Your Retirement Income Plan
How to Get What You Need
You need a monthly income to stay in your house, pay your taxes, keep your car on the road, and remain active in your community. Not just now but for the rest of your life, and the life of a surviving spouse or partner.
The calculator below helps you develop a Retirement Income Plan, using standard rules-of-thumb to provide Quick Estimates of:
- The monthly income you need.
- Your monthly income from Social Security, employer pensions, rents, etc., and what you might get from your savings.
- How you might add to your income and cut your expenses, and thus the income you need, if you downsize or adopt a less expensive lifestyle.
- NOTE: All items, except employer pensions, are assumed to rise in line with prices.
The TOOLKIT below has tools to help you get better estimates of the income you need and what you might get from your savings, by downsizing or cutting your spending, or from a reverse mortgage or government benefits.
In ADVANCED you can
- Enter those estimates, or other corrections, to update your Plan
- See if your survivor will have the income he or she needs.
Set the Monthly Income You Need
The First Step in Your Retirement Plan
A rough rule-of-thumb says you need 75% of what you earned while working.
If you earned $50,000 a year, the rule-of-thumb says you need about $37,500 a year, or $3,130 a month (all figures rounded to the nearest $10) rising in line with prices.
For an estimate of how much you need, replace the $50,000 in the white box with your pre-retirement income and that of your spouse or partner if you’re not single.
You can then correct that rule-of-thumb estimate, if you like, by entering “YOUR FIGURE” for your Monthly Retirement Income Target.
What About Reserves?
You Need Reserves
You need reserves for emergencies, either savings or home equity you could tap should you need a new roof or furnace or an expensive medical procedure.
But you might not need larger reserves to pay for rising expenses down the road.
Expect to spend more on health care, perhaps twice what you’re spending per month today. But spending on transportation, entertainment, and other items often declines with age. Would such cuts in YOUR spending offset the rise in health care expenses?
- If so, you don’t need savings or home equity in reserve to pay your rising bills.
- If not, you do need savings or home equity in reserve to pay those rising bills.
The big risk is long-term care. But unless you have a lot of assets – more than enough to provide the income you need – it rarely makes sense to hold reserves to pay the cost.
- Most people rely on state Medicaid programs for those with “limited means.” You don’t need large reserves if you’ll to exhaust your “means” should you need to enter a nursing home, usually at the end of life. Many states also allow your spouse to keep the house + about $100,000.
- You can also buy long-term care insurance. It costs about $200 a month per person and premiums could rise in the future. Such insurance, however, can significantly cut or eliminate your need to hold reserves for long-term care.
Tools You Could Use to Refine Your Plan
To Use Your Savings for Income. A rule of thumb says you can draw out 4% of what you currently have each year, rising with inflation, with little risk of running out of money. You’d get more if you buy an annuity, less if you live on the interest. To consider your options, use Figure Out How to Get Income from Retirement Savings.
To Downsize. Your house is often your largest asset and largest expense. To see the income you could get and the expenses you could cut if you downsize, use Figure Out How Moving Changes Your Finances.
To Adopt a More Sustainable Lifestyle. To see where your money goes and where you might cut back, use Figure Out How to Make a Budget in 3 Minutes. To identify specific ways to save money, use Figure Out Where to Cut Spending.
To Take a Reverse Mortgage. You can get cash, a line of credit, or an income for life, and can stay in your home for the rest of your life. But there are things you need to know. So use Learn About Reverse Mortgages. To see what you might get, use the Government Approved Calculator, from the National Reverse Mortgage Lenders Association.
To Get Government Benefits. Many retirees are eligible for benefits to help pay for medicine, medical care, food, utilities, and other expenses, but don’t apply. To see if you are eligible, use the National Council on Aging’s Benefits CheckUp.
To Work. Many retirees work these days. You can’t work forever. But while you do, you add to your income and preserve your savings for when you no longer work. To consider some issues in returning to work, use Learn About Strategies for Older Workers.
Then Get It Done. Put reminders in your calendar. Schedule what’s urgent first. Then what’s big or done quickly. Then what’s not so big or takes time. And in no time you’ll be DONE.
Our Assumptions & Disclaimer
Rules-of-Thumb We Use
Income from Savings
- The 4% Rule: In your mid-60s, you can draw out 4% of what you have in savings each year (1/3% each month), rising to keep pace with inflation, with “little” chance of running out of money. As you can get a higher % when older, or a higher % if you use your savings to delay claiming Social Security, we see 4% as reasonably conservative.
Income from Downsizing
- It costs 10% of the value of your current house to downsize: to 1) fix-up your house, 2) sell your house, 3) move your belongings, and 4) fix up & furnish the new house. After paying these costs, the difference between the price of your current and new house is added to your savings.
Cut in Housing Expenses from Downsizing
- Housing expenses – taxes, insurance, utilities, and upkeep – are 3.25% of the value of the house.
Cut in Expenses by Adopting a Less Costly Lifestyle
- If you downsize, the reduction in your spending after you downsize.
DISCLAIMER: The information provided on the SquaredAway website is for educational purposes only. It is not intended to provide personal financial advice.