To estimate how much retirement income you need, first determine how much you expect to spend when you retire, explains Tom Sightings for U.S News & World Report. Some expenses, such as health care and travel, may go up depending on your needs and goals. Other expenses may decrease or disappear, such as contributions to savings, commuting, clothing, food and taxes.Continue Reading
Paying off a mortgage or downsizing can reduce housing costs, reports Sightings. Spending on children may also decrease, and retirees no longer have a payroll tax. Many people find their postretirement costs of living decrease by 30 percent or more.
Once you have an estimate of how much you expect to spend, then add up all the sources of income you expect to receive, states Sightings. This can include pensions, Social Security, rents, royalties and other sources. Some people may fund all their expenses with their income sources, but others need to save money in a 401(k) or other retirement plan to cover the remaining amount, or income gap. Multiply the amount of the income gap by 25, and the result is the total amount you need to save. This number allows you to withdraw 4 percent annually to cover all your expenses.Learn more about Financial Planning