Figure out how much you will spend
Your income needs will depend on how you envision your retirement. Whether you're planning a few around-the-world yacht trips or you intend to garden and raise bunnies, you need to have a sense of how much you'll be spending, which means knowing generally what you'll be doing.
After blissful meditation on how you'll spend your retirement, it's time to come back to reality for budgeting. "Get a handle on what your expenses are now and what they are going to be," says Michael Masiello, president of Masiello Retirement Solutions in Rochester, N.Y.
Research shows that many retirees underestimate expenses in retirement. Though the rule of thumb suggests that you will need 80 percent of your pre-retirement income in retirement, unexpected expenses for health care or other emergencies can torpedo the best-laid plans.
No good retirement plan is all hot-air balloon trips and golfing on sunny days; do envision some worst-case scenarios. Do you have enough money to self-insure against everything that can go wrong, or will you have to buy long-term care insurance and supplemental health insurance?
"Health care costs are going to rise. How are you going to adjust for risks?" asks Stephen Sass, program director at the Center for Retirement Research at Boston College.