After doing the calculating called for in the prior posts, you now know the remaining living expenses needed to provide the baseline retirement, and now need to calculate whether the retirement account you expect to have at retirement will be adequate to pay those expenses. You can make an estimate of what your account will be at retirement by assuming a certain level of contributions and a rate of return similar to that you’ve experienced over a substantial period of years. In addition to the retirement account you have in a 401(k) or similar plan, you might have other investments: stocks, bonds, real estate, but these can be lumped together with your formal plan account to determine what you will have a retirement.

Suppose you have the dollar amount of what you will need for your remaining retirement expenses, after Social Security and pensions, and also an estimate of your retirement account. Now what? You need to determine how long that account will pay your expenses. To answer that question, many math-oriented financial professionals have run studies to determine how likely you are to be successful in paying your expenses over a wide range of possible outcomes. There seems to be some consensus that a 3% or 4% withdrawal rate is the safest course; so, $1,000,000 would permit a withdrawal of $30,000-40,000 per year. If that number covers your remaining retirement expenses, your chances of having a successful retirement are good; if those percentages are inadequate, you might take some risk by withdrawing a higher percentage. But how high can you go? If the needed percentage is higher than a reasonable rate of return on your retirement account, then you’re in risk of running out of money. Certainly, if you go beyond 6% or 7%, you’re in troubled waters. It’s then that you must consider delaying retirement or doing some kind of work in retirement. This method of calculation isn’t nearly as scientific or exact as some would suggest, but it allows you to get a fairly good idea of how much you need to retire.