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When can you afford to retire?

(MoneyWatch) How do you know when you can afford to retire? That's the big question most people ask as they approach their retirement years. The best answer? When you've done the math and the numbers work out. The trouble is, most people don't do the math; they just guess at how much money they need to retire -- and they usually guess way too low.

Welcome to the final two weeks of my series, 16 Weeks to Plan Your Retirement. If you've followed my posts during the previous weeks, you've done a lot of homework. Now it's time to put it all together and crunch the numbers to see if your retirement income will cover your living expenses for the rest of your life, no matter how long you live and no matter what happens in the economy. It's a tall order, but it's what you need to do to find out exactly when you can retire.

Take your spouse or partner into account

If you're married or in a serious commitment, you'll need to consider your spouse or partner in your retirement planning. One critical note: Married women can expect to have a period of widowhood of five to ten years at the end of their lives, since men tend to marry women who are a few years younger and women typically outlive men by a few years. It's critical that you consider this inevitable situation when planning for retirement.

I hope that when you were making decisions and cranking out calculations during the past three months, you took your spouse or partner into consideration. If you didn't, here are a few decisions of particular importance you'll need to consider:

You'll want to make sure you've provided for your spouse or partner after you're gone -- and vice versa. It's best to involve your spouse or partner in your planning, so that he or she can provide input and be familiar with the plans. And when it comes to planning, two heads are better than one.

To determine exactly when you can retire, you'll need to choose the age at which you want to retire, taking into account your life expectancy and what you hope to do in retirement, as discussed in weeks one and two of this series. You'll also need to consider your spouse or partner's life expectancy, if that's applicable to you.

Balance the magic formula

The next step is to plan how you'll balance the magic formula for retirement security:

    I > E


  Income > Expenses

You might have heard the magic formula expressed differently: Live within your means, or even live below your means.

It's time to see how your projected income measures up to your projected expenses at your desired retirement age. After you do the math, if your retirement income falls below your expenses, you'll need to make some adjustments and keep crunching the numbers until you've determined when you can really afford to retire. You may need the assistance of a professional financial advisor to get it all figured out, as I discussed in week three of this series.

The steps in estimating your retirement income involve adding up four things:

When estimating your retirement income and expenses, you might want to use an online retirement calculator, which I'll cover next week. Alternatively, you may want to use your own spreadsheet or work with a professional retirement planner.

Estimating your living expenses is the next step to see if the magic formula balances. Then you'll be ready for the inevitable step: Negotiating with yourself to make the numbers work. Most likely that will involve continuing to work either full or part time and/or taking a close look at your living expenses to see how you can decrease them in order to be able to afford to retire when you want.

Stay tuned for my next posts, which address the four sources of income mentioned above in more detail.

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