When many of us plan for retirement, we get caught up in a target number. It’s easy to become concerned about a specific target, such as saving up $1 million or $2 million. However, it’s not always necessary to concentrate on one big number. While you do need to pay attention to that number to some degree, you can also use your monthly income as a gauge for how much you need to retire.

How Much Do You Need Each Month?

First, figure out how much money you need each month to live comfortably in retirement. Hopefully, you will have your debt — including your mortgage — paid off by the time you retire. The fewer obligations you have, the better off you’ll be.

Consider using your present expenses as a guide. The good news is that, if you have your debt paid off, you will likely have fewer expenses in retirement (at least until the health care costs start to go up). If you plan to travel, or you are worried about health care costs, you can use your current monthly income as your needed income in retirement. You can assume you’ll have the same amount of expenses, but that they will be different expenses.

Once you know how much you will need each month, you can start planning to provide the cash flow you need. One option is to try to save up an entire nest egg. To do this, a retirement withdrawal calculator can help you figure out how much you need to save now to reach the required monthly income. However, you might not think that you can save up such a large nest egg.

If that is the case, consider working now to build revenue streams that you can use later.

Create Revenue Streams for Retirement

Instead of obsessing about how much money you need in your retirement account, start thinking about how you can provide yourself with revenue streams in retirement. This is more about building solid income streams that can help you reach your goals later on. This includes building up a side business or side hustle that can provide you with income down the road, as well as creating an income portfolio.

Building these streams of revenue takes time. Creating a solid income portfolio that yields a significant payout each month can take 10 years or more of careful building. Building a good business that provides you with revenue regularly also takes time and effort. Whether you are monetizing a web site, selling ebooks, or investing in a business, it can take time to create diverse revenue streams. However, this diversity can help you later. In times of market crash your income diversity can help get you through until the market (and your 401k) recovers.

You can do the math now to estimate what you need to raise. Say you think that you need $4,000 a month to retire in the style you want. Your 401k calculation indicates that your nest egg will provide you with $2,000 a month, and your Social Security benefits (let’s be optimistic) account for another $1,000 a month. That means that you will need another $1,000 a month. You can build up alternative sources of income, from dividend stocks to rental properties to web properties, over a period of years to get to that point. Even if you don’t believe Social Security will be there for you, you can plan to build up another $2,000 of income.

That sort of thinking can help you break out of reliance on a retirement account that may tank just when you need it, and it can help you get a little more creative when it comes to retirement funding.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.