Principles of Financial Planning Series: Setting a Budget for Retirement – How Much Should I Plan to Live On?
“A few times each year, I teach a class on how to simplify retirement planning. Every time I teach the class, I get looks of bewilderment when I tell attendees that before they can begin writing their specific retirement plan, they will first need to know how much net income they will need to cover their retirement expenses. I think the bewilderment comes because the question is one they aren’t confident they can have an answer. Some attendees have heard that they should plan to live on a set percentage (perhaps 80%) of their pre-retirement income. Some attendees have never followed a budget, so they have never really defined or been aware of what they are spending on their monthly obligations. Some attendees assume their budget is determined based on how much they have saved. But what if more is needed? Or, what if less is needed and something better could be done with a portion of the savings to allow for continued growth for future expenses? With all of these pre-conceived ideas, the best approach is to ask, ‘Is there a better way to do our retirement income planning?’ I believe the answer is ‘YES!’…”