it fits most people rather poorly.
Your best bet to get a plausibly accurate number is to build a retirement budget like I did, using the following steps:
Worried you can’t forecast accurately?
Don’t worry, you can’t. As Nobel-laureate physicist Nils Bohr quipped, “It’s hard to make accurate predictions, especially about the future.”
The point isn’t to get it perfect. Just make it good enough to put you on a reasonably good trajectory.
The Wall Street Journal (WSJ) put together a nifty tool that helps to budget for your retirement.
However, it’s not perfect, so I came up with fixes for those shortcomings.
If you’re like the sane majority of people who don’t love budgeting, the WSJ tool can guide you through the process with minimal pain. Using my tips, you can then improve the accuracy of the resulting budget.
There are several big-ticket items that many people forget to address in their retirement planning that could derail your plan.
Make sure to research these so your retirement budget addresses them properly. Then, add a margin of 10-20% above what you come up with to cover the unexpected.
Retirement planning is crucial, and the first step is to know what income you’ll need in retirement. The above gives you two methods to budget for your retirement, including under-appreciated big-ticket items that risk your retirement success.
The best way to prepare for these is to educate yourself about them and implement solid mitigation strategies. Here are 7 risks to your retirement plan and what to do about them, and 3 ways to shock-proof your retirement plan.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.