Retirement planning has some oft-quoted rules of thumb concerning how much money you need to retire comfortably. This is both a blessing and a curse.

The rules provide general guidance, but they don’t ensure that you will have saved enough for the kind of retirement you want. As with any rule of thumb, the guidance is general. So when do you need to get more specific about your plans?

The consequences of having insufficient retirement assets can be drastic. Unfortunately, if you relied on a rule of thumb and thought you had adequately saved for your desired lifestyle, then find out you were wrong, that info will become apparent too late. You will no longer be able to maintain your desired lifestyle or to correct the situation.

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Rules of Thumb for Retirement Planning

Retirement rules of thumb tend to fall into two categories: the general and the specific. The general rules tend to provide a range, such as, “You need to save enough to replace 70 to 90 percent of your current income in retirement.” The more specific advice does basically the same thing, except it focuses on the midpoint of this range.

For example, the most common specific retirement rule of thumb says something like, “You need to save enough to be able to replace 80 percent of your current income in retirement.”

The value of each piece of advice — good or bad — is equivalent. They are both equally useful (or useless), depending on your perspective. It doesn't matter whether the rule is phrased as saving a percentage of your income or replacing a percentage of it, though many people find it easier to think of it in terms of saving.

A general savings rule of thumb will often be something along the lines of, “You need to save 10 to 15 percent of your income for retirement.” This has other certain advantages we will come back to later.

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When the Rules Help

The rules are better than nothing. You should be able to see that saving two percent of your income, $20 per week, or some other minimal amount is insufficient to be able to maintain your current lifestyle in retirement. That small amount is light-years better than doing nothing. It will definitely help, but you still won’t retire comfortably.

So if you’re 20-something years old, the rules can provide some guidance. That guidance boils down to “save a lot.”

You really do need to put away that 10 percent — or at least work in that direction.

Where the Rules Fail

The general rules are based on some big assumptions. Very big assumptions.

The first is that you are looking to have an equivalent lifestyle. That is, what you do in retirement will be exactly like what you did before retirement. Only now, you will do it for an additional 40-plus hours per week (factoring in both work and commute time) — all without spending any more than you spent while working.

Oh, and health insurance will be a financial problem, too. And you have to think about long-term care, such as nursing home insurance.

Many people also plan on traveling more in retirement than they did while working. They’ve paid their dues, and now they have more free time. At least for the first few years.

So now our “equivalent lifestyle” is the same thing as before, but more of it because we have more time, with increased health care costs, more travel expenses, and very likely costs for long-term care insurance. It seems that we have lost pretty much every aspect of “equivalent.”

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The Solution if Retirement Is Far Away

Rather, solutions. Plural. You have options.

First, if you’re 20-something and don’t really know how your life is going to all come together, much less know what you want in retirement, feel free to use a rule of thumb. Here’s a great way to choose: Pick the one that requires you save the most for retirement and try to make that one work. That will give you a better chance in the face of uncertainty than any lesser rule will.

If you have passed that early life stage and are well established, you may have an idea of what you want in retirement — at least conceptually. If you love to travel (especially high-end travel), the rules of thumb may well leave you out in the cold.

Replacing 80 percent of your not-able-to-travel-as-much-as-you’d-like income won’t afford you travel. But you can still make it simple. Save for the 80 percent, plus travel, and throw in a bit extra for the uncertainty of medical expenses.

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The Solution if Retirement Is Not Far Away

If retirement is on your visible horizon — say within the next 10 years — it’s time to get specific. A lot of things will change. That equivalent lifestyle concept does have some use. It’s a fine starting point. But as a specific number now.

Doing the Math for Your Retirement Planning

Take your income, subtract your income taxes, and subtract your savings. This is what you really live on. If you have a mortgage, subtract that out, too. We’ll add it back in a minute. This is your lifestyle, the equivalent of which you may be looking to keep (plus or minus).

You may be able to subtract a couple of other things as well, but only do so if they’re significant. Some expenses, such as work clothes or commuting expenses, don’t need to continue. You still need clothes, but perhaps the budget won’t be the same. Your call.

You also have a few things to add, like additional money for health insurance, in most cases. Maybe your one of the few who will have some great coverage throughout retirement, but most people won’t. They’ll need to add in for the cost of coverage. At least the cost of a Medicare supplement.

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And you will need to add in the cost of the things you want to do in retirement to the extent that you were not already doing them. If you were doing all the travel you want, that’s in the equivalent number. If you want to travel more, you need to add in the amount of the increase.

Also consider other expenses aside from travel. Travel is both a big expense and a common one, but maybe you plan on learning to fly or to joining a country club. Whatever it is, that’s fine — just include the cost in your calculations.

Then there’s long-term care. I know, you don’t want to think about it. But it’s a real problem. If you don’t have some protection for your assets, you can end up in a dismal financial situation. For married couples, the spouse who doesn’t live in a nursing home bears the brunt of the trouble. He or she is the one who has to live on diddly-squat because there was no insurance.

Once you’ve finished your add-ins and take-outs, you need to add your number up for taxes. How much to add it up will depend on your sources of income and the size of your retirement need. Small need, small taxes. Big need, big taxes. Such is life.

Either way, you get to an annual need that will allow you to live the life you want to live in retirement, based on your wishes and desires. And a cut for the government.

Now you have only a few small steps left. If you took a mortgage out of the number you need to have a capital amount to pay the mortgage. You needed to take it out because it generally doesn’t last through retirement. If you have 10 years left on the mortgage you only need enough money to pay for those 10 years, not for your whole life expectancy.

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Calculate the amount of capital that you'll need for your retirement income — that is, the portion that’s not coming from social security, a pension, or some other source of income.

Then you need to think about what you want to leave for your loved ones, if that’s one of your goals. For some people it doesn’t matter, while for others it’s non-negotiable. Your call. If you have a goal here, add it in.

After you do all that math, you will find out whether or not that rule of thumb was any good. If you have specific goals or plans, it probably wasn’t.

The point is you can’t take that chance. If retirement is on the visible horizon, you can do the math, buy a program to do it for you, or hire an adviser to help. But a rule of thumb will not provide you any reasonable assurance of affording your retirement objectives.

The Bottom Line

Many people who are early in their careers find retirement specifics to be too abstract, and rightly so. A rule of thumb can serve them well in their retirement planning. Income-based rules (“save X percent”) will at least keep pace with your increasing income. But keep in mind that you will need to get more specific later. Perhaps much later, but don’t procrastinate too much!

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As retirement begins to loom on the horizon, it becomes necessary to get into the details. What you want in retirement drives your saving needs. If you don’t want much, your chances of being okay with a rule of thumb are better than they would be if you have detailed plans.

If you have an idea of what you want your retirement to look like and your current vision is important to you, it behooves you to dig into the details. Either you plan so that you can afford your desired lifestyle in retirement, or your savings will dictate what you can afford. If your retirement lifestyle is important, you need to get down to specifics.

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