How do you know if you are ready for retirement?

A lot of retirement planning starts with what I call a back of the envelope calculation. That’s the calculations that you grab an old piece of mail and scribble some rough numbers. While a back of the envelope calculation isn’t enough, it’s a good start.

First, know how much you are spending. You can do this by first looking at how much you bring home each month. After that, look at how much you are putting into your savings account each month. The difference between these two numbers is what you are spending each month. Of course, you will need to add back in those things that are taken out before the paycheck hits your bank account like taxes and health care. Once you have these numbers, you have a rough estimate of the monthly amount you will need in income in retirement.

Next, evaluate the income sources that you will have in retirement. What will your Social Security be? How much will your pension be if you have one? What will your investment income be? A rule of thumb that many advisors use is that your investments will generate between three and four percent annual income. Add all these numbers up.

Finally, net the difference between the monthly expenses you calculated that you will have and the income sources that you expect in retirement and you will have a rough idea of where you stand with regards to your future retirement.

Of course, an actual retirement plan is more complicated than the above calculation, but it’s a good starting point. When you are ready to take the next step, we are here to help plan your financial future.

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