Step 6 - Preparing to Retire

Last updated:
July 2, 2021

Saving for and understanding your financial situation during retirement is critical to having a successful plan. To help you do this, we'll walk through My Financial Plan's Retire and Collect Social Security life events. 

Retire Life Event

We first ask you to choose when you plan to retire, and which job you are retiring from. For best results, choose your primary source of income for retirement, then use the "Quit Job" event for other sources of income.

We then ask, "How much do you want to spend per year during retirement?" and we show you a default valued. By default, we set your starting retirement income and expenses at 75% of your projected income during the year before you retired.

Below that number, we list your projected retirement assets and one of two messages:

“You will likely have enough money during retirement”

This message means that our 50th percentile Monte Carlo projections (our median projection) show sufficient assets to support retirement expenses at the desired level from the start of the Retire event until the End of Life event. You can read more about Monte Carlo projections in this article.

“You will likely run out of money by age [year]”

The 50th percentile Monte Carlo projections (median projections) show retirement assets running out at the given age. Retirement assets are all assets you have in your plan, including restricted retirement accounts like IRAs and 401ks, but not real estate assets or 529 accounts. These less liquid assets can be used to cover retirement expenses, but you must sell them first with the Windfall event. You can read more about how we calculate retirement assets in this article.

Using the Retirement expense slider, you can adjust your yearly retirement spending. Move the slider to a new number, and My Financial Plan will recalculate the impact of that change on the rest of your financial plan.

Finally, if your desired retirement expenses are larger than your current projected retirement assets, we estimate how much you need to increase your assets to meet your retirement expenses. This calculation is complex and may take a while to update on your screen.

Social Security Event

As part of Step 6, or whenever you place the "Collect Social Security" event on your timeline, we help estimate your potential Social Security income. Based on the year you were born, your average yearly income over your lifetime, and the date that you plan to start collecting social security, we estimate your monthly expected benefit.

Because My Financial Plan doesn't have access to your lifetime income, we use the information you have entered for your salary as a starting point for this estimate. The most accurate way to get your lifetime income and your estimated Social Security income is to create a "mySocialSecurity" account and log in at the US Social Security Administration (www.ssa.gov), and then input that information into My Financial Plan.

You are eligible for Social Security when you turn 62. Depending on what year you were born, and how old you will be when you retire, there are different dates for "Early", "Full" or "Delayed" payments. Here is the latest government document describing how these tradeoffs are calculated.

My Financial Plan uses these variables and the Social Security and Supplemental Security Income (SSI) benefits formula as announced in October 2020 to estimate your expected payment. We don’t currently factor in spousal survivor benefits into our Social Security estimate.

By the end of Step 6, you should have a clear view of the steps you need to take to afford the retirement that you are envisioning.

Move onto Step 7 - Seize the Day!

Back to Overview of 7 Steps to Financial Independence

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