Your Magic Retirement Number? How Much You’ll Spend

Your retirement plan is meaningless unless you can pinpoint how much you’ll need to live the life you want.

Remember the old ad campaign in which everyone was literally carrying around his or her retirement number?

One guy had his with him as he rode a bike. Another carried his as he jogged. A married couple went to sleep with theirs on the bed between them.

The point, of course, was that every person has one — an amount you need to save “to retire the way you want.”

That’s almost always the focus when people talk about retirement: Will I or won’t I have enough?

But to me, the most important number isn’t how much you’ve accumulated — it’s how much you think you’ll spend when you no longer have a paycheck coming in. That’s the starting point for a solid retirement plan.

It isn’t about a big, heavy number you have to carry around with you; instead it’s an ugly six-letter word.

You’ll need a BUDGET.

Not in the sense of limiting yourself, though, or “living within your means.” From a retirement perspective, putting together a budget is about figuring out costs so you know what you’ll be spending.

Once you’ve done that, and you think you’re ready, I highly recommend living on that retirement budget while you’re still working — for 12 or even 18 months — to get a sense of whether it’s realistic.

Makes sense, right? And yet most of the time when someone comes into my office and I ask how much they want to spend in retirement, they have no idea.

Everybody wants to know if they have enough saved, but how do you even begin to answer that question if you don’t know what you want to spend? If you get that wrong, you’ll never know if your “retirement number” was right or not.

When you have your budget set, you have a starting point for your plan.

Next you can start to look at your sources of income.

If you have a pension coming, you’re ahead of a lot of people these days. But, you still have choices to make regarding how to take it. (If you’re married, decisions about lump-sum payouts or survivorships should be made together.)

You’ll also have options regarding how and when you take Social Security. Again, your spouse should be included in any decisions you make. And you’ll want to consider how your choices will be affected by taxes, inflation and longevity.

Income decisions made? Do some math, and figure out if there’s a shortfall.

It’s a simple enough equation: A (the money you’ll spend) - B (the money you’ll bring in) = C (what you will or won’t need to fill the gap).

If you have more cash coming in than you’ll spend, congratulations! But most people come up short; they’re looking to spend more than their pension and Social Security will provide.

If you’re in that group, there are different ways you can make up the difference.

Some people opt for additional guaranteed income to go with their pension and Social Security. They don’t want to worry about whether they’ll have enough every month to spend on the lifestyle they want.

Others are willing to take more of a gamble, using the investments in their portfolio to meet the shortfall.

Once you decide how you feel about that, it will point you to how you’re going to use your money in retirement.

More often than not, the people who come to our office want to talk about their investments. They’ve been programmed that way, and it’s the part of the process they understand best. After all, they’ve been hearing about accumulation, and the importance of their rate of return, since before they signed up for their first 401(k).

But in retirement, success isn’t so much about rate of return. Once you know what you need to live comfortably, it becomes about managing volatility, so you don’t experience any big losses.

It’s time to get with a financial professional who can help you with a solid income plan.

Pull yourself away from figuring out how to pile up money. Seek advice from someone who is experienced in retirement income planning, so you can be sure your plan supports the spending you expect to do.

This sounds easy enough, but it’s rare that I find people who actually have a legitimate written income plan. I equate that with taking a job but not knowing what you’re going to get paid.

You’re preparing to enter a new 20- to 30-year career. Treat it that way. Start at the beginning, educate yourself, and don’t take unnecessary risks.

Then you’ll truly be ready to retire the way you want.

Investment Advisory Services offered through Global Financial Private Capital, LLC.

Kim Franke-Folstad contributed to this article.

About the Author

Ken Heise, Investor Adviser Representative

Co-founder and Financial Adviser, Heise Advisory Group

Ken Heise is co-founder and president of the St. Louis-based Heise Advisory Group ( He is an Investment Adviser Representative and a Registered Financial Consultant, a designation awarded by the International Association of Registered Financial Consultants to advisers who meet high standards of education, experience and integrity.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger was not compensated in any way.

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