Retirement readiness

Calculating your retirement needs

It’s tough to plan for retirement, but that’s no reason to wing it when it comes to financial planning. The income, living expenses and life spans of today’s retirees can help you prepare for your own.

1 What is “average”? Government and Gallup data reveal a lot about what retirement is like for Americans today. It usually starts at age 61, even though many tell Gallup they planned to work longer. And based on some morbid math, someone who is still alive in their early 60s should plan on being alive for a few decades.

The average budget for retirees, according to Bureau of Labor Statistics data, is $46,000 per year for households headed by someone 65 or older, versus the $57,000 average spent by all U.S. households. The top three monthly expenses for those older households are housing ($1,322), health care ($500) and food ($484). 2 Will the money last? Online retirement calculators use your current saving, spending and investment profile to project a more accurate picture of your retirement readiness.

What if the calculator shows you’ll outlive your retirement savings? If you’re not yet retired, consider fixes such as contributing more or postponing retirement. 3 Pad your retirement paycheck If you’re already retired there are ways to make up for insufficient funds. • Leverage your home. If you have substantial equity in your home, a reverse mortgage can turn this asset into income. You'll receive a regular check as long as you're living in the house. When you exit the premises to move elsewhere or on to the great beyond, the checks stop and your estate must repay the loan.

• Shop for an immediate annuity. Although annuities are complex instruments — they’re essentially investments baked into an insurance policy — paying a lump sum upfront to get a guaranteed monthly payment for life may provide the income stability you need.

• Withdraw less money during down years. A common rule of thumb among financial pros is the 4 percent rule, which suggests that a retiree can withdraw that amount annually from a portfolio invested half in stocks and half in bonds without depleting their financial reserves before they die. If you can be flexible and withdraw less when market returns are lower than expected or you’ve got reserves from previous years’ withdrawals, you can make your money last longer.

• Seek assistance. Government, nonprofit and for-profit programs provide benefits to struggling seniors. The National Council on Aging (NCOA.org) helps the 60-plus set navigate things such as Supplemental Security Income, Medicaid, debt management programs and subsidized housing. This article was provided to The Associated Press by the personal finance website NerdWallet.