To bring the future into focus, consider that you’ll need anywhere from 60 to 100 percent of your final working income to maintain your current standard of living in retirement. For the purposes of this estimation, final income is calculated on the basis of your current income, years to retirement, and average annual salary increases. Your actual salary just before you retire may differ greatly. However, it is useful to see this number as an estimate for what you’ll need every year in retirement. Then look at how Social Security, pensions, part-time work, inflation, and distributions from an employer-sponsored program will affect your bottom line. 

When will you be ready to retire?
Retirement is about having enough money to live the life you want after you’ve stopped working, no matter how old you are. Although most people assume they will retire in their 60s, that might not happen if they don’t have the finances to support their desired standard of living.

Most retirement programs mandate you begin taking distributions no later than age 70 ½ and the Social Security Administration defines retirement age as 67 for people born after 1960. The average length of retirement, however, is getting longer because many people are retiring younger and living longer. Today, a 65-year-old man can expect to live until his early 80s, and a 65-year-old woman can expect to live a few years longer. According the National Center for Health Statistics, by the year 2050 about one million Americans will be at least 100 years old. You might not live until 100, but it is likely that you’ll have many years of living in retirement to finance. 

What will you be doing?
How much money you’ll spend over the length of your retirement will depend on how you’ll spend your time...to a degree. Certainly, you’ll spend more money if you cruise the world than cruise your block with your grandchildren. You may still have a mortgage or dependents to support. Even simple relaxation will require a bit of planning. No matter how you want to spend your retirement, though, you’ll want the peace of mind that comes with financial security.

How much will it cost?
When you are no longer bringing home a paycheck, your financial landscape may look somewhat different than it does today. Some expenses associated with your working life may be reduced or eliminated. For example, you’ll no longer be paying Social Security or payroll taxes. Perhaps your mortgage or other debts will be paid.

However, if you own a home, property taxes will undoubtedly increase. Because Medicare coverage may not be comprehensive, your health care costs could rise significantly, especially if you may have to pay for health benefits previously covered by your employer.

Again, bear in mind that experts estimate you’ll need between 60 and 100 percent of your current annual income to meet everyday expenses when you retire. And those expenses will be higher, in dollar terms, than they are today. Since 1960, the Consumer Price Index (CPI) has risen an average of 4.4 percent a year. As each year goes by, every dollar in your pocket buys fewer goods and services. When estimating how much you’ll need to retire, it’s essential to consider how inflation—the general rise in the price of goods and services—can erode the buying power of each dollar in your retirement account.

Your cost of living will continue to rise throughout your retirement. That means you’ll probably need to increase the amount you withdraw from your investments each year you’re retired just to maintain the same standard of living.

To reach a ballpark figure of the total amount you’ll need, calculate 80 percent of your current income (or slightly more if you are just starting out in your career.) That will represent a rough estimate of your annual living expenses in retirement.  Then multiply it by 20 or even 30 years. It is a lot of money, and it won’t come automatically.

Where will the money come from?
Social Security may cover some of your needs in retirement, but those benefits are not guaranteed and may not begin as soon as you might like. For people born in 1960 or later, payments will begin at age 67. And even though it’s generally agreed that the Social Security system will be adequately financed through 2038, benefit reductions may be needed to maintain the system beyond that. For an estimate of your benefits, call the Social Security Administration at 800-772-1213 or visit their website at www.ssa.gov.

A pension from your current or previous employer may also cover a portion of your living expenses in retirement, but fewer employers now offer guaranteed-for-life pensions.  If you are eligible for a pension, your employer can estimate those benefits for you.

Chances are that your primary source of retirement income will be your own savings.  And a retirement program offered by your employer is one of the smartest ways—if not the smartest way—to save for retirement.