Planning to Retire in 2026? The Two Most Important Retirement Planning Numbers

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Wishing you a Happy New Year from me and everyone at Andrews Advisory Associates, LLC! We hope the new year brings you and your loved ones peace, happiness, and financial security.

Team photo from our company retreat back in December

Earlier in the year I wrote about The Running Competition of Non-Runners between Scott and I [Avoid Timing the Stock Market Based on Valuation Concerns]. We had a contest to see who could run more miles before the end of the year. The competition was fierce and heated up significantly in the last few weeks of the year as we both pushed ourselves to the physical limit (as much as possible for thirty-somethings who only made it as far as JV track and field). The result?

We tied. 635.2 miles ran in 2025 each. We didn’t plan it that way, but that’s how it ended up.

In a way, it was the perfect ending. We both noticed the difference in how we felt and our changing physical appearance. Each of our alma maters received a donation per the terms of the contest. I’ll call it an all-around win. This year we’ll do a different contest. Stay tuned.

On to today’s post:

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I’ve heard retirement planning described as a web. There are many decisions to make, each one affecting the outcome of others. For example, your withdrawal strategy affects your tax situation. Your decision to keep your home or downsize affects your long-term care planning and taxes. The decisions you make in retirement are harder to reverse because your time horizon is shorter, and thus more impactful.

If you’re planning on retiring in 2026, it’s helpful to start with knowing two critical numbers to get your retirement plan rolling.   

How Much Income You’ll Need

The first one is an estimate of your expenses. This is not the same thing as your current budget.  You’ll need to consider how your expenses will change after you retire. The following questions can be a helpful starting point:

• Am I scheduled to pay off any long-standing debt prior to my retirement? A common example is your home mortgage. Not having to worry about monthly debt payments can ease the financial and psychological burden as you enter retirement.

• Are there expenses that will end or be significantly reduced? Your children’s tuition payments might coincide with your final working years. Many people report not spending as much on gas once they stop their commute to work. Spending on new clothes also tends to go down in retirement (my Reyn Spooner budget will plummet once I retire - maybe.)

• What expenses are essential vs. discretionary? 

  • Essential expenses such as food, housing, and healthcare must be met. Discretionary spending on travel, gifting, and hobbies/fun must be categorized separately.

  • The purpose of categorizing essential and discretionary expenses is in the event adjustments to spending are required later in retirement. Discretionary expenses can be reduced or eliminated while essential expenses need to be paid.

• Will there be any changes to your tax situation in retirement? Consider the following:

  • If you’re not receiving a salary anymore, you’re not on the hook for payroll taxes.

  • How will your marginal tax bracket change once income from work stops?

  • Once you retire you won’t be contributing to your company 401(k) or IRA. That has an effect on your taxes and cash flow.

Tip: If you’re not sure where to start in estimating your expenses in retirement, think about how much you spend now, prior to retiring. Adjust your current spending by the changes outlined above that come with retirement.

How Much Reliable Income Your Assets Can Produce

The second number you need to know: how much income will your retirement assets produce each month to meet your expenses?

Take an inventory of your upcoming income sources in retirement. Common income sources include:

• Pension

• Social Security benefits

• Sustainable portfolio withdrawals

• Rental Income

• Annuities

Determining a sustainable portfolio withdrawal rate takes some work. You’ll want to consider factors such as your life expectancy, tolerance for volatility, investment allocation, tax impact, and adjustments for inflation and market performance. Retirees who successfully manage their portfolio withdrawal rate find a sweet spot of not withdrawing too much initially to avoid running out of money and withdrawing enough to meet their lifestyle goals.  

Tip: Calculate this number in terms of after-tax dollars. If most of your retirement funds are in a tax-deferred 401(k), that means there’s a tax bill ahead of you that may significantly reduce the amount of money actually available for your use. If you are withholding taxes from Social Security and pension benefits, determine the net amount that is available for spending.

Comparing Retirement Expenses to Retirement Income

Once you’ve determined your two numbers, compare them to each other.

Image Credit | Flowicon | Adobe Stock

If your income generated is greater than income needed, you’re off to a good start.

If the opposite is true and your needs exceed income generated, adjustments will have to be made. Reduce spending, delay retirement, or pull other levers such as delaying Social Security benefits, work part-time if you’re able to [Working Part-Time While Retired], or adjust your investment strategy.

This is only the beginning of the decumulation part of your retirement plan. Careful monitoring of the plan and analysis of different scenarios help lead to adjustments over the years. Financial advisors use software to model various outcomes given a range of assumptions, which can give you confidence that your plan is working as intended or alert you that changes need to be made.

If this is your year to retire, now is the time to get clear on the two numbers I mentioned earlier and prepare for a secure retirement [5 Essential Questions to Ask Before You Retire].

Let’s have a great year,

Travis

Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor.  This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.