A recent survey found that three-fourths of middle-class Americans estimate their retirement expenses based on "some sort of guess". More than one-third of these individuals estimate their retirement needs will be less than 50% of their current expenses. Understanding real living costs is important so that you can determine if there is a gap between what you have and what you need to retire.

In 30 years of working mainly with clients approaching retirement, I can probably count only a handful that had a reasonably accurate expectation for what they might actually spend in retirement. Self delusion surely plays a role as does not understanding that real life expenses are unlikely to fall just because they have crossed the threshold of retirement.

Rather than "guess" that expenses will be less, a better starting point might be to assume post-retirement expenses mirror pre-retirement. Our experience with many retired clients over the years tells us this is a reasonable approach. Since the main retirement planning objective for most people is not to outlive their resources, using current reality as future reality provides some clarity.

Solving a retirement funding shortfall leads to several key choices. You can:

• save more
• retire later
• spend less
• stay invested in the markets
• and... retire later.

For many, all of these will have to be considered. With partial or full retirement timeframes stretching to 30 years or so, that is far too long to plan on a "guess".