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Preparing For Retirement

Estimating Your Retirement Income

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Estimating Your Retirement Income Needs

Preparing for retirement is one of the smartest things you can do, but it can often feel like a daunting task – where do you even begin? One of your first steps should be to estimate how much income you’ll need to fund your retirement – using your current income is a great starting point. When estimating your retirement income needs, it’s common to discuss desired annual retirement income as a percentage of your current income. Your current income sustains your present lifestyle – so taking that income and reducing it by a specific percentage to reflect certain expenses you’re no longer responsible for (e.g., payroll taxes, mortgage) will, theoretically, allow you to sustain your current lifestyle.

There is one problem with using this approach – it doesn’t account for your specific situation. If you have every intention to travel while retired, you might need 100 percent of your current income to live comfortably. If you need to use 100 percent as the benchmark, that’s completely fine – however, it’s worth going through all of your current expenses in detail, and really thinking about how those expenses will change over time as you transition into retirement.

While retirement planning may sound difficult, you can rest assured that Maier & Associates will make it as easy as possible. We will help you review the key segments of your retirement plan to help ensure you are adequately prepared for many years of pleasurable retirement living.

Use our retirement savings calculator to figure out your savings!

Project Your Retirement Expenses | How Much Will Your Annual Expenses Be?

On average, annual income during retirement is more than enough to meet retirement expenses, however, every situation is unique. That’s why estimating retirement expenses are such a large piece of the retirement planning puzzle. You may have a hard time identifying all of your expenses and projecting how much you’ll be spending in each area – especially if retirement is still pretty far into the future. To help you get started with projecting your retirement expenses, here are a few common costs:

Common Retirement Costs

  • Food and clothing
  • Utilities: gas, electric, water, cable TV, internet, telephone
  • Housing: rent or mortgage payments, property upkeep, property taxes, homeowners insurance, home repairs
  • Insurance: dental, medical, life, disability, long-term care
  • Health-care costs not covered by insurance: deductibles, co-payments, prescription drugs
  • Transportation: car payments, auto insurance, gas, maintenance and repairs, public transportation
  • Taxes: federal and state income tax, capital gains tax
  • Education: children’s or grandchildren’s college expenses
  • Debts: personal loans, business loans, credit card payments
  • Gifts: charitable and personal
  • Recreation: travel, dining out, hobbies, leisure activities
  • Care for yourself, your parents, or others: nursing home costs, home health aide, assisted living expenses
  • Savings and investments: contributions to IRAs, annuities, other investment accounts
  • Miscellaneous: personal grooming, pets, club memberships

Another factor you’ll have to think about is the cost of living in the area you’ll retire in, and the fact that cost of living continually increases as time goes on. The average annual rate of inflation over the past 20 years has been approximately 2.4 percent. (Source: Consumer Price Index (CPI-U) data published by the U.S. Department of Labor, 2012.) Additionally, you’ll need to keep in mind that your retirement expenses may change from year to year. For example, in the first few years of your retirement, you may pay off your home mortgage or your children’s education. Meanwhile, expenses such as health care and insurance will increase as you age. To help protect yourself against any changes in expenses, we’ll help you build a comfortable cushion. When you involve Maier & Associates in your retirement planning, you can rest assured knowing your estimates will be as accurate and realistic as possible.

Decide When You’ll Retire | At What Age is Retirement Possible?

When you’re planning your retirement, it’s important to also factor in how long you are planning to be retired. The longer the retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire – a factor that relies heavily on your personal goals and financial situation. For example, if you see yourself retiring at 50, you’ll have significantly more expenses than you would if you retire at 65.

Estimate Your Life Expectancy

Another important factor in how much money you’ll need to comfortably retire is your lifespan. We all hope to live to a ripe old age, but a longer life means that you’ll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To protect yourself against this, you’ll need to estimate your life expectancy – an estimate we can help you find by using government statistics, life insurance tables, or a life expectancy calculator.

Experts take your age, gender, race, health, lifestyle, occupation, and family history into account and are able to produce a fairly accurate estimate. While there is no way to know how long your life will actually be, it’s easy to make an estimate and plan accordingly – and remember: life expectancies are on the rise, so it’s safe to assume you may live longer than you expect.

Identify Your Sources of Retirement Income

What Sources of Income Are Available to You?

Once you have an idea of your retirement income needs, you’ll need to assess how prepared you are to meet those needs:

  • What sources of income will be available to you?
  • How much do you currently have saved?
  • How much will you need to save?

Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide for a portion of your retirement income. If you’d like to get an estimate of your Social Security benefits, you can visit the Social Security Administration website ( and order a copy of your statement.

Additional sources of retirement income may include a 401(k), IRAs, annuities, other investments or other retirement plans. However, if you’re planning on collecting from any of these sources, it basically all boils down to how much you invest in them, the rate of investment return, and a few other factors. Obviously if you plan to work during retirement, your job earnings will be another source of income.

Make Up Any Income Shortfall

What Will You Do if Your Income Falls Short?

If you have a rock solid retirement plan in place, there is a good chance you will have enough funds to take care of yourself and/or spouse for the length of your retirement. However, there are some instances where your income falls short and you find yourself without a source of income – especially if your retirement lasts longer than expected. If you find yourself in this situation, don’t panic – there are a few steps you can take and the financial professionals at Maier & Associates can help. Here are a few suggestions:

  • Shift your assets to investments that have the potential to substantially outpace inflation. Keep in mind that investments that offer higher potential returns also have a greater risk of loss.
  • Try to cut current expenses so you’ll have more money to save for retirement.
  • Lower your retirement expectations so so your income need is less – maybe travelling Europe for a few years isn’t such a good idea.
  • Work part-time during retirement for extra income.
  • Consider delaying your retirement for a few years or longer.

While it can be tricky trying to estimate your retirement income needs, it’s not completely impossible. The retirement planning professionals at Maier & Associates Financial Group welcome the opportunity to set up a no-cost consultation with you.