Cost of living calculators – you know, those handy online calculators that tell you how much you’ll have to save to retire comfortably – are just, frankly, sometimes depressing.
To the average 25-year old starting a career, the thought of having to save 3.5 million dollars by retirement just to live an average life in later years is just plain overwhelming.
One of the biggest problems with online calculators if that they’re all different. Ten different web sites will tell you ten very different answers as to what your golden years will look like. Most calculators look at the INCOME you’ll need once you retire. Maybe the best way of determining what you’ll need is to evaluate your EXPENSES in retirement.
Expenses can vary greatly. Many calculators don’t take into account a family’s lifestyle. While one retired couple may live very comfortably on $50,000 per year, another family might feel they can barely make ends meet on that amount.
Another factor looming over your retirement is your home. Will it be paid off when you say good-bye to co-workers? Are your real estate taxes through the roof? Will you have a second home in a warmer climate? Will you be down-sizing to a smaller home? Your housing expenses will be a significant part of your retirement expenses.
Determining your retirement needs also depends upon your investment choices. Yes, you may have contributed 15% of your income into a 401K for 30 years, but how are those investments doing? Are they in a falling stock market? Did you invest in bonds? A fixed income account? If the market is down, and you’re portfolio was primarily stocks, your investments could play a part in when and if you retire. Your monthly income could also suffer.
One of the many things retired couples often don’t think about is the cost of medical insurance. As you get older, it’s inevitable you’ll require more health care. Did you work for an employer that will cover your health insurance when you retire? Will you need to provide your own? With many health care premiums costing well over $1000 per month, the cost of health care definitely plays a role in retirement expenses.
And there’s more to consider. Will you travel more? Purchase a large motor home? Take an annual cruise? Join the country club?
Overall, there are just too many variables involved with retirement for you to be able to determine an exact dollar amount of what you’ll need, especially 20 years before you reach that mark. Let’s just say you’ll need a lot.
So what about those cost of living calculators? Well, if you find yourself using one, you’re on the right track. For isn’t it all about planning ahead, saving what you can, determining where you want to be, and setting your retirement goals?
Don’t have 3.5 million saved when you retire? So what. Just watch the grand kids, take a stroll in the park, or read your favorite book. For those are the true returns of your investments in retirement.