Retirement: Three Big Questions

Question 3: How much income will you need?

Now you're ready to adjust your plan based on shifting market realities. But what, exactly, are you supposed to adjust? It's not as though you can decide to live longer or choose what your investments will return. There is, however, one big question over which you do have some power, says Alicia Munnell, Ph.D., director of the Boston College Center for Retirement Research: how much income you will need to be comfortable. Obviously, you don't know the precise answer, because you can't forecast wild cards such as future inflation rates, tax rates, or health care costs. (Although you should prepare to spend more than you may think: Fidelity Investments projects that the average married couple will need to set aside $230,000 by age 65 to cover out-of-pocket health care costs in retirement.) Still, you can manage your retirement's price tag by choosing how much you save each month and when you will retire, and by thinking carefully about the retirement lifestyle you envision.

The benefit of saving more each month is obvious. If markets perform well, a dollar saved today could grow to two dollars or five dollars at retirement. Even if the markets produce one lost decade after another between now and your retirement, a dollar saved is still a dollar you wouldn't other ­ wise have in the future. That's why planners who once advised saving 10 percent of your salary now recommend 15 percent. It's all about the margin of safety.

There's a less obvious benefit to regular saving, says Munnell. We are creatures of habit, and if you make a habit of saving, you'll be a more modest spender. It could be as painless as increasing your 401(k) contribution by a percentage point or two every year until you hit 15 percent. However you do it, you're training yourself to get by on less — now and in retirement

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