Happiness is not something ready-made. It comes from your own actions. -- Dalai Lama 

The Dalai Lama may not be most famous as a retirement expert, but his comment about happiness is very applicable to retirement. After all, few of us will end up with happy retirements if we make no preparations for it.

Your future financial security is critical, so approach it in a thoughtful and thorough manner. Asking yourself the following three questions can lead you to some actions that will help you end up happier in retirement, and with sufficient income.

torso of man in suit, holding blackboard on which is the question, "Are you ready?"

Image source: Getty Images.

Question 1: Do you have a non-financial retirement plan?

First off, remember that there's a major non-financial side to retirement, too. If you've socked away plenty of money and are financially secure, you may still encounter some unpleasant surprises in your golden years.

For example, many people look forward to being retired only to find themselves bored, restless, or lonely. (A 2014 MassMutual survey revealed 10% of retirees surprised to find themselves lonely, bored, with a lost sense of purpose, and/or depressed in retirement.) The routine of working at a job is more important to some of us than we realize. Brace yourself for that, and consider how you might deal with it -- maybe by getting a part-time job or taking up new hobbies. Working a little on the side, perhaps just by tutoring or selling crafts, can add to your retirement income and help your nest egg last longer, while giving you something to do and helping you feel useful.

Have a plan for your health in retirement, too. No matter when you retire, your plan will likely involve Medicare at some point. If you retire before you're eligible for it, look into how you'll get healthcare coverage. The Affordable Care Act and the health insurance exchanges it ushered in are one option, though the exchanges have been under attack and their future is uncertain. Some people might want or need to keep working until they can get on Medicare.

Even with Medicare, you'll still have out-of-pocket expenses, and they can be hefty. Fidelity Investments has estimated that a 65-year-old couple retiring today will spend, on average, a total of $260,000 out of pocket on healthcare -- and long-term care can add another $130,000 to the total. That $260,000 is an average, of course -- meaning you might spend less, or more.

Getting and staying as healthy as possible is a great way to try to keep your healthcare costs in check. You can work on improving your health much more effectively in retirement, especially if you retire early. Being rid of work-related stress should help, and not having to wake up early to go to work may let your body enjoy longer sleep sessions. You'll have time to prepare nutritious meals and to go for long walks or regular visits to the gym. If you can lose any excess weight you're carrying, you'll likely benefit in many ways, such as being at less risk of developing diabetes or high blood pressure. The healthier you are, the longer you'll likely live, too -- making your retirement even longer!

clock face on which is written "time to retire" and the hands are approaching the word retire, printed in red

Image source: Getty Images.

Question 2: Do you have a financial plan, and is it sufficient?

Now let's turn to the important matter of your financial health. You'll need to estimate how much income you'll require in retirement. It can help to start with a detailed list of all your monthly, annual, and occasional expenses, and throw in a little extra for the unexpected. Be thorough, including housing expenses, insurance, taxes, food, transportation, healthcare, entertainment, and so on.

Don't assume that Social Security will be enough. On average, Social Security benefits are designed to replace about 40% of your income, with the percentage being higher if you had lower-than-average earnings and vice versa. So the average retiree will need to generate a significant amount of additional income.

The "4% rule" is a handy tool that can help you estimate your needs. It has you withdrawing 4% of your nest egg in your first year of retirement and then adjusting future withdrawals for inflation. This withdrawal strategy assumes a portfolio 60% in stocks and 40% in bonds, and it's designed to make your money last through 30 years of retirement.

As an example, imagine that you've saved $500,000 by the time you retire. In your first year of retirement, you can withdraw 4%, or $20,000. In year two, you'll need to adjust that rate for inflation. Let's say that inflation over the past year was at its long-term historic rate of 3%. You'll now multiply your $20,000 withdrawal by 1.03 and you'll get your second year's withdrawal amount: $20,600. The following year, if inflation is still around 3%, you'll multiply that by 1.03 and get your next withdrawal amount: $21,218.

Once you know how much income you'll need in retirement, you can flip the 4% rule around to see how much you'll have to accumulate in the first place. Imagine, for example, that you'd like to start retirement with total annual income of $60,000 and you expect to collect $25,000 from Social Security. That leaves $35,000 in income that you'll need to generate on your own. If you assume that $35,000 is 4% of your nest egg, then you can multiply $35,000 by 25 in order to arrive at how large your nest egg will need to be: $875,000. (Why 25? Because one divided by 0.04 is 25.)

Next, you have to figure out how you'll generate your necessary income -- specifically, how much income you can count on from which source. Social Security will be an important contributor to your retirement income. The average monthly retirement benefit was recently $1,369, which totals $16,428 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687. (That's about $32,000 for the whole year.) There are some ways to increase your Social Security benefits, too.

If you don't have a pension, you can create pension-like income for yourself by buying an immediate annuity (as opposed to a more problematic variable or indexed annuity) to provide relatively guaranteed income. Here's the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment:



Monthly Income

Annual Income Equivalent

65-year-old man




70-year-old man




70-year-old woman




65-year-old couple




70-year-old couple




75-year-old couple




Source: immediateannuities.com.

Dividend-paying stocks can be another great source of income. A portfolio with $400,000 invested in healthy and growing dividend payers and an average yield of 4% will generate $16,000 per year, with that sum likely rising over time as the underlying companies increase their payouts.

"how much can you save" is written and circled in red by a hand

Image source: Getty Images.

Question 3: Do you need to beef up your financial condition?

Finally, if you've studied your situation and know how much you'll need in retirement and have found yourself coming up short, don't despair. It's probably not too late to take steps to beef up your retirement savings and to set yourself up for more income in retirement.

For example, consider working a few more years than you originally planned to and retiring a little later -- if you can. Every additional year you work is a year that you're not tapping your nest egg and a year in which you can aggressively pay down debt. (Ideally, you'll also be maintaining employer-sponsored health insurance, saving you additional dollars.) If you've saved $300,000 for retirement, for example, and you can let that grow for two more years at an average annual growth rate of 8%, you'll boost the total by about $50,000.

Working longer can help you delay starting to collect Social Security, too, which can make your checks bigger. For every year beyond your full retirement age that you delay starting to collect benefits, they will grow by about 8%. Delay from age 67 to 70 and you'll boost your benefits by 24%. It's not quite as powerful as it seems, though, because while your checks will be bigger, you'll be collecting a lot fewer of them. (There are some other Social Security-maximizing strategies to consider, too, especially if you're married.)

Many, if not most, people are eagerly looking forward to retirement. For maximum financial security and comfort, though we need to be planning and saving, as well.