It’s important to calculate our your retirement needs because the amount of money needed to sustain you over the number of years you will be retired is a significant amount. Too often people put off the task of reckoning with the numbers – leaving them in poor financial situations when it comes time to actually retire.

Hopefully you started saving for retirement early, but if you’ve procrastinated, just realize you’ll need to save more aggressively than your peers who started saving long ago. Because most invest compound over time, the earlier you start investing for retirement, the better off you’ll be.

Calculating your retirement expenses can be tricky. Ask yourself the following questions:

• At what age do I hope to retire?
• Will I continue working part time when I retire?
• Will my mortgage be paid off when I retire?
• Do I plan on traveling extensively once I retire?
• Do I want to live at the same standard of living to which I am currently accustomed, or will I be happy to downsize?
• Do I have a dream home – something more expensive than my current home – in mind for retirement?
• Will I receive any benefits when I retire? What benefits, and how much?

Most people assume they will need 75% of their current salary (adjusted for inflation) to live comfortably in retirement. You can calculate that out on a calculator right now.

Got that number? An example is if you make $60,000 a year, 75% of that is $45,000

Now you’ll want to calculate out for inflation. It’s going to cost more to live when you retire than it does now. Figure that out now by assuming an increase of 3% per year until the year you will retire. If you make $60,000 a year now in 2008, and 75% of that is $45,000, and you want to retire in twenty years, you’re going to need $81,275 a year in twenty years.

Take the time to calculate that out for your situation. Our example person is going to need $81,275 a year when he retires.

Now figure out how long you expect to live after you retire. Let’s be optimistic and assume you’re going to live a good, long life, enjoying your retirement. Fifteen years? Twenty years? Multiply that number by your predicted necessary annual income.

Now figure out how much you need to put aside to make that goal.

If you haven’t been saving already, you may be panicking right now – and you should let that spur you into action.

You’ll need to research investments that will give you a good return so you can invest for that retirement time. For example, if our sample person invests one sixth of his current income - $10,000 – at a 10% return – every year for the next twenty years, he’ll have an additional $572,700 saved for retirement. Imagine if he bumps that investment base to $20,000! Investing wisely can make a huge difference in saving for retirement.

It’ll take some research to discover what the best investment vehicle is for your situation, but you’ll be glad you took the time when you’re reaping the benefits on your front porch, enjoying your golden years!