How much money do I need to retire is a very common question that people often ask themselves. Unfortunately it is a very difficult question to answer, and there is no one single answer, as everyone's individual circumstances are different.

Retirement is meant to be the time when we get to do all those things that we always wanted to do when we were working but couldn't afford the time. Because of this, when you are calculating what you will need to retire it is better to err on the side of caution and use conservative estimates where possible so as you don't end up with not enough money, and either having to work for longer than planned or live a frugal existence in your retirement.

Here is a process you can use to work out how much money you need to retire and then start to get to this goal:

Work out your expenses: write down all of your outgoings. This will include things like food, clothes, electricity bills etc. When creating this list you may be surprised to see that you do not need as much money as you originally thought, for example, when you are retired you will no longer have the expense of commuting to work, paying for food at work, buying clothes for work, and it is likely that your main expense, your mortgage, will be paid off.

Work out how much you need to save: A good rule of thumb, which is commonly used within the financial services industry, is that you need to save 25 times the amount of money you need to retire. So, if in step 1 you worked out that you need $20,000 each year to live off, then you should be aiming to save $500,000.

Now that you have estimated how much money you need in retirement each year and how much you thus have to save, all the remains is the hard part! Actually saving the money you need. If you've used the steps above and have discovered that you're not going to have enough money saved by the time you want to retire then you need to get creative. Once option might be to reduce your retirement expectations – this will reduce the amount you need each year and therefore the time you'll need to save for. Another option is to boost your income. Perhaps you can get a part-time job, or sell goods on eBay. By saving this additional income towards your retirement fund you will boost your rate of saving and again reduce the amount of time it will take to reach your savings pot goal.