You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to estimate how much income you’ll need to fund your retirement. That’s not as easy as it sounds, because retirement planning is not an exact science. Your specific needs depend on your goals and many other factors.

However, by doing a little homework, you’ll be well on your way to a comfortable retirement.



Use your current income as a starting point

Many financial professionals suggest that you’ll need about 70 percent of your current annual income to fund your retirement. This can be a good starting point, but will that figure work for you? It depends on how close you are to retiring. If you’re young and retirement is still many years away, that figure probably won’t be a reliable estimate of your income needs. That’s because a lot may change between now and the time you retire. As you near retirement, the gap between your present needs and your future needs may narrow. But remember, use your current income only as a general guideline, even if retirement is right around the corner. To accurately estimate your retirement income needs, you’ll have to take some additional steps.



Project your retirement expenses

Your annual income during retirement should be enough (or more than enough) to meet your retirement

expenses. That’s why estimating those expenses is a big piece of the retirement planning puzzle. But 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 far off. To help you get started, here are some common retirement expenses:

• Food and clothing

• Housing: Rent or mortgage payments, property taxes, homeowners insurance, property upkeep and repairs

• Utilities: Gas, electric, water, telephone, cable TV

• Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation

• Insurance: Medical, dental, life, disability, long-term care

• Healthcare costs not covered by insurance: Deductibles, co-payments, prescription drugs

• Taxes: Federal and state income tax, capital gains tax

• Debts: Personal loans, business loans, credit card payments

• Education: Children’s or grandchildren’s college expenses

• Gifts: Charitable and personal

• Savings and investments: Contributions to IRAs, annuities, and other investment accounts

• Recreation: Travel, dining out, hobbies, leisure activities

• Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living

• Miscellaneous: Personal grooming, pets, club memberships



Identify your sources of retirement income

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website (www.ssa.gov) and order a copy of your statement. Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.



Make up any income shortfall

If you’re lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But what if it looks like you’ll come up short? Don’t panic — there are probably steps that you can take to bridge the gap. A financial professional can help you figure out the best ways to do that, but here are a few suggestions:

• Try to cut current expenses so you’ll have more money to save for retirement

• Shift your assets to investments that have the potential to substantially outpace inflation (but keep in mind that investments that offer higher potential returns may involve greater risk of loss)

• Lower your expectations for retirement so you won’t need as much money (no beach house on the Riviera, for example)

• Work part-time during retirement for extra income

• Consider delaying your retirement for a few years (or longer)




Brian Curry, CFP®
Ameriprise Financial
11 Corporate Hill Drive
Little Rock, AR 72205
501-537-1110 • 501-519-0738
brian.a.curry@ampf.com




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