As you have probably already surmised from the discussion so far, your pension gap must be closed (or at least lessened) somehow or your retirement spending plans will not be sustainable.
Accordingly, in this step your savings come into play and it is time to include them in your calculations. To do this, add up the current value of all your retirement accounts. Don’t include the value of your house, although it is an asset, unless you plan to sell it to provide retirement income.
Once you’ve added up the total value of all your investments, the next step is to figure out what kind of eggs you have to draw on in retirement—so we need to calculate your asset allocation. What do we mean by this? As we discussed in Part Two, asset allocation is simply the process of dividing your funds across various broad categories of investment. (We are not actually allocating your assets here; instead, we are just looking at how they are already allocated.) Again, to keep things simple, we are interested only in dividing your assets into stocks and bonds.
The reason we look at how your assets are grouped in these categories is so we can better predict how your nest egg as a whole may behave in the future. Specifically, bonds have lower and more stable investment returns than stocks (or said precisely the opposite way, stocks have higher expected returns and higher volatility than bonds). ...