Whether it involves hitting the golf course five times a week or traveling the world, retirement is the time to fulfill dreams and life goals you couldn't get to while working. That being said, shaping the financial future to support your golden years can be less clear than your vision of stretching out on a beach somewhere.

Fortunately, there are various models to help with planning for retirement. The one that fits best for you depends on your individual circumstances. Understanding and factoring in these elements will empower you to make informed decisions, ensuring you're financially prepared for the retirement you picture.

HOW TO CALCULATE HOW MUCH MONEY YOU’LL NEED FOR RETIREMENT
Multiple methods are viable for calculating what you’ll need for retirement. Your income, financial needs, and time horizon affect what retirement will look like and how to calculate your financial goals. Here are four options to guide you.

THE 4% RULE
This straightforward formula provides a clear goal for your retirement savings. To use this rule, you’ll divide your estimated retirement annual income by 4%. For example, say your desired annual retirement income is $100,000. You run the calculation: $100,000/0.04=$2,500,000. A $2.5 million nest egg with a conservative return rate of 5% would provide $125,000 of annual income.

This way, you can live off of the gains your investments produce, meaning you could live 30 years or more after retiring from this sole source of income. Remember, figuring in Social Security can help your nest egg last longer.

INCOME REPLACEMENT
Another method is for your income streams to generate a similar amount to your annual income before you retire. For instance, say your income before retirement is $120,000 per year or $10,000 per month. Therefore, your retirement income from IRA distributions, Social Security benefits, etc. should add up to $10,000 monthly.

You can also use a percentage of your annual income (such as 80%) to make your goal more realistic. Using a retirement calculator allows you to test different income levels and goals to see if you’re on track for retirement or need to adjust your goal.

FINAL MULTIPLE
This approach involves one simple calculation: multiplying your annual income before retirement by 10. For example, say you make $100,000 the year before retiring. Multiplying this number by 10 gives you a retirement savings goal of $1,000,000.

Note that this method doesn’t consider your income needs during retirement and can be difficult to calculate if you don’t know what your income will be before retirement.

PACING SAVINGS BY AGE
You can also set retirement savings goals for each decade of your life. First, by age 30, your retirement savings would be equal to your annual income. Then, you would save three times your annual income by age 40. Finally, you would save at least ten times your annual income by the time you retire.

FACTORS TO CONSIDER WHEN CALCULATING RETIREMENT SAVINGS NEEDS
Every situation is unique, meaning it’s vital to identify the factors influencing your retirement. Doing so will help you calculate your goals and retirement money more accurately. Here are the factors to remember:

Investment Rate of Return—The investment rate of return is the percentage gain or loss on an investment over a specified period. Generally, higher returns lead to faster accumulation of wealth. However, it's critical to balance potential returns with the level of risk you're comfortable with.Z For example, it's advisable to invest heavily in stocks early on because they have higher risk and reward potential. Then, as you near retirement, shifting more of your portfolio to bonds can lower risk and provide modest gains.

Time Horizon—Your time horizon is the length of time you have until you plan to retire. The longer your time horizon, the more time you have for your investments to grow, which means you may be able to take on more risk. For example, if you start saving at 25, you'll have at least four decades to accumulate wealth, increasing your portfolio's earning potential. Conversely, starting a retirement account at 55 gives you less time to make up for market volatility, so reducing risk is recommended.

Lifestyle Expenses—Understanding your expected lifestyle expenses during retirement is crucial. This factor includes basic living costs (housing, food, healthcare) to discretionary spending (travel, hobbies, entertainment). Be realistic about your anticipated expenses, factoring in inflation, health care costs, and any other unique factors that may apply to your situation.

For example, inflation reduces the purchasing power of the same amount of money over the years. Historically, inflation has averaged around 2 – 3% annually. Therefore, if you don't account for inflation, you may underestimate the money you'll need in the future.Z

Income Sources—A well-funded retirement budget usually counts on multiple forms of income. For example, you might receive income from Social Security, a pension plan, an annuity, an IRA, 401(k), a brokerage account, rental property, and part-time work. The more sources you have, the less you'll need to tap your retirement account, allowing more financial growth.