by Angela Diggs

Created on: March 19, 2009   Last Updated: April 10, 2009

Assessing your retirement needs is completely contingent on your personal necessities.

Everyone is different, therefore your needs and wants are distinct from the next individuals. The good news is that their is a way to calculate how much is needed for retirement.

The bad news is that no one could ever have too much reserved for it because life is often unpredictable. No matter how much money a person has allocated towards retirement, their is a margin of error.

Determine how money is needed to maintain current lifestyle.

The first step to assessing your retirement needs is determining how much money you will need to maintain your current lifestyle. This is the best place to begin. These questions should be answered. How much do you currently earn in net pay annually? How much do your expenses add up to? Once you have this basic information, you will be close to the next step in the process.

Expected age of retirement.

The next step is knowing how old you will be when you retire. Most individual decide to retire around the age of 65. Let's assume this is the age you choose. You must expect to live at least another 20 years of more because 65 is not considered that old. You will need enough money to carry you through.

Earlier you found out what your current annual income is. Let's say your net annual salary is $80,000 a year. This is pretty good right now, but you won't be able to work forever. The amount in your 401(K) or Roth IRA must be at least this multiplied by 20 years. The result is $1,600,000. Remember, this is the least amount of money you would need. This may seem like a large sum of money, but 1 million dollars is not what it was in the past. It doesn't go as far as it did because of the declining value of the U.S. dollar. It costs more to do everything.

Factor in inflation and health difficulties.

The next step is factoring in inflation and unseen health problems. Right now you may be in reasonably good health, but you don't know what will happen in the next five or 10 years from now. It's best to be prepared for the unknown. In this case you would need to add an additional $1 million dollars to your retirement account. So to be safe, you need extra money for room. This room is for anything life throws your way. You may need to live in a retirement home or have grown children stay with you.

Know how much you have in expenses.

The last step is factoring in your expenses. As I mentioned earlier, it costs more to live these days. The amount of money in your retirement account should be sufficient enough to cover any future expenses such as housing, food, utilities, car insurance and water. Make sure all your bases are covered.

Retirement is something most of us look forward to. We have the power to make it the best time in our lives. With careful planning and preparation it can be the highlight of our existence.

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