Retirement Planning Model - Needs

Retirement needs can be described as the amount of money required (annual, monthly, etc.) during retirement to maintain a certain lifestyle. How much is actually required? The answer is, it depends. However, it is generally safe to assume that if you were to retire, you would want to maintain a standard of living that is comparable to the lifestyle you currently have. However, you may have to make certain adjustments to your current lifestyle in order to reflect the standard of living you will have during retirement. Some of the adjustments you will typically make to your current lifestyle are:

- Reduced Savings - You probably will not be saving for retirement during retirement.

- Reduced Taxes - FICA (Social Security) taxes will be reduced if you are not "earning" income.

- Reduced Work Related Expenses - These include commuting, work clothes, etc.

- Reduced Monthly Expenses - Ideally, if you paid off the mortgage on your primary residence, you will not have a monthly mortgage payment.

- Increased Travel and Entertainment - During retirement you may travel extensively, eat out more often and enjoy some of the recreational activities (golf) that you did not enjoy previously.

- Increased Medical Expenses - As we get older, we tend to utilize the services of physicians more often than when we were younger.

Each individual will have their own circumstances that will dictate what their own unique retirement needs are. If your former employer provides medical benefits during retirement, you may not have to adjust your lifestyle for increased medical expenses. Also, if you plan to continue working during retirement, you will still incur work related expenses and social security taxes.

As a general suggestion, many financial planners use 60-80% of pre-retirement wages will be needed during retirement. Let's get to the model now.

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