Retirement Planning, Part 2: Crunching the Numbers

Retirement Planning, Part 2:  Crunching the Numbers

Eileen St. Pierre, The Everyday Financial Planner

You’re on the right track – you’re saving 10-20% of your income a month in your retirement accounts.  But as retirement looms larger on the horizon, you want to know if you have enough money saved.  Perhaps you want to know if you need to invest more aggressively, or if it’s possible that you may be able to retire early.  It is now time to crunch the numbers.  Don’t worry – you do not need to be a math wiz.  Just follow these steps.

Gather Data

For any retirement planning estimate, you will need the following information:

  • Social Security benefits estimate
  • Estimate of pension benefits and other retirement income
  • Estimate of income needed in retirement (covered in my Saving for Retirement column)
  • How much you have saved
  • Years in retirement
  • Life expectancy

To qualify for full Social Security benefits, you will need 40 quarters (10 years) of working.  The Social Security Administration no longer mails out annual statements.  To get your benefits estimate, go to http://www.ssa.gov/mystatement.

Your pension provider should provide you with a benefits estimate.  Other sources of retirement income include:

  • Part-time work
  • 401(k), 403(b), and 457 plans
  • Traditional and Roth IRAs
  • Other investments such as annuities, real estate, and mutual funds

The equity in your home can also be converted to cash through a reverse mortgage.  However, this should only be used as a very last resort because once the equity in your home is used up, you will have nothing left to fall back on.  For more information on reverse mortgages, read Reverse Mortgages and Other Uses of Home Equity.

It’s a good idea to complete a net worth statement to determine just how much you have saved.  Basically your net worth is your assets minus your debts.  You can set this up in a spreadsheet or use this Personal Net Worth Statement.

 Retirement Calculators

Once you have all your data collected, now you can use a retirement calculator.  There are plenty of them online (just do a search for “retirement calculators”).  The key is finding the one that suits your situation.  Here are a few with a description of what makes them unique: 

  • AARP – one of the most comprehensive sites; allows for changing life scenarios.
  • CNNMoney – allows you to choose your type of investment portfolio based on your risk tolerance
  • FINRA – incorporates differing tax rates before and after retirement; includes a table showing balance in retirement account
  • Kiplinger – incorporates home equity and the % invested in stocks during the retirement
  • MSN – neat graph

Ballpark E$timate®

There are still some of you out there that want to crunch your numbers via pencil and paper.  For you folks, the American Savings Council offers a paper version called the Ballpark E$timate® at www.choosetosave.org/ballpark.  They also have an online version and a free iPhone app.

All of these calculators have limitations and make certain assumptions.  Your results across calculators can vary widely.  So it’s a good idea to use a few of them to get a general sense of where you stand.  You will also need to re-run your calculations as your data inputs change.

Visit my Retirement Planning page for more information.