The New Rules of Retirement

Chapter 2Start with Spending

The main goal of a retirement plan is to be sure you have enough income or cash flow to maintain the retirement standard of living you want. To meet that goal, first, you need to estimate how much a year of your retirement standard of living will cost. Second, you need to generate income to pay those expenses.

In this chapter we focus on estimating your retirement spending. In the next chapter we'll begin looking at ways to generate the income needed to fund that spending.

It is difficult to make retirement plans, even something as simple as setting a retirement date, without estimating the cost of your retirement. Every other part of a retirement plan hinges on how much you plan to spend. If that estimate is way off the mark, the rest of your plan will be way off. Some people overestimate how much they'll spend in retirement, and that causes them to reduce their preretirement standard of living so they can save enough for retirement. Others underestimate retirement spending and find they need to make substantial adjustments after retiring.

Even if you already are retired or very close to it, estimating future spending now is important. The steps we discuss in this chapter will give you a good handle on how long your money is likely to last under current practices and let you know if adjustments need to be made. Those who carefully estimated spending before retirement should repeat the exercise every year or so to see how accurate the estimates are ...