I have read a lot of articles about needing 70 – 80% of your highest yearly income to live comfortably when you retire. My wife and I are in our early 50’s, raising three kids 11 – 18 years old, and trying to save for retirement. I believe that we really do not have a clear idea of how much it will cost for us to live during our retirement because of the expenses related to raising the kids. But I would estimate that there will be a significant reduction of expenses once they leave the house. Is there any kind of formula for estimating this?
Terry Says: Yes, there are many formulas, and every financial planner will run one for you. But here’s the one I like best. Go to www.ChoosetoSave.org. It’s the website of the non-profit Employee Benefit Research Institute. Use their “Ballpark Estimator” calculator, which is really very easy to use. After you input your info (anonymously) it will tell you how much more you need to save to replace 80 percent of your income in retirement. Or, conversely, how much your standard of living is likely to drop if you DONT save more! That should get you going — although I admit it is almost impossible to save for a secure retirement while raising young kids. But time is money. So just see how much better you do if you plan to work until age 70, vs retiring at 65. Time makes a huge difference, so don’t procrastinate!