Carrie Schwab Pomerantz
(SET ITAL) Dear Carrie: I keep hearing that you need $1 million or more to retire these days. I'm saving, but those numbers are pretty discouraging. Does it really take that much? -- A Reader (END ITAL)

Dear Reader: I agree that while it's easy for financial planners to toss out big numbers -- $1 million, $2 million, maybe more -- for a comfortable retirement, the reality for a lot of people will be a lot less. Of course, I encourage everyone to go for the goal and save as much as he or she can, beginning at an early age. But the good news is that, like so much in financial planning, how much you need for a comfortable retirement depends on a lot of personal factors.

For instance, do you envision an early retirement or will you put it off as long as you can? Do you want a quiet life in a less costly part of the country or do you plan to maintain an expensive home and travel the world? Will you completely stop working or continue on part time? Will you stay in your home or downsize?

There are a lot of variables to consider -- and a few unknowns -- so you may not have exact answers now. But it's well worth your effort to think about these things in advance so you can come up with a realistic retirement savings goal.

START BY ESTIMATING YOUR YEARLY RETIREMENT EXPENSES

You probably think you'll spend less in retirement. Once again, it depends on you. A lot of people find that expenses are higher in the early years when they're more active and gradually taper off as they get older. National statistics show that retired people spend about 80 percent of what working households spend, mostly on home- and health-related costs. But instead of relying on statistics, I'd do a sample budget.

Begin with what you currently spend yearly both on necessities and nice-to-haves. What will change? Work-related costs may go down. Your mortgage may be lower. Hopefully, you'll eliminate unnecessary debt. But while those expenses may decrease, others are likely to increase -- for fun things such as entertainment and travel, as well as less-appealing necessities such as health care and property taxes.

From my perspective, I think it's wise to assume you'll spend about the same in retirement as you're spending now. You may end up spending less, but it's a safe starting point for the sake of planning.

CALCULATE THE TOTAL AMOUNT YOU NEED TO SAVE


Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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