Crunching the Numbers

Exactly How Much Will You Need to Live Comfortably in Retirement?



Saving for retirement requires planning

“Saving, saving, saving.” That’s how Paul Stoloff, 55, of Farmington Hills, Mich., describes his retirement plan.retirement planning

If he can save enough by the time he’s 60, Stoloff can see himself quitting his day job at Chrysler. But will he be able to save enough?

And just how much would “enough” be?

Stoloff, despite his mechanical engineering skills, doesn’t know. “I should, but I haven’t really run the numbers,” he admits.

Stoloff is both unusual and usual—unusual in that few Americans have been ‘saving, saving, saving,’ but usual in his admission that he has yet to run the retirement numbers. According to a recent survey done by the Employee Benefit Research Institute (EBRI), only about four in 10 workers have ever actually tried to calculate how much money they will need to have saved by the time they retire.

Why is that? For some, no doubt, retirement seems simply too far away—so why even bother thinking about it? For others, “They are probably too scared to do the math,” says Jim Otar, CFP, a financial advisor based in Ontario.

You’ve heard that ignorance is bliss, but you may not wind up so blissful if you get to the age at which you wish to retire and suddenly realize that the bills aren’t going to pay themselves. So please consider rolling up your sleeves and joining us for just a few moments of quick and simple arithmetic.

This exercise boils down to subtracting your estimated expenses from your estimated income. The math is easy. Doing the estimating is the tricky part.

No one can read the future, but to give yourself a clue, look at how much you’re living on today, and figure you’ll probably be spending a bit less. After all, you’ll likely be putting fewer dollars into the gas tank, having fewer lunches out, your kids may have finished college and left the nest, and your house may be paid for. Your tax hit should also be less—partly because your income should be lower and partly because investment and pension income is typically taxed less heavily than earned income. Also, you’re no longer saving for retirement!

On the other hand, some costs may go up; you might find yourself spending more for travel and recreation, and—if health problems crop up—more on medical costs not covered by Medicare.

For a ballpark estimate, most people find that they need somewhere between 70 and 90 percent of their pre-retirement annual income.

For a more precise number, tally your costs on the right.