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OBVIOUSLY, DECIDING how much money you need for retirement is a highly personal calculation. It depends on any number of factors, from your current lifestyle to your general state of health to whether you plan to retire early. That's why we've designed this set of five interactive worksheets to let you tailor your estimate to your own circumstances. Be forewarned: These worksheets will take some time to complete. But when you're done, you'll have a dependable estimate of 1) How much annual retirement income you'll need. 2) How much you can count on from your pension and Social Security benefits. 3) What your total nest egg must be, and 4) How much you need to put away this year to begin to reach that goal.
And, if early retirement is one of your goals, the worksheets will help you calculate just how early you can retire ? and still live the lifestyle you're used to.
A Moving Target
What the worksheets won't tell you is what to save five years from now, or even next year. By then, any number of factors might have changed ? from the size of your salary to the rate of return on your investments. Moreover, as your income and lifestyle improve over the years, your expectations for retirement income will grow. What this means is that you should take the time to repeat this planning exercise every couple of years ? or every year as you near retirement.
One other consideration: When you're young, many of the projections the worksheets demand of you are almost impossible to make reliably. So, if you are in your 20s, 30s or even your early 40s you might want to just give these worksheets a quick look and then move right to Making the Most of Your 401(k) or Investing It, to start tailoring your investment program. As you edge into your 40s, however, knowing more precisely what you'll need becomes increasingly important for one simple reason: You don't want to get caught short when you still have time to do something about it. Happily, estimating future needs becomes easier the closer you get to retirement.
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