Knowing your realisitc retirement age can help you plan for the future. Make sure you are prepared by following some of these guidelines.

Knowing your realistic retirement age can help you plan for the future. Make sure you are prepared by following some of these guidelines.

Most retirement calculators fail to factor in possible market fluctuations and changes in cost of living and inflation. These uncontrollable forces can dramatically alter your available retirement assets. Additional variables such as unexpected medical costs, lifestyle changes, and family emergencies can decimate retirement funds if they aren’t taken into consideration when calculating retirement age. Following are some tips on how to calculate retirement age realistically so you aren't part of the one-third of Americans with inadequate retirement savings.

Forget the “Rules”

There is a big camp out there that claims you should calculate your future retirement needs as 60% of your current income. But when you think about it, this is an overly simplified calculation that cannot possibly apply to every person in every situation. There are dozens or more unique scenarios where 60% of your existing income wouldn’t come close to covering your retirement needs. When it comes to realistically calculating your retirement age, throw out the rule book and focus on your own personal situation.

Understand Your Current Spending Habits

To learn what you might expect to need after you retire, sit down and understand your current spending habits. Be realistic and objective about it. If you’ve spent 20 odd years refusing to make your own lunches and eating out every day, chances are you aren’t going to change that habit suddenly on the day you retire. If restaurant meals are what you need, then be realistic and budget for it when you're planning retirement. Itemize your current spending so you have a realistic picture of what you spend. The things you can mark off for the future include things like work clothing, fuel for commuting, home office expenses, etc.

Factor in Inflation at 4%

The current calculators recommend using 3%, but that number isn’t written in stone. To play it safe, use 4% as your inflation calculator. To your final monthly spending budget, add another 4% to see what you might need after retirement.

Calculate Lifestyle Changes

If you are sincere about downsizing and moving to a 55+ community after retirement, you can take that away from your monthly rent/mortgage expenditure and add back in the estimated new monthly payment. Make a separate spreadsheet to factor in moving costs, closing costs on the new home purchase, and general costs for setting up your new living situation, including decorating, vehicle registration, etc.

Factor in a Savings Cushion

Retirees often neglect to factor in a savings cushion when calculating retirement age. These savings will be there for you in the event of unexpected events such as family emergencies, natural disasters, and medical expenses. Retired persons are no less likely to encounter these unforeseeable events than their working-age counterparts. These funds should be kept liquid and separate from ordinary retirement accounts. Once you have taken into account all these considerations, you’ll be better able to calculate your projected retirement age. This is the best way to enjoy financially sound and secure retirement years.