If you’re like many people in America right now you are thinking about your retirement. One crucial question usually pops into the forefront of anyone thinking about his or her retirement, “How much money do I need?” Followed by, “How much income can I live on and where will that money come from?”

These are not easy questions to answer, even in solid financial times, because in reality, the answer is different for everyone. There are some standard rules of thumb to help determine that golden nest egg amount and those are a good place to start. A good time to start looking at your possible retirement income is at least ten years before your anticipated date of retirement. During those ten years, you should also reassess your retirement goals often. 

To understand your retirement goals and get closer to “the golden number”, you’ll need to take a long look at your current life. First, you’ll need to determine what kind of lifestyle you would like to lead in retirement. Do you plan to travel, spend a lot of time away from home, simplify your lifestyle, or downsize your accommodations? Are you in good health, do you intend on keeping your country club membership, do you need to drive a luxury SUV and have lots of grand kids to spoil? 

A good rule of thumb to determine your retirement income is to calculate 80% of your current income, assuming your current income covers all your living expenses. That 80% will be needed to help you maintain your standard of living as you age. Of course, if you intend on downsizing your lifestyle drastically, you could lower that percentage accordingly. 

Next you’ll need to determine your total net worth. After you have that total, compare your projected income against your estimated expenses, and add 3% to cover inflation and unforeseen expenses. 

You’ll also want to plan for how long you expect to live. Obviously, you can’t predict this number, but you can plan for a number that will allow you to live comfortably. You should assume you’ll live to be 100, even though that is past the current life expectancy. This will make sure you stay on a realistic budget that can account for good and bad years for your investments. And if you don’t live to that age you can pass on whatever money is left to your heirs. 

If collecting Social Security you’ll have to decide if you want to retire early or wait until your full retirement age, when you could collect more money. Bigger monthly payments sound good, but waiting may not make sense for everyone. If you plan on working past your retirement age, you should check the maximum amounts you can earn as that can affect your Social Security payments. It is also a good idea in the years leading up to your retirement to stay on top of your Social Security statements to make sure everything is in order.

This article was posted by Joe Trzepla, a consultant for Sherbourne Financial. Sherbourne Financial offers another way to grow your retirement income with Prime Certificates of Participation. Prime Certificates offer three important advantages not always available in other investment vehicles like higher interest rates, principal preservation and liquidity.