1. Know How to Live
Once you get to retirement, you'll need to know how much you can spend annually, and still have enough to live on for the rest of your life. Most of us will need about 80% of our annual pre-retirement income to live on each year after we retire. Of this, about 35% will come from government sources (such as Social Security) and pensions, and the rest from our own pockets (from personal investments, retirement plans, etc.). Lots of Internet sites, publications, and software packages can help you calculate your retirement income needs based on factors such as what you're earning and how you're invested. Get started by going to http://www.investorhome.com/interact.htm, where you can run some quick calculations of your retirement needs. But one word on on-line calculators-these are terrific tools, but each calculator uses different criteria, leaving you the judge of which set of numbers and estimates makes the most sense for you.
2. Figure What You'll Need
When you make any spending estimates, you'll need numbers in hand from all of your potential retirement income sources. In the U.S., for an estimate of your Social Security benefit call Social Security at 800/772-1213, or go to http://www.ssa.gov. For pension information, contact each of your past companies and get a statement detailing the amount of any benefits. Ask that pension benefits be calculated based on different retirement dates-it could make a big difference in when you'll want to retire. You'll also need to list exactly how much you have in other investment and savings accounts.
3. Things Change - Be Prepared
Review your yearly spending estimates annually both before and after you retire. A drop in the market or a dramatic change in family finances can make a huge difference in whether your spending plan will hold up. For instance, a plunge in stock prices over a few years could mean shifting some of these investments into securities with better outlooks. Or, if your spouse loses his or her job, count on trying to make up some of that lost income by spending less, investing for more growth in stocks (if you can afford the risk), and/or picking up some part-time work.
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