Ask Money

What is my "number"?

Chris Farrell Mar 7, 2011

Question: Please – some guidance on how to ‘run the numbers’ to determine whether or not I can afford to retire. What figures need to be considered, how does one determine unknown increases, such as property taxes, food costs, etc.? Also, where do I go to obtain simple, straightforward information regarding insurance coverage and costs, in addition to that provided by Medicare? Is there a chart that provides guidance as to the benefits of one insurance provider over another?

I’m 67 years of age, work full time and have insurance coverage at my place of employment. I’m trying to figure out if I would be able to afford to retire and just have no idea of what numbers need to be considered and if there are any obvious costs and/or information I may be overlooking. I sure hope you can help and appreciate your assistance. Thank you. Mary, Washington, ME

Answer: How does anyone figure out if they can afford to retire? The short answer is you really can’t know. There is no magic number, no infallible rule of thumb that that solves the “how much do I need to retire” equation. Yet most people find themselves in decent financial circumstances with room for maneuver late in life. You’re probably fine.

So, before we get to the number crunching I would start the process by putting down 401(k) statements, mutual fund quarterly reports, mortgage payment schedules, and other financial figures. Instead, start by asking what kind of life do you want to lead in the years ahead? What matters to you?

What do you want to do with yourself? Do you dream of staying in your community or moving to another state? Is traveling the world your vision of the good life, or is it making a shift into a volunteer job? Will you want to age in your own home or move to an assisted living complex? The answers to questions like these are critical for planning.

I would then look at the various sources of future income, from Social Security to savings. For many people, the word “retirement” is misleading because it suggests saying goodbye to work and a paycheck forever. Yet more people continue to make some money during retirement. Earning an income–no matter how little–delays or reduces how much you draw down savings, too.

Work is also a community. You may not want to work full-time or even with your current employer, but you might want to make some money on the side. There’s also the income you’ll get from Social Security, perhaps a pension, a 401(k)-type retirement savings plan and other savings.

On the expense side, most people find that their vision of a good retirement is a variation on the life they’ve lived and the activities they’ve enjoyed all these years. That’s at least a baseline for your expenses.

Many retirees find that they can make significant cuts in expenses without slashing their standard of living. The retired have the time to shop for and take advantage of deals and discounts, to clip coupons and plan ahead. It’s easy for them to substitute home cooking instead of a late night dash after work to get takeout. Years ago I clipped a letter to the editor at the New York Times because he captured the idea so well. “You can get by on a lot less when you’re retired, without really depriving yourself of anything important… If I had known earlier how much ‘wealth’ derives from such simple pleasures, I would have retired much sooner.”

On the medical front, it takes time to understand Medicare and research whether it makes sense to take on additional private insurance to fill in some uncovered gaps. The AARP is a good place to start.

I’ve only touched the surface of your question. For running the numbers in more details I’d start with some of the programs at You might find a book by Henry Hebeler, the founder of useful. It’s called Getting Started in a Financially Secure Retirement. It addresses all your questions.

One last point: You might consider consulting with a financial planner, too. I’m usually a skeptic when it comes to financial planners, but their expertise can be invaluable at major transition points, like retirement. If you’re intrigued by the idea, I would recommend finding a fee-only certified financial planners (CFP).It won’t be cheap, but you might get the kind of guidance you’re looking for.

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