Are You Retiring Next Year? How to Calculate the Monthly Income You'll Actually Need.

If you’re planning to retire next year, you may be at the point where you’re counting down to that milestone eagerly. But if so, now’s the time to come up with a realistic budget so you can make sure you have enough income to cover your needs.

Here’s how to calculate your monthly retirement income and avoid a shortfall.

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Step 1: Think about your current lifestyle and whether you plan to uphold it

It’s not a given that the lifestyle you maintain now is the one you plan to maintain as a retiree. You may be planning to downsize and shed some costs. Or, you may be planning to move to a more expensive area, or stay put but do a lot of travel.

Figure out whether you’ll mostly be upholding your current lifestyle or making changes. If it’s the former, you can probably estimate your monthly costs with relative ease. If not, you’ll need to do some research to see what expenses you might face.

Step 2: List your expected monthly expenses

Once you’ve answered the question above, it’s time to list your recurring expenses. You may not have a perfect handle on every single one, since some, like healthcare, could fluctuate. In that case, do your best.

It’s a good idea to list your expected expenses on a spreadsheet (or a notebook will do) and total them. Make sure to account for:

• Housing costs
• Utilities
• Transportation
• Medicare and healthcare costs
• Food
• Clothing
• Entertainment

Step 3: Build room into your budget for non-recurring expenses

There are certain bills you can expect to face monthly in retirement. But some expenses may pop up only occasionally.

You might have to fix a broken pipe in your house or pay for new brakes for your car. These shouldn’t be recurring costs. But build some room into your budget for surprise expenses like these.

Step 4: Make sure your income can support the retirement you want

Once you’ve figured out what your bills might look like, it’s time to make sure your expected income can support them. If not, that makes the case for delaying retirement.

First, see what Social Security benefit you’re eligible for each month. You can access your most recent earnings statement on SSA.gov to find this out, but keep in mind that your claiming age will help determine how much the program pays you.

Next, decide how much annual income you’ll get from your retirement savings based on your planned withdrawal rate. If you intend to follow the 4% rule and you have a $1.5 million IRA, that gives you $60,000 a year in income plus adjustments for inflation.

You may have access to other income streams, too, like part-time work or a rental property. Add everything up to make sure the numbers work.

Having a good handle on your monthly income could help you approach retirement with more confidence. If that milestone is coming up soon, now’s the time to run the numbers and get that peace of mind.