How to Determine Your Retirement Income Needs

Everyone’s retirement situation is unique. This means the amount of money you’ll need for income in retirement can be a lot more, or a lot less, than that needed by others your age. However, it’s still a good idea to come up with a personal estimate—one that will put you somewhere in the ballpark of where you may need to be.

The first thing you should do is calculate how much you’ll want to spend each month (or each year), including an estimate of any taxes you might have to pay. An easy way to start is by looking at your total current take-home pay, then figuring out what you spend it on. Of course, some things will change after you’re retired: maybe your dry-cleaning bill will go down, but then your travel expenses could go up at the same time. So your expenses may not be exactly the same, but they could be close.

Next, look at any guaranteed income sources you’ll have. This includes pensions, Social Security, and any annuity payments you might get. Guaranteed income can be a real help for people who are nervous about market conditions—or those who just like the peace of mind that comes with knowing the income will be there. Of course, the more guaranteed income you have, the less your portfolio will need to provide for you.

The third step is figuring out the gap between your guaranteed sources of income and your retirement expenses. If you have $70,000 of estimated yearly retirement expenses and $40,000 of guaranteed income, your gap is $30,000. This number represents the amount your savings and investments will need to provide for you each year.

Finally, determine if your “gap number” is one that your portfolio can adequately sustain for 30 or more years. If that number is $30,000 and you expect to have at least $600,000 or $700,000 saved up, that may be workable with the right withdrawal strategy. If you’ve saved up less than that, you may have to make some adjustments. A 4%-5% withdrawal rate, depending on your age, is a good guideline to start with.

Keep in mind that these steps are simplified, and they don’t take into account inflation, investment returns and fees, or future interest rates. But they are a starting point that may give you a glimpse of where you’ll stand once you’ve retired. It’s crucial to have a withdrawal strategy, which is why it’s a really good idea to speak with a financial professional who may help you to fill in the blanks based on your own individual goals and circumstances. Here at Lucia Capital Group, we help people determine their income needs every day. Give us a call—we’re here to help!

Information presented should not be considered specific tax, legal, or investment advice. You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.
No client or prospective client should assume that the information contained herein (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group, its investment adviser representatives, affiliates or any other investment professional.

The information provided is based on current laws, which are subject to change at any time. Lucia Capital Group is not affiliated with or endorsed by the Social Security Administration or any government agency. Social Security rules can be complex. For more information about Social Security benefits, visit the SSA website at www.ssa.gov, or call (800) 772-1213 to speak with an SSA representative.

Annuities are long-term investment products designed for retirement purposes. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Early withdrawals may be subject to surrender penalties and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Annuities are not FDIC insured. Certain terms and conditions apply, so please read insurance company materials carefully .

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised by LCG) will be either suitable or profitable for a client's or prospective client's portfolio.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group, a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC, member FINRA/SIPC. Advisory services offered through Lucia Capital Group. Securities offered through Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.

Start Your Strategy

Personalized investment advice and support to help grow your portfolio