If you’re worried about being able to retire, you’re not alone. Millions of Americans are concerned about whether their retirement savings will be enough to keep them comfortable. In fact, many Americans fear running out of money more than they fear death.i If you’re evaluating the decision to retire, there are a few important steps you can take now to determine whether you are on track financially. You can start with a few simple calculations.
Projected Expenses and Income
Start by estimating your expenses in retirement. By adding all your basic living expenses and desired discretionary spending, you can develop a better idea of how much money you’ll need each month. To make it easier for you to accurately estimate your expenses in retirement, we have developed a Retirement Budget Calculator that uses your current household expenses as a guide.
Another quick way to evaluate your retirement expenses is to take a flat percentage of your current spending. A common recommendation is to use 80-90% of your current preretirement monthly spending to arrive at a conservative projection.
The second step is to identify all income from Social Security benefits, a pension, and other sources. Any gap between your income and your expenses will need to be covered by withdrawals from your retirement savings.
Understanding how much can be safely withdrawn each year during retirement without running out later in life is complicated. Unfortunately, there is no simple formula or approach that you can use to determine a safe withdrawal rate. It’s important that you take a personalized approach to your retirement income strategies. There are many online calculators you can use to estimate how much you may be able to withdraw in retirement. A financial professional can also help you understand how different factors affect your calculations and develop a strategy designed to balance your cash flow against the long-term preservation of your nest egg.
What if I don’t have enough?
Have you run the numbers and think you may have a retirement income shortfall? Don’t panic. There are several strategies that can help increase your potential retirement income or reduce your expenses.
- Increasing your savings rate can help you make up an income shortfall. Are you getting your full Thrift Savings Plan (TSP) match? If you are 50 or older you may be eligible for additional contributions.
- Delaying retirement by working and adding to your TSP can help your nest egg continue to grow, increase Social Security benefits (if under age 70), and shorten the amount of time your savings must last.
- Downsizing your home can lower living expenses.
- Working during federal retirement can create extra income while keeping you active and doing something you love. Many public workers retire when they are still young and active, making a second career or part-time work attractive. While some take the skills they have developed into new careers, others pursue passions for teaching, speaking, or have part-time jobs. Keep in mind that working while collecting benefits may impact your Special Retirement Supplement and Social Security if you are younger than full retirement age.