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Making Your Money Last

Retirement Lifestyle

Most experts recommend that you replace 75% to 85% of your preretirement income in order to meet your needs after you stop working. But the size of your nest egg will dictate how many extras you can afford.

The snapshots below look at a 65-year-old couple who earned $90,000 a year while working and need about $70,000 annually in retirement to maintain the same lifestyle. Their expenses were calculated in the 2004 Retirement Income Replacement Ratio Study by Aon Consulting and Georgia State University (see the full study, including expenses at other income levels). We assumed our couple withdraws a conservative 4% of their savings initially, adjusted for inflation each year, and then we imagined how they might spend it.

The $500,000 nest egg

ANNUAL INCOME: $70,000
($30,000 from social security; $20,000 from a pension; $20,000 from personal savings)

Expenses: About $45,000 will go to pay for basics, such as food, housing, health care and taxes, according to the Aon study. That assumes annual health-care costs of $3,700 -- barely enough to cover medicare premiums and medigap policies for two. The study budgets about $200 a month for entertainment -- enough for a regular Saturday-night movie and dinner at Red Lobster.

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Lifestyle: Your cushion of about $2,000 a month could handle car maintenance, repairs to the old homestead and an occasional vacation. But long-term medical care could stretch your resources, because your budget doesn't include long-term-care insurance.

The $1-million nest egg

ANNUAL INCOME: $90,000
($30,000 from social security; $20,000 from a pension; $40,000 from personal savings)

Expenses: Essentials remain the same, but you have a lot more room for discretionary spending with an extra $3,500 a month. You can afford a bigger clothing budget than the $1,500 assumed in the survey and be generous with gifts and charitable contributions not included in expenses. Consider buying long-term-care insurance.

Lifestyle: You'll savor life in your golf-course community when you're not touring Spain or taking the grandkids to Disney World -- as long as you paid cash for your new home. If you still have a mortgage, you might have to cut back on greens fees or theater tickets.

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The $2-million nest egg

ANNUAL INCOME: $130,000
($30,000 from social security; $20,000 from a pension; $80,000 from personal savings)

Expenses: Expect to pay more in income taxes. Most of your social security benefits -- which are tax-free for lower-income retirees -- and all of your income from retirement accounts will be taxed at your regular rates. But you'll still have plenty of cash to buy a new car or help the grandchildren pay for college.

Lifestyle: You might want to trade your big house for two condos, one in a warm-weather destination. Although two homes will double your household expenses, you won't have to worry about running out of money. But you'll want to review your estate plan.