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You could spend 20 years or more in retirement, whether you choose to travel or pursue hobbies at home. You'll need to plan carefully so that you don't outlive your nest egg. A good place to start is to take inventory of your sources of retirement income, to estimate your expenses in retirement and to develop a budget.
The first step in creating an investment plan for your retirement years is to make a complete list of your income sources. Take inventory of the accounts that make up your pool of money set aside for retirement. You may have several types of accounts when you retire, including 401(k) accounts and other employer-sponsored retirement plan accounts, IRAs, other investments or savings accounts.
Next make note of the regular income payments you expect to receive, such as Social Security or pension payments. You should receive a statement estimating your Social Security benefits each year around your birthday.
The next step is to estimate your expenses. Consider all of your current expenses and how they may change in retirement. For example, you may find that you need to spend more on health care as you get older but less on items such as clothing or vehicles.
A retirement budget can help ensure your money will last throughout your retirement years. The general rule of thumb says you will need 70% to 80% of your annual pre-retirement income each year you are retired in order to maintain a similar lifestyle. For example, if your pre-retirement gross annual income is $50,000, you could need $35,000 to $40,000 per year in retirement.
Keep in mind this is only a guideline. Income needs can vary widely depending on such factors as your health or the type of lifestyle you choose. You may spend time working on your garden, or you may travel around the world. Whatever your goal, you are more likely to achieve it if you examine how your lifestyle will change when you retire and then plan your finances accordingly.
Once you've taken inventory of your retirement income sources and estimated your retirement expenses, you'll be a step ahead in planning for a comfortable retirement.
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This information is for educational purposes only and not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.