How Much Do I Need In Retirement?

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.Charles Dickens

How much do you need?How much do I need to make to live comfortably is very-very-very personal. In my article “How to Supplement a Retirement Income” I referenced the “4% rule”. Generally speaking, it means that I will need $1 million saved to have a $40,000 per year income. However, that number does not take into account either my husband’s or my social security benefits. With social security alone, Michael and I will have an annual income in today’s dollars of $30,456 assuming we each make the average monthly benefit of $1,269. So, when you are considering the amount of extra income you need once you retire, do not forget your social security benefits. They may not be enough to live on but they certainly supplement your lifestyle.

But how much do I need in retirement? I was at my first job after my postdoctoral fellowship in 1992 when I ran across a book by a guy named Joe Dominguez and his partner, Vicki Robin. The name of the book was “Your Money or Your Life” and contained a simple yet elegant retirement plan. In fact one of his more quotable sayings was than “many of us do not make a living, we make a dying”. After he retired at the age of 31, Joe lived on $6,000 per year. The book he and Vicki wrote is still available on and I highly recommend it. It is definitely worth your time. There is a Wiki site that provides a great introduction to Vicki and Joe’s early work called Financial Integrity.

Joe and Vicki’s entire premise was that if people paid more attention to how they spent their money, they would spend less and could work less. Joe retired at 31 on a nest egg of about $100,000. He and Vicki founded the New Road Map Foundation in Seattle. There is currently a wiki site that will help you to understand Joe and Vicki’s approach to personal finance. Vicki, who lives on Whidbey Island has written another book called “Blessing the Hands that Feed Us” which sounds incredible, however, I have not read it.

There are multiple websites on the internet to help you learn to live a frugal lifestyle – if that is your intention. It is important to understand that living frugally does not mean choosing poverty. What it does usually mean is that you are debt-free including your house and that you are a wise steward of your money. No matter what my annual income, I do believe it is important to be a wise steward of my money. Truly rich people are those who take their income and turn it into wealth by investing wisely, saving, and living frugally.

So, how much do you need to live? There are so many websites out there that have tools to calculate your retirement expenses, but really knowing what it will take to live in the future on a fixed or semi-fixed income is not very different from figuring out what it takes to live now.

My first recommendation to you is that you create a financial statement or a balance sheet to determine where you stand right now. This sheet shows you the value of your assets and your liabilities and your net worth. Your personal finances should be viewed as a business. The balance sheet is much like a business financial statement and can help you monitor your household’s financial well being. I update ours quarterly. Your assets include current assets, long-term assets, and other assets. Current assets include your cash, any money owed to you, anything that you might want to sell, prepaid expenses and short term investments. Fixed or long-term assets include long-term investments (401K, IRAs, annuities, profit-sharing), properties (less accumulated depreciation), automobiles, whole-life insurance policies and intangible assets. Other assets should be included in your assets category. Liabilities are your debt, short-term loans, income taxes, long-term debt like mortgages, auto loans and any debt owed to others, including credit card debt.

My second recommendation to you is to create a monthly budget. It should include:

  1. Income: salary, interest/dividends, alimony/child support, rents received, etc.
  2. Home expenses: mortgage/rent, utilities, phone (both home and cell), estimated annual home repairs divided by 12 and other stuff including gardening supplies, home security, etc.
  3. Daily living expenses: groceries, beverages, personal supplies, clothing and clothing maintenance, cleaning services, beauty rituals, eating out, etc.
  4. Transportation expenses: fuel, repairs, maintenance, parking, public transportation.
  5. Entertainment Expenses: TV, video/DVD rentals, movies, plays, concerts, clubs, books, music, other.
  6. Health Expenses: Health club dues, emergency, doctor, dentist prescriptions over-the-counter-drugs, co-payments and out-of pocket expenses, etc.
  7. Recreation Expenses: Gym/sports fees, equipment, team dues, etc.
  8. Insurance: Car, health, home, life, long-term care, other.
  9. Obligations and Savings: Taxes, alimony/child support, student loans, legal fees, emergency fund, retirement savings, long-term savings
  10. Pets: food, medical and veterinarian bills, toys/supplies, other.
  11. Vacation Expenses: travel, accommodations, food, souvenirs, pet boarding, rental car, other.
  12. Education: tuition, books, lessons, tutors, other.
  13. Subscriptions: magazines, newspaper, internet connection, donations, etc.
  14. Children: clothing, tuitions, school supplies, babysitting, toys/games, school lunch, other.
  15. Business: non-deductible expenses
  16. Miscellaneous: anything else.

As you can see, preparing your financial statement and creating a budget – for now or for when you plan to retire will be slow and time consuming if you do it right. Your goal is to prepare both your financial statement and your budget as accurately as you can. It is hard to be a good steward of your money if you do not know where your money is going, or if you have an unrealistic view of your income.

My piggy bankOnce you have a good handle on your net worth, your income and expenses you can determine if you are living above or below your means. If you are living above your means you must change your income and or your expenses immediately. Otherwise you will be in bankruptcy court and will have a very difficult time even considering the idea of a comfortable retirement. If you are living below your means, see if you can increase the difference between the two and how you can use the difference to increase your wealth. Intentionally decide what you are planning on doing with the excess income. Uncommitted money has a tendency to disappear.

If you are in debt, get rid of it. Even if monthly payments make it seem that you are living below your means, all debts are liabilities and your goal is to have very few liabilities when you retire. Your absolute worst debt is credit card debt. It is a sign that you are not being a good steward. Of all loans, credit card debt has the highest interest rate and provides no return on investment.

Now you have all the tools necessary to determine how much you will need to bring in to supplement your retirement income. I shared my supplemental retirement income plan with you in my article “How to Create a Passive Income”. Whatever means you choose to use to live an intentional life, enjoy. Life is way too short to do otherwise.



  1. Paddy

    Hi I found this a very interesting and informative piece. I am far from retirement myself but it doesn’t stop me dreaming of not having to go to work in the morning. I was just wondering can you really ever fully predict how much you will need what with the unpredictably of life and all??

    • Susan

      Hi Paddy, Even if you are far from retirement it is good to understand where you are financially and establish a monthly budget. About 15 years ago, when I opened my first business, I created my first financial statement because the bank required it when I applied for my business loan. Since that time, I have updated my financial statement quarterly. It lets me know where I am in relation to where I want to go. It helps me plan for the future even if I cannot predict it.

  2. Carol

    It’s a shame that the very thing that will become so important to all of us one day, is also the very thing that so many people know so little about, and don’t put enough emphasis on. It’s a wonderful idea to create a financial statement and a monthly budget, and I must admit it’s something that I have not done. As you point out there is a lot of work to be put into calculating your future retirement income, but for obvious reasons would be well worth the effort. Thank you for getting me started in the right direction….now to put it into action!

    • Susan

      Dear Carol, Thank you for your comment. Knowing where you stand financially and investing for the future are great goals. Once it becomes a habit, you don’t even have to think about it very much. Depending on your age and how far you are from retirement, I would not even worry about how much I needed but instead might create a target percentage of my income and invest that for the future. Because of the tax benefits, a 401 or 403K or an IRA may be appropriate. Life circumstances might have you invest part of that savings elsewhere. For example, if you have young children, a sponsored college fund for them may be appropriate. It is always best to reach out to someone to help get you started investing the correct way. Good luck in putting your planning and investment plans into action, whatever direction they might take.

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