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By Dave Braze (TMF Pixy)

In Lesson 2 we touched briefly on the cost of retirement by citing the general rule of thumb so common in much of the printed advice -- that you'll need 60% to 80% of today's gross income to live in the style to which you've become accustomed.

Now we're going to do better. Back to the Cash Flow Statements!!

You'll recall that in Lesson 2, our old friends Josh and Millicent used a flat percentage of income (83%) for expenses -- they assumed the same expense each and every year in retirement. Life doesn't work that way. In this lesson, you're going to use the numbers from the Cash Flow Statement that estimate expenses at various points. It follows the typical pattern of a retiree, and clearly shows that a level expense does NOT occur throughout retirement -- nor, necessarily, does a level income.

But first let's briefly review where we are in our trip down retirement lane:

• We've picked a potential retirement date.
  
  
• We've got more than a passing idea of what our costs will be (insurance, housing, our cross-country move to be just a few doors down from the kids!).
  
  
• We have a handle on how we're going to pay for it all -- and if our money is working as hard as it could be right now.
  
  
• We've given some thought to the kind of life (or lives, for the more colorful ones among us) we'd like to lead during retirement.

Now it's time to dig in our heels and see if our cocktail-napkin calculations match up with our real-world situation.

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