All of the financial advisers we spoke with reiterated the importance of factoring in health insurance premiums and prescription drug costs when deciphering how much money you will need in retirement. Additionally, under federal law, most Americans are not eligible for Medicare until they are 65 or older, so if you're looking to retire before then you will need to determine where your health care coverage would be coming from and factor that plan's cost into your overall budget.
Of course, the second part of the equation involves looking at the sources of income you'll have available upon retiring, Kinsey says. This can include Social Security benefits, which you are eligible to get -- at least in part -- at age 62. It could also include a pension you may have earned, paychecks produced from a potential second career or the revenue generated by your investment portfolio. Do I want to leave money to my loved ones?
"People need to think about legacy planning," de Baca says, explaining that those looking to leave money or assets to their next of kin end up writing a very different budget than someone who has no plan to do so. As such, you may want to write out a will before formally leaving the workforce, since it could actually delay your retirement or affect the lifestyle you adopt after you do so. How Much Cash Flow Do I Need for My Desired Lifestyle?
After you've considered your vision for retirement and calculated your expenses, you should come up with the ideal amount of money you would need coming in to support that lifestyle. Palmer says every prospective retiree should ask themselves this crucial question: If you were to retire today, what check would you like to see in your mailbox each month? "Once we know that number, we work out if that lifestyle is plausible," she says. Will my assets cover this lifestyle?
After you've determined what your ideal retirement paycheck would be, you need to see if you will have enough money on hand to generate it. "Depending on that answer, decisions have to be made," Alfonso says. "If you don't have enough money, there needs to be a tradeoff." This could include delaying retirement, spending less, downsizing your home, moving to another state or adjusting your lifestyle requirements. "Saving more isn't always the best option due to the time constraints," Alfonso says. Do I need to make changes to my investment portfolio?
As you near retirement, you may also want to make some adjustments to the investment portfolio you're hoping will power it. This could involve switching to more conservative stock or bond options, but it doesn't have to, Kinsey says. "You need to ask yourself: 'How conservative can I be and still reach my goals?'" he says. "This doesn't mean you have to run to bonds. You can move to an asset-deduction model that makes sure you have enough [money] to cover the income gap and then invest for growth." >To submit a news tip, email: firstname.lastname@example.org. Follow TheStreet on Twitter and become a fan on Facebook.