So far, we’ve given you a couple of different examples of how to create a retirement income for life, but these exercises have been theoretical. Now it’s time to roll up your sleeves and pensionize your own nest egg. We’ll start wherever you are now—whether you are 10 years away from leaving the workforce and just starting to think about these issues, or right on the cusp of taking that first step into retirement.
We’ve created an illustration that shows you each of the steps you will need to take to pensionize your nest egg. Exhibit 13.1 shows you all seven steps together—we will go through each of these steps in turn.
Identifying the amount of yearly income you want in retirement is the very first step in the process of pensionizing your nest egg. Now, some people might think this is the most tedious step because it deals with day-to-day spending and budgeting. However, you just might find that it’s the most exciting step because this is the step that is most directly in your control.
There are two ways to create an estimate of how much money you will need in retirement: working from the top down or from the ground up. The top-down method assumes you’ll need some fraction of your working-life income in retirement, so the way to calculate income needs using this method ...