Retirement seems a lifetime away when you’re young, but by the time you reach your mid-50s, it’s no longer a distant speck on the horizon.

This can be encouraging if you have a solid plan in place, but for many, it’s concerning because they only have a decade or so left to get their affairs in order. It’s a more common issue than you think.

A recent Alliance for Lifetime Income study revealed that 57% of Americans aged 55 to 74 haven’t made any efforts to calculate their monthly expenditures in retirement, which is a key part in figuring out how much you need to save.

This may be in part because many aren’t sure how to estimate their retirement needs. Here’s a brief guide to help you figure it out.

How to calculate your spending in retirement

Calculating your monthly expenditures in retirement is similar to creating a budget with a little more guesswork involved. You total up your housing costs, groceries, and other basic living expenses, plus money for travel and hobbies.

And then there are expenses you don’t often think about, like healthcare and insurance. It’s difficult to know how much these costs will change between now and your retirement, but you can use your current monthly expenses as a baseline.

Some of the expenses you have today may decrease or disappear in retirement. You probably won’t have to pay for child care anymore, for example. But other expenses, like healthcare, could go up. So once you’ve made your list of monthly expenditures based on your lifestyle today, adjust each category up or down based on how you anticipate your spending level will change in retirement.

Next, multiply your monthly expenditures by 12 to get your estimated annual expenditures in retirement. To this amount, add your irregular or annual expenses, like taxes, vehicle registration fees, or annual subscriptions. You may want to add an additional cushion to account for any unexpected expenses.

How your expenditures fit into your retirement plan

Once you’ve estimated how much you plan to spend annually in retirement, you can begin to build the rest of your retirement plan around that. The next step is to estimate the length of your retirement by subtracting the age you plan to retire at from your estimated life expectancy.

Figure high if you’re reasonably healthy. The Social Security Administration estimates that one in three 65-year-olds retiring today will live past 90 and one in seven will live past 95.

Take your estimated annual retirement expenses and multiply them by the number of years of your retirement, adding 3% annually for inflation. Your retirement calculator will do this part for you. If it asks about an investment rate of return, use 5% to 6% to be conservative, though your investments may grow more quickly than this. Your calculator should then return the total amount you need to save overall and per month in order to reach your retirement goal.

Subtract from these totals any money you expect to receive from other sources like a pension, Social Security, or an employer 401(k) match, to determine how much you need to save on your own. Create a my Social Security account to estimate your Social Security benefit if you’re not sure how much to expect from the program.

Stick to your plan

Making a retirement plan is only half the battle. It won’t do you much good if you don’t stick to it. Aim to contribute at least as much as your retirement plan indicates to your 401(k) or an IRA. But be careful not to exceed the contribution limits. You’re allowed to contribute up to $19,000 to a 401(k) in 2019 and $6,000 to an IRA. Adults 50 and older may contribute up to $25,000 and $7,000, respectively.

If you can’t hit your savings target right now, save as much as you can and look for ways to free up more cash in your budget. This may include cutting spending on discretionary purchases or working extra to get more money coming in. Don’t pass up an employer 401(k) match if your company offers one, but be mindful of its vesting schedule that determines when employer-matched funds are yours to keep. If you leave the company before you’re fully vested, you could forfeit some or all of that match.

Some people still may not be able to make ends meet after doing all of this. In that case, think about adjusting your retirement plan. You could delay retirement for a few months or years or plan to work part-time in retirement so you don’t have to rely solely on your savings. These aren’t ideal solutions, but they’re better than going broke in retirement.

Every working adult should have a retirement plan, but if you’re in your 50s or 60s and you haven’t created one yet, it’s especially important that you do so now. It can give you a clear goal to work toward and some peace of mind in knowing you have a plan. It can also help you make educated decisions about your retirement so you don’t run out of cash too soon.

— Kailey Fralick

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Source: The Motley Fool