How to Make a Retirement Income Projection

Josh Rennie, CFP®, AIF®

Mar 21, 2022

No matter what financial situation you’re in, planning for retirement can feel like a daunting endeavor. Whether you are starting out in your career or retirement is rapidly approaching, the looming question everyone faces is, “how much money do I need to retire?” You can come up with some numbers on your own, but working with a financial advisor can help demystify that question. There are three key components to consider when determining how much money you will need for retirement: retirement age, savings and income replacement.

Retirement Age

When you’re considering how much money you’ll need for retirement, determining when to retire is a big factor. Can you retire at 65? Could 61 be feasible? Or, does 68 make more sense? A financial advisor can help you plan your retirement age based on your situation. Advisors objectively come up with varying scenarios based on your current and projected income, age, health and goals–to name a few.

Savings

One of the principles that we are regularly professing is to treat saving as a bill you are paying to your future self. Each situation is different but saving 15%-20% of your pre-tax income is a great rule of thumb. Consistently saving is one of the best tools investors have to help ensure they have an adequate nest egg prepared for retirement.

Income Replacement

If you’re able to save 15%-20% of your pre-tax income throughout your prime earning years, that should replace 60%-75% of your income in retirement and social security should help fill the gap. However, the actual number will vary depending on your lifetime earnings history. Don’t feel pressure to replace your full income in retirement because you didn’t utilize all of it before, portions of it went to things like savings and social security.

Planning for something as big as your income in retirement is easier to get a handle of when you’re able to break things down into more manageable pieces. By starting with retirement age, savings and income replacement you can get a sense of where you’ll need to be and by when. Yet, this is a situation where a flexible plan and trusted advisor can take some of the guesswork out of a target that feels like it’s constantly moving.

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