Many experts say you can retire on 70% to 80% of your working income. But before you plan on those amounts ask yourself some basic questions.

• Will my costs really go down? Retirees may spend less on commuting and suits for the office. But they may also spend more on travel, home repairs, gardening supplies, hobbies, or entertainment. Once you pay off your mortgage, you may have more money to spend. But if you decide to redo the kitchen or replace the roof, that money may never make it into your pocket.
• How will inflation affect my needs? The 70% to 80% rule looks great if you don’t take rising costs into account. If 70% of your current income is $50,000, you might mistakenly plan to live on $50,000 a year throughout a 20 year retirement that begins in 15 years. Unfortunately, if inflation remained at a modest 3%, by the time you retired, $50,000 would only purchase what $31,650 buys today. In your last year of retirement, you’d be living on the inflation-adjusted equivalent of $17,200. If that’s not enough to live on, your planning should add reasonable inflation adjustments to your projected income needs each year through the end of your retirement.
• How long will retirement last? If you base your retirement planning on the average life span, what will you do if you’re among the many people who live longer? It may be wiser to plan for a longer retirement than to run out of money by outliving the averages.
• How much will I need to earn? The more your investments actually earn, the less you may need to set aside for retirement. But higher return potential usually comes with a higher risk of loss. As a result, you should carefully evaluate the amount of risk you’re willing to accept. If you have many years until you plan to retire, you may be able to accept the higher risks that come with pursuing higher returns. As you approach retirement, you may want to reduce the risk in your portfolio. But if you do, you should anticipate lower return potential.

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