Calculating your 'funded ratio' can help you figure out if your nest egg will last as long as you do. Thinkstock By Eleanor Laise, Senior Editor From Kiplinger's Retirement Report, April 2015 In planning for retirement, you have probably crunched many numbers: the value of your investment portfolio, the income stream from Social Security or a pension, your projected annual spending, and your life expectancy. What if you could distill all those figures into a single number that tells you whether you're on track for a secure retirement?See Also: SLIDE SHOW: 6 Savvy Moves to Stretch Your Retirement Savings Some advisers and academics say the "funded ratio" allows you to do just that. To calculate this figure, you divide your total assets -- including the current value of your investment portfolio and the present value of future income such as Social Security -- by the present value of your total projected retirement spending. (Present value is the value of a future sum or income stream in today's dollars.) If you arrive at a figure of more than 100%, your retirement plan is likely on sound footing. If it's less than 100%, you may need to think about working longer or reining in expenses. Advertisement The funded ratio "incorporates a lot of data and boils the answer down to a single stat," says Phill Rogerson, a managing director at Russell Investments, which is promoting the use of the funded ratio among financial advisers. By tracking the figure closely, he says, retirees can "maximize the lifestyle they can live today while minimizing the probability they run out of money before they die." A rising or falling funded ratio can send a signal that your retirement plan is growing more secure or hurtling off a cliff. To be sure, precisely calculating the present value of future income streams and total lifetime retirement spending isn't simple. You need to "discount" those future dollar amounts to reflect the time value of money -- the principle that $1 in your pocket today is worth more than $1 in the future, since money can earn interest over time. The calculation also must take into account your life expectancy. Fully Funding a Retirement Here's an example from Russell Investments: A 68-year-old couple have a $1 million investment portfolio and projected retirement income (including Social Security and pensions) worth roughly $722,000 in today's dollars. They figure their annual retirement spending will be $62,500, rising 2.6% annually with inflation. Factoring in longevity assumptions and taxes, their total spending amounts to $1.45 million in today's dollars. So their funded ratio is 119% ($1.72 million in total assets, divided by $1.45 million in spending). A financial adviser can help you calculate and monitor this figure on an ongoing basis. And for do-it-yourself types, advisory firms are launching free online tools that help individuals calculate their funded ratio. For example, Koch Capital Management, an Alamo, Cal.-based advisory firm that started using the funded ratio with clients last year, is offering such a tool online at www.kochcapital.com (click on "Resources"). Russell Investments plans to offer an online funded-ratio calculator by the end of the year. Advertisement The funded ratio is a concept borrowed from the defined-benefit pension world. Pension plans track their financial health by dividing their assets by the present value of benefits they must pay to participants. When they're underfunded, they may need to make additional contributions to cover the shortfall. So what can individuals do when they're "underfunded" -- or headed that direction? For preretirees whose funded ratio is below 80%, "retirement is not an option at this point," and they should keep working until their funded ratio recovers, says Jim Koch, founder and principal of Koch Capital Management. Retirees should be on high alert if their funded ratio drops below 105% or 104%, Rogerson says. They should cut back nonessential expenses to keep their funded ratio from dropping below 100%. And what if your retirement is overfunded? With a funded ratio of 125% or more, Rogerson says, retirees are "so well funded, they can think about doing other things with their money," such as giving gifts to charity or leaving it to heirs.