Estimating Retirement Income

​Estimating how much money someone needs during retirement involves predicting their future expenses. Then, they can map that prediction onto their anticipated savings.

Common retirement income sources include accrued savings, Social Security, and work pensions. The exact amount from each income stream can depend on age, Social Security eligibility, and how much individuals set aside in their savings. Moreover, the amount someone should accumulate for retirement depends on their desired standard of living.

Financial planners recommend that individuals use the four percent rule. It assumes that retirees will spend four percent of their savings annually before factoring in unanticipated expenses, like vacations or emergencies. The rule provides some flexibility, but individuals should consider that annual expenses may increase with age due to medical care. Factors like their estimated life expectancy can also impact the minimum savings they'll need and how long they can use them before running out.

Investing in stocks, bonds, or other financial instruments presents a heightened risk but can yield more money than savings alone. Individuals who begin investing young can employ riskier strategies and transition to lower-risk products as they approach retirement age. If these savings measures don't meet a retiree's expenses, they can continue working full-time past retirement age or transition into working part-time.

Gary Begnaud

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