From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(July 1, 2007) -- Determining how much money you need for retirement is a highly personal and complex decision. It depends on a number of factors, including the retirement lifestyle you desire, your target retirement age, and your life expectancy, reports the Virginia Society of CPAs.

While the general rule is that you need 70 percent of your pre-retirement income to retire comfortably, many CPAs suggest 80 percent or more as a more reliable figure, especially due to rising healthcare costs and increased longevity.

Take some time to think through your responses to the following questions to help prepare yourself for the realities of retirement.

How do you define retirement?

For some, retirement means completely leaving the job market and perhaps moving to an area with a lower cost of living. For others, it could represent starting a new career or creating a business out of a hobby. Still others may envision traveling the world. Since retirement means different things to different people, the way you envision your retirement plays an important role in the amount of money you will need.

How much annual income do you need for your retirement years?

To determine your annual income needs during retirement, you first need to take stock of your current expenses. Make a list of your monthly expenses, such as housing, property taxes, transportation, insurance, and food. Then make adjustments for changes you anticipate in retirement, such as having paid off your mortgage and/or your child’s college tuition bills. Factor in some costs you expect to increase during retirement, such as healthcare and leisure activities.

CPAs say that you should err on the high side when calculating your annual expenses in retirement. It’s also important to factor in inflation. Assuming a 4 percent annual inflation rate should provide a safe cushion.

When do you plan to retire?

Next, consider your retirement timetable. Obviously, the earlier you plan to retire, the more money you will need.

How long do you expect to live?

The duration of your retirement is based not only on when you begin your retirement, but how long you live in retirement. Your life expectancy generally depends on your family history, your lifestyle, and your overall health, but you can get an estimate by using one of the many online life expectancy calculators. To be on the safe side, you may want to add five or more years, particularly if you’re in excellent health or if one of your grandparents lived to be 100.

What are your sources of retirement income?

Start by determining the current market value of the money you have saved for retirement in bank accounts, mutual funds, and brokerage accounts, as well as what you have invested in IRAs or other personal retirement savings.

Then look at the most recent annual benefit statement you received from your employer to determine the amount you can expect to receive from your 401(k) or other qualified employer pension plan. Finally, check your statement from the Social Security Administration to get an idea of your projected monthly Social Security benefit.

Are you working with a CPA?

There are plenty of online calculators that can give you a rough idea of how much you need to retire, but CPAs can take a closer look at your particular needs. They can work with you to formulate a financial plan that will help to make your retirement dreams a reality.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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