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Perhaps you could do so in a simpler financial world – but as retirement comes with financial complexities, a purely formulaic approach may fall short. There are basic calculations that may give you a “ballpark figure” for what your initial retirement income might be and your “ideal” retirement income. Still, they may not account for certain factors that might prompt you to spend more (or less) in a particular year.
Take inflation. 2022 has seen the highest inflation in 40 years. But not all retirement expenses may increase by that amount in a year. Some medical, travel, and leisure expenses have outpaced inflation. Another factor that makes “retirement by formula” difficult is Social Security. Some people file for Social Security earlier than anticipated due to health reasons or changes. When Social Security income enters the picture earlier (or later) than first assumed, that may prompt a revision to retirement income projections. MarketWatch notes that 50% of working men claim Social Security at age 62, and almost 70% of seniors start receiving Social Security benefits before Social Security’s full retirement age (66 or 67, depending on your birthdate). Your retirement spending needs (both core and discretionary) are a major focus of your retirement strategy, and those needs help determine your “ideal” income.1