We've seen some suggestions that you can figure your retirement will cost about 80% of what your yearly budget is today. We disagree. In fact, we think that glossing over expenses is DANGEROUS AND MISLEADING! Rules of thumb just don't work because everyone is different! Here's an example:

Test. Imagine two families have expenses of  $45,000 each. One family owns a home, which will be paid off by the time retirement rolls around. The other family rents. Both use the 80% 'rule' as a retirement plan, so their answers come out the same - they'll each have $36,000 a year in expenses.

Accurate? OF COURSE NOT! 

Reason? The homeowners will have no rent or mortgage while the renters still have the same expenses they had when working. SO HOW CAN THEY BOTH LIVE ON THE SAME INCOME? It gets worse - apply inflation, medical bills and trips to see the kids.  STILL THINK THE 80% RULE IS OK?  Someone is going to be hungry! 

Conclusion? No two situations are the same. 

SO, WHY DON'T THE BROKERS AND BANKERS TELL YOU THAT? Because it's really not their job. They're job is to sell you the investments that will get you there. It's your job to figure out how much you need before you go to them.

One way to figure your retirement expenses. Take a look at you bills. Which ones will disappear after retirement and which will be reduced? Add up the new numbers. Apply inflation to the new figure for the next (check the chart from Part 1) years. Adjust for taxes. And on and on.

The easy way to figure your retirement expenses. Use RetireMite™.
Plug in 30 days of expenses, it does the rest. Click the icon for a virtual tour RetireMite™ .