The following content originally appeared in an article by Jane Bennett Clark in the Chicago Tribune on September 9, 2016.
Matching your future costs to income is one of the most important steps in the run-up to retirement. Sit down and start a chart that shows how much you'll need and how much you'll have.
Start by identifying fixed expenses, including food, housing, insurance and taxes, along with more-flexible expenses, such as for clothing and gifts. Don't ignore big, occasional costs, says Lauren Klein, a certified financial planner in Newport Beach, Calif. “Eventually, you're going to need a new roof or you'll have to replace your car,” she says.
In a separate column, list discretionary expenses, for costs such as travel, entertaining and dining out. Note that some expenses will go down or disappear when you're no longer working — your wardrobe will cost less when every day is casual Friday — but some expenses, such as for travel and health care, could also go up.
Once you've identified your fixed, essential expenses, match them to your resources. Ideally, guaranteed income — Social Security and maybe a pension or an annuity — will cover the basics. If not, you'll have to use your retirement savings to close the gap, as well as to cover the non-essentials.
If your nest egg seems too skimpy to go the distance, consider working longer. You can continue to save for retirement, and you'll have fewer years in retirement to finance.
You can sign up for Social Security benefits as early as age 62 (full retirement age is 66 for people born between 1943 and 1954). But by claiming early, your benefits will be reduced. For every year you postpone taking benefits after full retirement age until you hit age 70, you get an 8 percent boost.
If you think you have a less-than-average life expectancy or if you know you'll need the income to make ends meet, you'll probably take the money when you reach full retirement age. But if you have reason to think you'll live longer and that your savings could fall short, do whatever you have to do to get that 8 percent increase.
Couples have more claiming options than singles. You can take your own benefit as early as age 62, or you can claim a benefit equal to at least 50 percent of your spouse's benefit if it's higher and your spouse has already claimed. Either way, you'll get a lower benefit if you claim before full retirement age.
If you're divorced or widowed, you may also have access to benefits based on your spouse's earnings, which may be a better deal than your own. For details, see kiplinger.com/links/couples.