Dear MarketWatch, 

I’ve heard over and over that I will need 80% of my current salary in retirement. If I’ve been putting away 20%, will I need 80% of what I bring home or 80% of my gross salary? 

I’m also curious if I will be able to retire at age 60. I’m 58 and married but my wife stays home. I have one child in her second year of community college, with plans to do her final two years at a university.

I have saved $1.4 million and my house is paid for. I’m debt-free except for a condo, where I owe $65,000 but it’s worth $250,000, and a $80,000 cabin where I owe $30,000 (both equal $1,800 per month in bills).

I bring home $4,400 a month. Will I be able to retire at 60?

Related: I’m 52 and retiring in 20 years. Should I invest in a Roth IRA or individual index funds like the Dow and Nasdaq? 

Dear Reader, 

The typical rule of thumb is retirees should ideally replace 80% of their gross pay, so if you have a $50,000 annual salary, you would ideally want to replace $40,000 of that. 

As for your second question, all of those numbers are important — but only as important as it compares to your monthly expenditure both now and in retirement, and where that income will come from.

Let’s go back to the replacement ratio. Guidelines are just that, so you should never rely completely on them for your financial planning. Retirement planning is exceptionally personal.

It could be 80%, but it could also be 90% or 75%. Take account of all of your finances, including those discretionary expenses you’re not ready to give up at retirement, as well as all of your retirement income.

You may choose to include Social Security into your calculations, or a portion of it, or none at all if you’d like to be extra conservative. Each of those calculations will give you an idea of a possible Plan A, B and C.

Estimate what you’ll need in retirement for housing and healthcare, among other expenses, and use realistic figures to account for inflation and rates of return.

Healthcare has a huge price tag

Healthcare comes with a huge price tag in retirement and if your wife is a stay-at-home mom and you are retiring before 65, the age at which you qualify for Medicare, how will you get your health insurance?

One option: A part-time job, ideally with an employer who offers health insurance, keeps cash flow going, protects you and your dependents with coverage and lets you transition into retired life.

A qualified financial planner can help you do the math here, but calculators will give you a good idea of whether you’re financially prepared. Here’s what I wrote to another reader who asked about retirement calculators. 

The amount of money you’ve accumulated, as well as the real estate, is absolutely wonderful. Most people would say that alone means you’re good to go to retire right now.

Not everyone has the ability to decide when they retire; sometimes people are forced into it through a layoff or an illness. If you’re fortunate enough to choose your retirement date, do all the number crunching as you can.

You don’t want to be in a situation where you are spending down your savings too quickly — or too slowly, for that matter — or where you forget big expenses you’ll have in 20 years. 

From what you say, however, you’re on the right track.

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