Quick Summary
Retirement planning broken into three parts - mapping how expenses shift from working years, identifying income sources, and running a gap analysis to see if the numbers work.
Most people think about retirement savings as a single number. In practice, retirement planning involves mapping out where money will come from and where it will go - and those two lists look different from working-life finances.
Calculator: The Retirement Calculator estimates how much savings is needed based on expenses, timeline, and expected returns. For a deeper walkthrough of the math, see Retirement Calculator: How Much Do You Actually Need?
How Retirement Expenses Differ from Working-Life Expenses
Some costs decrease in retirement (commuting, work clothes, payroll taxes). Others increase - healthcare, travel, and home maintenance tend to grow. The shift looks roughly like this:
| Category | Working Years | Retirement | Change |
|---|---|---|---|
| Housing | 25-35% of income | 25-35% | Similar (unless mortgage is paid off) |
| Healthcare | 5-10% | 15-25% | Significant increase |
| Transportation | 10-15% | 5-10% | Decrease (no commute) |
| Food | 10-15% | 10-15% | Similar |
| Travel/Leisure | 5-10% | 10-20% | Increase (more time) |
| Taxes | 20-30% | 10-20% | Decrease (lower bracket) |
A common guideline suggests 70-80% of pre-retirement income per year [1] - but that varies widely based on lifestyle, location, and whether the mortgage is paid off.
Mapping Income Sources
Retirement income typically comes from multiple streams:
| Source | Typical Range | Notes |
|---|---|---|
| Social Security / Pension | $15,000-$45,000/yr | Depends on earnings history and claiming age |
| 401(k) / IRA withdrawals | Varies | 4% rule [2] suggests $40,000/yr per $1M saved |
| Superannuation (AU) | Varies | Drawdown phase after preservation age |
| Personal savings | Varies | Taxable accounts, CDs, HYSAs |
| Rental income | $5,000-$30,000/yr | After expenses and maintenance |
| Part-time work | $5,000-$25,000/yr | Common in early retirement years |
The more diversified the income, the less exposed any single underperforming source becomes.
The Gap Analysis
The core retirement question: does projected income cover projected expenses?
Annual retirement expenses - Annual retirement income = The gapIf the gap is positive (expenses exceed income), common approaches include:
- Increasing savings rate during working years
- Adjusting retirement age by 1-3 years (significant impact on both savings and drawdown)
- Revising expense expectations
- Optimizing investment allocation for timeline and risk tolerance
The Retirement Financial Planning Spreadsheet lets you model these adjustments and see how different combinations affect the overall picture.
Checking In
Annual reviews are generally enough. Key things to assess: investment performance vs projections, any changes in expected expenses, new income opportunities, and whether the target retirement date still feels realistic.
Sources
- Fidelity - How Much Do I Need to Retire?
- William Bengen - Determining Withdrawal Rates Using Historical Data (1994)
Related
- Retirement Calculator: How Much Do You Actually Need? - The math behind retirement targets
- Retirement Strategies: 4% Rule, Buckets, FIRE, and More - Five approaches compared
- Retirement Financial Planning Spreadsheet - Model scenarios with your numbers
- FIRE Calculator - For those targeting early retirement
- Social Security Calculator - Benefit estimates by claiming age