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Jim Lentini: What's your retirement income focus?

Posted: June 8, 2009 9:48 p.m.
Updated: June 9, 2009 4:55 a.m.

To make sure you have enough money for your retirement, begin with a few estimations and rough calculations.

Get an idea of what your expenses will be like in retirement, what your sources of income will be and how much income you can expect from each source.

If your anticipated expenses and income don't match, you'll have to close the gap and make necessary changes to your plan.

Financial planners often use a general guideline of 75 percent of your pre-retirement after-tax income to estimate how much you will spend after you retire.

Some expenses will decline after retirement. Example, you shouldn't be saving for children's college tuition or setting aside money for your retirement. You won't have all the expenses of working. And, if you have paid off your mortgage, that will also relieve a big expense.

However, other expenses will likely grow, including travel, entertainment and leisure expenses.

Increasing medical costs and insurance is a concern to plan for as we are living longer. That increased longevity creates increasing medical needs for longer periods of time.

How much money will you have available when you retire? In fact, today we can expect that a person who is age 65 will have a good chance to live for at least 30 years.

Some retirement planners say you need 100 percent of your pre-retirement income.

Where will it come from? Social Security, your retirement savings plan, an IRA and other savings usually make up your income.

Many also will have a pension, 401(k) or part-time job in retirement to contribute to your annual income.

To estimate your monthly Social Security benefits, call the Social Security Administration at (800) 772-1213 or go online at to order a personal Social Security statement.

To estimate your annual income from savings, including your retirement savings plan or an IRA, tally the total nest egg and then apply a withdrawal percentage.

Studies have determined that if you limit your annual withdrawals to 4 to 5 percent of your initial nest egg the year you retire, and then adjust for inflation, you stand a good chance of outlasting your money over a period of 25 to 30 years.

If you withdraw 6 to 7 percent, there's a good chance of outliving the income. Your margin of error is small.

Now there are investment vehicles available that can guarantee a lifetime income whether the investments fare well in the market or not.

If you estimate you will have more retirement expenses than income, you will have to take action to even things out; and the sooner, the better.

Evaluate where you can trim expenses, raise your retirement savings contributions, or plan to work part time after you retire.

As always, "make a plan, stick to the plan." See your financial advisor at least once a year.

Changes in your needs and desires should be reviewed on a regular basis because what is important today may change tomorrow.

Jim Lentini is President of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.


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