10.1.3 Your retirement needs

There is no set formula for calculating the amount of money everyone will need for retirement. The amount will vary with your individual circumstances. As a very rough guideline, some experts say that you will need about 70 percent of the average annual income, before taxes, that you earned during your three highest-earning years (usually, but not always your last three years of work). With this amount, you should be able to maintain the same or a similar standard of living after retirement that you had before retirement.

For example, if your gross annual income averages $60,000 in your three final years of work, you will need about $42,000 a year in retirement.

Why do you need less to live on at retirement? Because many expenses will go down:

On the other hand, costs for health care and social and recreational activities may go up.

How much money you will need for your retirement depends on many factors:

Let's look at each of these factors.

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