If you know what your annual income is today, you can start the planning process by assuming you'll spend about 80% of the income you will be making before you retire every year in your retirement-that's known as your retirement income replacement ratio. We recognize that, so we've taken the approach of looking at what people can generally afford in retirement based on their preretirement income. Many simply don't do any budgeting at all-not even trying the 'back of the envelope' method. The 80% rule provides a guideline of what you can afford in retirementįor many people, budgeting and estimating future spending is something that they find difficult and tedious. 'Fortunately, many people who have saved adequately for retirement can fulfill their dreams because their overall expenses are generally reduced in retirement save one important category-health care.'

'When estimating the cost of retirement lifestyles, most people seek to maintain their standard of living, which generally peaks in your late 40s to mid-50s,' says Steve Feinschreiber, senior vice president of Financial Solutions at Fidelity. Then you can turn your 'guestimate' of retirement expenses into a detailed retirement income plan either on your own or with an advisor. How will you really know the extent of all these expenses before you enter retirement? The good news is this task gets easier the closer you get to retirement if you've already created a retirement budget and explored what your lifestyle will be like in retirement. Some of your expenses will go down, but others may actually go up.

One of the biggest and most baffling questions you'll likely face is determining what kind of a retirement lifestyle you can actually afford.

Household budget percentages guidelines