by Art West

Created on: December 15, 2010

The closer you get to retirement, the more important it is to know how much retirement income you will need.  The reason for this is quite simple.  If you know how much income you will need in retirement, then you will know how much you will need in your investments in order to retire.  In my opinion, you should start looking more closely at your retirement income when you get 10 years away from your desired retirement date. Of course it doesn't hurt to check on it before then.

Most experts say you will need about 80% of the net income that you earned the year prior to retirement.  That means if your net income before you retired was $3,000 per month, they are saying you can live on $2,400 per month.  Using 80% may be accurate for some but I don't think it is accurate for most people.  There are several things to consider when coming up with your retirement income so the best way to come up with an accurate figure is to do a budget.  Don't panic at the word "budget", it should be very easy unless you are planning to relocate.  If you are planning to relocate, then you will have to do a little research on how much things cost at the place where you plan on relocating to.  That should be fairly easy to research online.

When you retire, you should have an emergency fund of 3-6 month's expenses.  You should also be completely debt free.  That means you should not have a house payment, home equity loan, credit card payment or car payment to factor into your retirement budget.   Instead, you will need to have money for your health care.  Since most likely your insurance premium was deducted from your paycheck while you were working, you will now have to pay it out of pocket.  Also, as you get older, your health care costs will increase as you will need more prescription drugs. Since you should not have a mortgage, you will need to set aside money for your homeowners insurance as well as property taxes. You may want to travel more, so keep that in mind along with any other activities you may want to enjoy.  Since you will have more free time, you may want to golf more or bowl more or pick up a new hobby.   You should factor those into your retirement budget.

When it is all said and done, the 80% that experts quote will probably be too low.  In my opinion you will need at least 100% and maybe even a little more.

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