STEP ONE: How Much Income Will You Need In Retirement?

1. $ Current annual income. (Include income from all sources.)

2. 1 2 3 4 5 10 15 20 25 30 40 Years until you retire. (If you’re already retired, enter 0.)

3. $ Income needed to maintain current standard of living in retirement. (Assumes you’ll need about 70% of today’s income to live comfortably in retirement.)

4. 4% or 8% Inflation rate assumption

5. $ Inflation-adjusted income needed to maintain current standard of living in first year of retirement

6. 1 2 3 4 5 10 15 20 25 30 35 40 Years expected to be in retirement.

7. $ Total amount of income you’ll need to receive during retirement (future dollars).

STEP TWO: How Much Will You Receive From Social Security?

Find out how much you’re due to get from Social Security by calling 800/772-1213 and asking for form SSA-7004. You can also make the request online at www.socialsecurity.gov. (If you’ll be collecting a federal pension instead of Social Security, contact your Agency’s personnel office to find out how much you’re due to get.) For purposes of this exercise, we’ll assume maximum benefits.

8. $ Amount of your Social Security entitlement today.

9. $ Amount of Social Security due when you retire.

10. $ Future value of these benefits, adjusted for inflation, during retirement.

STEP THREE: How Much Will My Pension Be Worth?

A typical big- company pension will replace one-third of a retiree’s income. Most pensions will be indexed for inflation. In this example, let’s assume you have a defined benefit company pension plan. A smaller company may offer a less generous pension, but you may have stock options and profit-sharing plans that would make up the difference.

11. $ Current Income.

12. $ Value of pension, benefits in the first year of retirement (one-third of final salary).

13. $ Total value of pension during retirement.

STEP FOUR: How Much Income Will You Need to Generate?

14. $ Total Future Value of Social Security and pension.

15. $ Total income needed during retirement (in addition to Social Security and pension.)

STEP FIVE: How Much Money Will You Need to Meet Your Income Shortfall?

16. $ Money needed now to meet shortfall. 25 20 15 10 5

STEP SIX: How Large a Portfolio Do You Currently Have to Meet Your Income Shortfall?

17. $ Current savings. (Don’t include savings tied up in real estate for these purposes.)

18. $ Years until you retire.

19. 8 4 % Total return on your portfolio. (For simplicity, assume a conservative 8% total return.)

20. $ Expected value of portfolio at retirement.

21. $ Additional savings needed before retirement. (If your total from #20 above is bigger than 16, you’re home free. You’ll have a surplus. If not, go on to Step Seven below.)

STEP SEVEN: How Much Do You Need to Save Each Year?

22. $ Shortfall (additional savings needed).

23. $ Future Value Multiplier (years to retirement at an 8% return).

24. $ Amount you need to save each year before retirement.

Whew! This process may seem tough, but it’s about 80% simpler than others I’ve seen. (Some contain up to 35 steps.) If at first you don’t understand, try it again. Go through the steps slowly, one by one. What’s the bottom line? If you’ve got a good corporate (or government) pension plan and a sizable investment portfolio, you may already be headed for a comfortable, secure retirement within 10 years. If you lack either element, though, you now know how much you need to save—and how fast.