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how they may change in the years ahead. (Check out Chapter 6 for more information on budgeting and managing your expenses in retirement.)

      To help figure out how much money you need, keep the following statistics in mind. Studies have shown that retirees typically spend 65 to 80 percent of their pre-retirement income during their retirement years. Folks at the lower end of this range typically

       Save a large portion of their annual earnings during their working years

       Don’t have a mortgage or any other debt in retirement

       Are higher-income earners who don’t anticipate leading a lifestyle in retirement that’s reflective of their current high income

      Those who spend at the higher end of the range tend to have the following characteristics:

       Save little or none of their annual earnings before retirement

       Still have a significant mortgage or growing rent to pay in retirement

       Need nearly all current income to meet their current lifestyle

       Have expensive hobbies that they have more time to pursue

      

We can’t offer a definitive answer as to how much you personally may need to have for your retirement. Just make sure you carefully look at all your expenses and figure out how they may change (see Chapter 6).

      Grasping what the numbers mean

      When determining how much money you need for your retirement plans, you want to think in terms of your goals and how much you should save per month to reach your desired goal given your current situation.

      In Eric’s previous work as a personal financial planner and lecturer, he came across many folks who had done some basic number crunching or had consulted a financial advisor. Far too often, these folks got a number — a big, bad number like $3.8 million — stuck in their heads. That number was the size of the nest egg they supposedly needed many years in the future to achieve a particular standard of living throughout their retirement.

      

Rather than obsessing about a large number, you need to examine your own standard of living that can be provided by the assets you’ve accumulated or will likely accumulate by a preferred retirement age. You can then begin to put the numbers into perspective for your own individual case. We get to that task in the later section, “Crunching the Numbers.”

Eyeing the Components of Your Retirement Plan

      In order to meet your retirement goals, you need a firm grasp of what resources are available to help you. In addition to government benefits such as Social Security, company-provided pensions and personal investments round out most people’s retirement income sources. This section takes a closer look at these elements.

      Social Security retirement benefits

Social Security is intended to provide a subsistence/modest level of income in retirement for basic living necessities such as food, shelter, and clothing. However, Social Security wasn’t designed to be a retiree’s sole source of income. When planning for retirement, you’ll likely need to supplement your expected Social Security benefits with personal savings, investments, and company pension benefits. If you’re a high-income earner, you particularly need to supplement your income — unless, of course, you’re willing to live well beneath your pre-retirement income. (Refer to Chapter 10 for more discussion on Social Security.)

      

If you’re still working, you can estimate your Social Security retirement benefits by looking at your most recent Social Security benefits summary at www.ssa.gov/myaccount/ or by calling 800-772-1213 and requesting Form SSA-7004 (“Request for Social Security Statement”). Setting up a “my Social Security” account on the Social Security website lets you obtain updated benefits estimates, verify your earnings, and take other actions.

      

Like many people, you may be concerned about your Social Security. You may be afraid that it won’t be there when you retire. Although you may have to wait until you’re slightly older to collect benefits or endure more of your benefits being taxed, rest assured. Congress has been reluctant over the years to make major negative changes to Social Security, because doing so would risk upsetting a large and highly active voting bloc of retirees and near retirees.

      By reviewing your Social Security account, you can see how much in Social Security benefits you’ve already earned and review how the Social Security Administration (SSA) determines these numbers. With this information, you can better plan for your retirement and make important retirement planning decisions.

      Looking at your estimated Social Security benefits

      Your Social Security account can give you important information about your estimated retirement benefits. For your personal account on the Social Security website, click the link that says, “View Estimated Benefits.” You see information like the following, which happens to be for a person who is about ten years away from retirement and who has consistently been a moderate income earner (unless you don’t have enough work credits, which are awarded for every year you earn money):

       You have earned enough credits to qualify for benefits. At your current earnings rate, your estimated payment would be:At full retirement age (67):$2,270 a monthAt age 70:$2,815 a monthAt early retirement age (62):$1,600 a month

      These statements are pretty self-explanatory. (We explain in Chapter 10 how the credit-earning part of Social Security works.)

      Assumptions: Discovering how your benefits are estimated

      Along with your benefits estimates, the SSA also discloses the assumptions used to come up with your numbers and some important caveats. You should understand the assumptions behind the estimates we talk about in the preceding section. Why? These are projections, and depending on your earnings in the years ahead, your expected benefits may change. Here’s what the SSA says:

       Generally, the older you are and the closer you are to retirement, the more accurate the retirement estimates will be because they are based on a longer work history with fewer uncertainties such as earnings fluctuations and future law changes. We encourage you to use our online Retirement Estimator to obtain immediate and personalized benefit estimates.

      

If you stop and consider this assumption, it does make sense and is true of about any forecast or estimate. The further into the future you try to project something, the more likely it is that the estimates may be off base.

      To understand what could throw off future estimates, keep the following in mind as you dig a little deeper into the SSA’s assumptions:

       If you have enough work credits, we estimated your benefit amounts using your average earnings over your working lifetime. For 2020 and later (up to retirement age),

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