Broker Check
A Retirement Planning Example

A Retirement Planning Example

October 12, 2022

According to a 2020 TransAmerica survey, only 18 percent of retired people have a written plan for life after retiring, and only nine percent discuss planning with friends and family. Calculations based on the process below indicate whether you are on pace to have sufficient funds when you retire. 

This retirement plan is meant to walk you through retirement living expenses, estimated Social Security, income from savings, target savings goal, and the amount required to reach the goal. The steps include

  • Calculating current living expenses
  • Adjusting for living expenses in retirement
  • Estimating annual retirement living expenses
  • Estimating Social Security income
  • Estimating income from savings
  • Estimating target savings balance
  • Calculating monthly contributions needed to reach target savings

Calculating Current Living Expenses

Using a spreadsheet like the one above, add the following

  • Monthly expenses
  • Prorated quarterly, semi-annual, and annual expenses, such as taxes not included in a mortgage, personal property taxes, insurance premiums, and homeowner association fees
  • Income tax deducted from your paycheck


Adjusting for Living Expenses in Retirement

Expenses may change when you leave the workplace. Be sure to adjust your retirement costs as they may change once you retire. Here are some examples.

  • Increased spending on healthcare premiums, deductibles, and copays
  • No retirement contributions (you're taking from your retirement now, not contributing)
  • No FICA taxes

Add the current monthly living expenses and the above adjustments and multiply the number by 12 to determine the annual amount. It makes sense to work until credit cards, student loans, and car loans are paid off. Juggling tax-related issues can be a challenge. A wrong choice may be costly. It is worth getting professional help with this aspect of retirement.

Estimating Annual Social Security Income

Using this link on the "my Social Security" government website, create an account. When you log in, you will see estimated benefits for different ages. If the amount seems incorrect, check the accuracy of your earnings. Using the benefit listed for the age you plan to retire, multiply it by 12 to determine an annual amount.

People tend to estimate a retirement date poorly. Work as long as possible to strengthen a retirement plan. You are eligible for Social Security benefits when you are 62. For many years, full retirement age was 65. 

However, Congress passed legislation that gradually raises the full retirement age due to the fact people generally live longer and are healthier now. It affects those born in 1938 or later. The full retirement age increases each month until age 67 for those born in 1960 or later.

The maximum at age 62 is $2364. At age 66 and four months, the maximum is $3345. Those who delay claiming Social Security past full retirement age are eligible for a maximum of $4194. The average Social Security payment in November of 2021 was $1564 per month.

Estimating Income from Savings

Subtract the estimated annual Social Security from the adjusted living expenses. The result is the minimum needed for savings. It is wise to add five to ten percent for a cushion.

Estimating Target Savings Balance

To determine the target savings balance, Multiply the number from the step above by 25 if you plan to withdraw four percent of the savings balance every year.  Every dollar you earn reduces what you draw from savings. Planning for part-time work after retirement has more than financial benefits. It also gives meaning and purpose to time on your hands. 

Calculating Monthly Contributions Needed to Reach Target Savings

This link to a compound earnings calculator will help calculate the amount you need to invest and save each month to reach your target savings. The calculator will ask for an estimated interest rate. Choose an inflation-adjusted rate of five to seven percent depending on how aggressively you invest.

Use seven percent if most of what you have is in equities and you plan to continue holding stocks. For a more balanced portfolio, a lower rate is appropriate. Investments in equities are aggressive. Putting the long-term into perspective means money needed for the next five years should be in safe investments that are readily accessible.

These suggested growth rates are averages. They are most accurate for timeframes of ten or more years. The calculator will provide the amount needed to reach your goal in your timeframe. Use it as a starting point and revisit the exercise annually to check your progress.

Guidelines for How Much to Contribute 

Here are four suggestions for determining how much to contribute to savings. They are

  • Emergency Fund Rule
  • Ten Percent Rule
  • 60-30-20 Rule
  • Federal Reserve Bank Recommendation

An ideal emergency fund has savings covering three to six months of living expenses. It serves as insurance for emergency spending or a sudden loss of employment. The ten percent rule sets aside ten percent of each paycheck in savings.

Allocations for the 50-30-20 Rule are 50 percent for necessities, 30 percent for luxuries, and 20 percent toward debt and savings. The Federal Reserve Bank recommends consumers have $2000 in savings for emergencies. 

A More Streamlined Approach

If the information above seems overwhelming, you may prefer a more straightforward approach that involves two steps. They are based on three assumptions.

  • Social Security is claimed at Full Retirement Age.
  • Living expenses remain the same.
  • Annual savings withdrawal will be four percent.

The two steps are – estimating the target savings balance and calculating the monthly contributions needed to reach that balance.

  1. Multiply your gross income by 15.
  2. Use the compound interest earnings calculator to determine the amount to save and invest each month to achieve your goal.

This quick approach can be less accurate. Social Security typically replaces approximately 40 percent of working income for those who retire at full retirement age. Claims made earlier or later may be lower or higher. Use a multiplier of 18 to 20 if you anticipate changing your lifestyle when you retire. Recheck and refine the strategy every year to be aware of progress. 


Whether you are interested in the detailed or broader approach, having a retirement plan to guide savings is essential. It helps define what is possible and provides actionable steps to achieve your goals. The plan should motivate you to save and invest. If a plan does that, it has excellent value.