Estimating Your Retirement Income

Estimating the amount of money you'll have available to you at retirement is only one part of designing your retirement plan. You'll also have to figure out how much you'll need to save to meet your goal and how to make up for any shortfall.

In order to estimate the funds you'll have at retirement, consider your retirement income as a three-legged stool. Generally, your retirement income will be supported by several sources: Social Security, pension benefits and personal savings.

Social Security benefits. The amount of Social Security benefits, expressed as a percentage of your pre-retirement income, varies according to what you earned. Recent estimates by the Social Security Administration suggest that Social Security provides about 39 percent of retirement income. Although it may be the biggest chunk of your retirement income, you have the least amount of control over this amount. Calculating your Social Security benefits can also be a bit tricky (even with the help we provide).

Tip Even though you may be eligible, you will not automatically receive Social Security benefits at a certain age. The burden is on you to actually apply for them after you become eligible.

Pension benefits. Pension benefits can account for about 20 percent of your available retirement income. These benefits include income from employer provided retirement plans, self-employed plans and savings from the various forms of Individual Retirement Accounts (IRAs).

Unlike Social Security benefits, an individual has some control over this potential source of income. The amount of control, however, is limited to participating (as opposed to not participating) in a plan, selecting investment options and switching to employers that offer better retirement benefits. Also, the amount of retirement income you can look forward to is limited by the type of plan involved and the maximum contribution limits set by law.

Financial Calculators To determine the amount of your retirement plan income, use this Retirement Income Calculator. Fill it in as indicated and find out what you'll need for retirement. What will it take to reach your savings goal? Use this Savings Goal Calculator to help you find out. Enter in your savings plan and view graphically your financial results. Click the report button to get more information about your plan, and what you can do to make sure that it is on track.

Personal savings. Like it or not, your ability to save money or otherwise accumulate wealth will ultimately determine whether you can retire comfortably. If any of the other legs in the model comes up short, it is personal savings that will probably have to support the three-legged stool.

Tip Earnings. As people work longer, earnings have become an increasing part of the retirement income equation. Social Security Administration statistics suggest that fully 25 percent of retirement income may come from this source. No retirement planning model is perfect, including the three-legged stool model. Retirement income may come from other sources as well. As the chart above indicates, retirees supplement 20 percent of their incomes by continuing to work.

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