Americans may be an optimistic people by nature, but when it comes to retirement, many of us have our doubts.

In the most recent Retirement Confidence Survey from the Employee Benefit Research Institute, only 17% of respondents said they were very confident of having enough money for a comfortable retirement. Another 47% were somewhat confident. 

That leaves more than a third of Americans – some 36% – who doubt they’re on track to retire successfully. And unfortunately, they may be right.

To determine whether you’re on track, it helps to know where you want to go. What kind of retirement lifestyle do you envision for yourself? What’s that likely to cost? And, the make-or-break question: Will you have the money to pay for it? Here’s how to get some answers.

1. Estimate Your Expenses

Generations ago, people assumed their expenses would automatically decline in retirement. More recent experience shows that isn’t always the case. Some expenses should go down, especially work-related ones like commuting – but others, such as vacations and dining out, may go up.

If you plan to downsize to a smaller home, you might save some money on housing. If you intend to upsize or do major remodeling, though, your housing costs could be higher.

So, starting with your current expenses as a guide, try to create a ballpark budget for retirement. Some experts even suggest living on that budget for a while before you retire to see how realistic it is.

“We study cash flow, taxes and retirement plan contributions to establish a lifestyle amount. This represents what you are currently living on now,” says Nick Vail, a financial advisor with Integrity Wealth Advisors in Indianapolis, Ind. “The majority of people are not living on 80% to 90% of their income, as many companies will suggest you’ll need in retirement. Many are closer to 65% to 70% when you take into consideration mortgage payments, taxes and what they are currently deferring into retirement plans. We use the lifestyle amount as a baseline when projecting retirement income needed.”

2. Add Up Your Income

During your working years, you’ve probably had one basic source of income: a salary. In retirement, however, you’ll most likely have multiple sources, including Social Security, a traditional employer pension (if you’re lucky enough to have one), investments and earnings from any work you do. Try to estimate each of those, then tote them all up. Some tips:

  • Social Security. You can get a projection of your future benefits at the Social Security website, using the Retirement Estimator or other calculators on the website that help you estimate important elements, such as life expectancy. “I encourage everyone, and I mean everyone, to create an account on to see their exact benefits. In fact, I do it right with my clients. If the client has a spouse or partner, I have them both do it,” says Marguerita Cheng, CFP®, CEO of Blue Ocean Global Wealth in Rockville, Md.
  • Employer pensions. If you have a traditional, defined-benefit pension coming from an employer, you should receive periodic estimates of your benefits. However, your benefit could vary depending on when you retire and the form in which you elect to take the money (lump sum vs. annuity, single-life vs. joint-life payout, etc.). Your plan administrator should be able to estimate your likely pension income under the scenario of your choice. Test out several possible scenarios to see which is best. 
  • Investment income. Your investment and retirement accounts, such as 401(k) and 403(b) plans and IRAs, could provide a substantial portion of your monthly income in retirement, especially if you lack a traditional pension. After age 70½ you’ll generally have no choice but to withdraw a certain amount each year from the retirement accounts (except for Roth IRAs), in the form of required minimum distributions. For the purposes of this exercise, figure that every year during retirement you can withdraw 4% of your total principal, plus a small annual increase for inflation, without exhausting your savings. The 4% rule, as this is called, is the subject of some controversy in the financial planning community, but it’s still a reasonable place to start. 
  • Earnings from work. Many Americans say they plan to keep working in “retirement,” either part-time or full-time (see Retirement Doesn't Mean You Have to Stop Working). That doesn’t always work out, however, so it’s best not to count on any income you aren’t absolutely sure of. 

3. Do the Math

If your projected income exceeds your projected expenses, you’re on track, at least for now. Something could still come along and derail you – a job loss, a market plunge – but so far, so good.

If you discover a shortfall, however, all is not lost. For example, could you:

  • scale back your retirement spending?
  • plan to retire a little later?
  • save more aggressively between now and then?

Any of those steps, or some combination of them, could help put you squarely back on track. For advice on crafting a detailed plan, see our Retirement Planning Basics tutorial.

The Bottom Line

The only way to know whether you’re on track to a comfortable retirement is to run the numbers. Make a best-guess estimate of your retirement expenses, add up all your likely income sources, and compare the two. If the result isn’t what you hoped for, you might need to adjust your plans.

“Depending on how close you are to retirement, you can either start saving more or you’re going to have to slowly start adjusting your standard of living. It doesn’t have to be dramatic, but you may want to get to a point where you are comfortable with the standard of living that you can afford,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

You may also be interested in reading How to Budget Your Retirement Funds and Still Have Fun.