In the book How to Make Your Money Last: The Indispensable Retirement Guide (Simon and Schuster, 2016), bestselling author and finance expert Jane Bryant Quinn demystifies the process of planning for retirement. In the following edited excerpt, she outlines the four basic steps an entrepreneur must take to reach financial safety.  

When preparing for retirement, we tend to focus on a number: "If I have $250,000 (or $100,000, or $50,000, or $1 million) in savings," we say, "I can afford to retire." The number is nice, especially if you reach it, but it's not the point--or not entirely the point. What mat­ters is the amount of annual income that your savings can reasonably provide you with, for life. That dollar amount plus any guaranteed income such as Social Security defines your standard of living. Your task is to fit your spending to whatever money you have.

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Assembling a budget will take a little time. You'll need to develop real numbers for your annual expenses, sound estimates of your expected income from savings, and a list--true to your feelings--of your priorities in life. You'll probably be making choices that you haven't faced before. "It was eye-opening," a friend said, who read this book in draft and worked through the planning process herself. "I was able to sit down with my husband and have an unemotional spending conversation based on actual fact."

Here are the four steps to creating a dependable retirement spending plan: 

Step 1:

If you haven't retired yet, start by figuring out how much you're spending now (unless you have a black belt in budgeting, you probably don't know). Go back over your checkbooks, bank statements, and credit cards and add up what it cost you to live over the past 12 months. Then subtract the ex­penses connected with work. That includes such things as commuting costs, lunches, office clothing, take-home dinners because you didn't have time to cook, subscriptions to industry websites and pub­lications, and dues to professional clubs. Subtract the amount you've been contributing to retirement plans, Social Security, and Medicare. Add to your budget whatever it will cost to buy Medicare or pri­vate health insurance. If you have credit card debt, add the cost of an accelerated repayment plan.

Those who have already retired should calculate what you're spending currently. You need to find out if it's more than you can afford over the number of years you are likely to live.

Step 2:  

List the annual salary-type income you can expect (or are receiving) as a retiree. That includes such things as Social Security, pensions, income from an annuity you currently own, rental income, any royalties, trust income, and so on. Don't count any income from interest and dividends; it's covered in the next step.

Step 3:  

Add up the current value of all your financial assets--savings, retirement accounts, mutual funds, stocks, bonds. (1) Assume that you're going to spend 4 percent of the total on annual living ex­penses. For example, for every $100,000 you have in savings and investments, you can allocate $4,000 this year toward your bills. At this rate of with­drawal, plus an annual inflation adjustment, your savings could last at least 30 years. This calculation as­sumes that interest and dividends are reinvested.

Step 4:  

Add the 4 percent from your financial assets to your total salary-type income and subtract an estimate for income taxes. What remains is roughly the amount you can safely spend each year without running out of money. Don't worry about inflation at this point in your budget making. You're looking for a reasonable budget in this year's dollars.

(1) Don't include the value of your home equity or the market value of any real estate investments. Unless you sell or take a reverse mortgage (Chapter 10), your real estate isn't available to pay your daily bills.