Determining Your Retirement Needs

Determining your retirement "number" – how much you'll need in savings and investments for retirement – is a lot like trying on summer clothes after a long winter in storage. Sometimes it's a pleasant surprise, other times it's a reminder that you need to get into better shape.

Improving your financial condition for retirement takes planning, a solid commitment and time at the calculator working on the numbers.

Still, it's something most of us don't do. According to the Employee Benefit Research Institute 2011 Retirement Confidence Survey, only 42 percent of American workers have taken the time to calculate their "number."

If you haven't calculated your retirement needs, you may be flying blindly into retirement and that's never a good idea. It's best to face the facts, find out what it's going to take for you to retire and then develop a plan. That way, you'll be ready for retirement.


Before actually crunching the numbers, here are a few things to consider when determining your retirement number:

How long until retirement

When do you expect to retire? Will you retire at 65? Can you retire earlier? Will it be later? Without a knowing how many years until you expect to retire, you won't be able to create a plan.

Length of retirement

The average 65-year-old male can expect to live 17 more years; the average 65-year-old woman can expect to live 20 more years according to the National Center for Health Statistics. Have you planned for 20 years in retirement? Or possibly longer?

Your retirement lifestyle

Lifestyle will help determine how much income you'll need in retirement. What kind of lifestyle would you like in retirement, and how much will it cost? I typically suggest working with 60-80% of your final working year's salary.

Healthcare costs

Most Americans are not eligible for Medicare until the age of 65. Even then, Medicare does not cover everything. For more information on what Medicare will cover and to determine if you'll need a supplemental insurance plan, visit


Inflation varies from year to year, but plan on adding at least four percent each year to your number to help account for cost of living increases.


You'll need to determine the rate at which to tap into your nest egg during retirement. A common approach is to liquidate a maximum of five percent of your principal each year in retirement.

Now, it's time to run the numbers. Start by identifying your post-retirement income sources. These can include Social Security, 401(k) plans, IRAs, pensions, savings and other personal investments. You may also choose to work part-time.

If it looks like you're not on track for your ideal retirement, it's a good idea to review your asset allocation and make some changes. What percentage of your investments should be more aggressive? Do you need to be making larger annual contributions to your retirement plan? How can your portfolio work for you now and in the future? There are many factors to consider, and the right investment professional's advice can pay for itself.

Finally, look at when and how much to withdraw from your tax-deferred and taxable investments. Investors are required to take annual withdrawals from employer-sponsored retirement plans and traditional IRAs after age 70 and a half. Because these withdrawals are subject to federal income tax, it's best to maintain tax-deferred investments for as long as possible, so don't plan on touching those until after age 70.


The process of determining your retirement number can be painful. But, you'll be in better shape for retirement and able to enjoy it more. And that's a workout that's totally worth doing.

Scott Ripmaster is a trust officer and financial advisor at Northwestern Bank's Investments Trust Retirement Services area. He assists clients in Traverse City and Leelanau County in building, executing, and monitoring their investment programs and retirement strategies. You can contact him at 231-947-5530 or