How Much Money Do You Need to Retire?

If you meet certain income limits, you might be eligible for a $1,000 tax credit via the federal savers credit to reward you for putting money into retirement accounts.

Next, calculate your likely Social Security benefits. Social Security is one of the few available streams of guaranteed income for life.

While you can probably claim Social Security as early as age 62, you will receive a smaller monthly benefit than if you waited until your full retirement age. Each year you delay claiming, up until age 70, your eventual benefit check will increase by 8 percent. That's a big difference in your monthly income.

If your basic monthly expenses in retirement will still exceed your maximum Social Security payment, you should think about using part of your retirement savings to purchase an immediate-pay fixed annuity to fill that remaining gap. An annuity is essentially an insurance policy that gives you a fixed amount each month for the rest of your life. This plan may not provide a luxurious life, but it can certainly provide enough security to let you sleep at night.

Annuity payments provide predictable income much like the old pensions of yesteryear, when employers guaranteed workers a monthly check in exchange for years of loyal service. If you're 50, you've probably already spent years being loyal to your spouse, your family and your employer. Now it's time to be loyal to yourself.

Jean C. Setzfand is vice president of the Financial Security team in the Education and Outreach group at AARP. She leads AARP's educational and outreach efforts aimed at helping Americans achieve financial peace of mind in retirement.