Accumulate Income Sources

Accumulate Income Sources

Next, add up the after-tax monthly income that you expect in retirement. Remember that taxes during retirement are lower, as there are no Social Security taxes withheld from retirement income. Some income is capital gains, and some benefits are tax-free. Of course, some part of your expenses will also be funded by Social Security. If you are over the age of 50 with no savings, most likely you will not retire before age 65, when you can receive full Social Security benefits. If you are unsure of the amount of Social Security you will receive, you can get a benefit estimate from the federal government.

For example, let's catch up with James. He currently makes $52,000 a year and has take-home pay of $40,000, and $6,000 in IRAs. He enjoys his current lifestyle: children, grandchildren, church, work colleagues, tennis and golf, friends everywhere. His only goal in retirement is to be able to afford his current active life.

James, a classic example of a late starter, knows he will not retire in five years at age 65 and is happy with the idea of staying on till age 72 unless he is forced out earlier or health prevents him from continuing. If he were to retire today and receive maximum Social Security payments of $15,000 a year, he would need enough savings to fund $25,000 a year in expenses at today's dollars. To get there, he must increase savings and achieve the highest possible return on his investments.