Can I afford to retire?

Its not just about how much you have saved.

Few of Pre-retirees (or their advisers) actually know how much they spend. A spending conversation is not as sexy as one about the stock market. Yet, knowing your spending is the secret ingredient that will carry you happily through retirement for decades.

Here is a simple process to figure out roughly how much income you need in retirement and whether you need to save more now so you can maintain your lifestyle.

1. Find the amount you paid in taxes. Deduct those amounts from your income. You still will be paying taxes in retirement, but typically not as much. By calculating an amount you spend after taxes, we are focusing on the expenses you can control and change.

2. You may be putting some of that money aside for retirement, a child‘s college fund or for a special large expense, such as a once-in-a-lifetime trip, an anniversary party or a child’s wedding. You may also be repaying student loans. Subtract any of those expenses that you do not expect to have once you are retired, reducing the annual amount you will need in retirement.

3. If you own a home and intend to have your mortgage paid off by retirement, subtract that monthly amount times 12 from your ongoing number. If that payment includes your real estate taxes, add back those taxes.

Your spending habits are crucial to your overall goal of retiring comfortably with income to cover your expenses. They have the biggest impact on what you will be spending in retirement. The less you are spending, the more you can save. Redo this exercise every year to discover your expenses after taxes. As much as we like to say our spending is consistent, it is not. Or while many folks say, “we do not spend much,” most people are surprised when they see the number in black and white.

Retirement, like the rest of life, has no guarantees. But by following this approach, you will be heading into retirement with less stress and uncertainty. You may even put yourself on track able to retire sooner than you thought.