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the stock markets will perform, but we also don’t know what kind of inflation we will face over the next few years. It could be that infla- tion is rather stagnant, or we could see a period of high inflation. Regardless, you need to make sure that you are prepared for your retirement. Although the future is characterized by so much uncer- tainty, that’s no excuse for putting off retirement planning.

There are a couple of ways to estimate your needs. The first is a more expense-driven method, while the second is a needs-and-wants method. The expense-driven method asks you to estimate the per- centage of your current expenses that you will have during retire- ment. When I use this method for retirement planning, I generally say that the expense percentage will not change; I use 100 percent. My reasoning is that although some expenses will go away, others will replace them. In fact, you may find that you are spending more in retirement than you did while you were working.

For example, Jeff and Mary Client are concerned about their retirement. They want to approach their planning from an expense point of view. They have itemized all their current expenses (on a monthly basis) and find that they are spending $72,000 per year. That includes helping their son with his college tuition, roughly $4000 per year. They also contribute to an IRA for both of them, $6000 at cur- rent limits. They would like to retire in 10 years. At that time, they won’t be spending the $4000 for their son’s tuition, nor will they be putting $6000 into IRAs for both of them. Their expenses will drop by at least $10,000 per year. However, Jeff and Mary have said they would like to start traveling at that time because they haven’t had much time to do any traveling yet. They would like to take at least two trips per year and are excited about traveling abroad.

Jeff estimates that their other expenses will remain the same. Their house is already paid off, as are their cars. Their main expenses are all discretionary, which they think will remain about the same, but may increase since they will have more time. So, although their expenses will appear to drop by $10,000, they will probably increase, especially once inflation is considered. Therefore, Jeff and Mary think that spend- ing $72,000 per year during retirement will be an accurate figure.

For some people, though, estimating the percentage of their cur- rent expenses will not yield an accurate analysis. That’s where the

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