We’ve all heard the problems with relying on numbers: garbage in, garbage out; liars figure, and figures lie; 87.2% of statistics are made up; and so forth. Yet some individuals do their retirement income planning by answering some questions in an online calculator, reviewing the results, and checking the box that their retirement planning is complete. They think they’re good because the software says so.
Retirement income planning starts well before crunching the numbers. You may know when you want to retire, how much you want to receive each month, and what you want to do in retirement. But before deciding that you’re good to go, you should address some key variables in your planning: specifically, how you feel about returns, taxes, timing, and risks. In other words, what are you planning to earn on your investments, how much of your income will get taxed, how many years will you need the income, and what might go wrong that would change your retirement income target? Answering these questions not only helps you calculate whether you’ll have enough in retirement but also facilitates the development of strategies that will make your plans more realistic and more secure.