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Mailbag Monday: Calculating Your Retirement Needs

mailbagmondayHow can I calculate how much I can draw from my retirement savings, to ensure that I have enough for both myself and my wife? Are there any calculators you can recommend?

— David

David, this is a great question. Everyone should be doing these calculations, yet many people aren’t — I know that because of anecdotal evidence from surveying participants during Money School, but there is also a great deal of formal research on the subject: According to EBRI’s 2013 Retirement Confidence Survey, only 46% of workers have tried to calculate how much they need to save to live comfortably in retirement.

I recommend that everyone do two things: First, calculate how much you need to save for retirement. There are many calculators out there, including one on this very website. That’s a good thing, because I think you should use several and compare the results. I like the Ballpark E$timate from ChoosetoSave.org, and many brokerage firms have calculators on their own websites.

Once you have a good handle on how much you need to be putting away, you can look into how much you can pull out during retirement, and for that, I like the Retirement Income Calculator from T. Rowe Price (again, there are many in this space and you should play around with several). BlackRock’s CoRI calculator has been getting a lot of good press lately as well, and you can give that a test run here. These calculators will tell you, based on what you already have saved, what you plan to save in the future, and what you expect from Social Security and any other sources of income in retirement, how long your savings might last and how much you can afford to spend each month.

Finally, if you’d like to dig deeper — and making the transition to retirement is a time when you probably should — you might want to talk to a financial advisor for really specific, tailored advice and planning.