How to Retire With the Same Income You Have Now

On May 1, the Social Security Administration replaced its physically mailed annual benefits statement with an online system at www.ssa.gov that provides you with the same information.

The shift to online statements will save the government $70 million a year in printing and mailing costs. But the real value for you is that it puts some key data about your retirement -- and a key tool for planning -- at your fingertips: With the new system, you can get your personal numbers, so you can run very specific "what if" retirement scenarios.

Retirement by the Numbers

First, visit the SSA's website and sign up for a free account. You'll be asked for some basic information like your name, address, Social Security number, and some other questions for security purposes, so it can accurately pull up your numbers.

After you've created an account and are logged into the system, the first numbers you'll see highlighted are your "Estimated Benefit at Full Retirement Age" followed by your "Last Reported Earnings."

Write these numbers down.

Then click on the "Estimated Benefits" tab at the top of the screen. Here, you'll find additional numbers, containing your estimated benefit "At Age 70" and your estimated benefit "At Early Retirement Age."

Write these numbers down as well.

Now, let's get a glimpse of what your retirement will look like.

Simple Math, Stunning Answers

First, take your "Estimated Benefit at Full Retirement Age" and multiply it by 12. That's the estimated amount you'll receive each year from Social Security.

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Subtract that number from your "Last Reported Earnings." That's your annual shortfall in retirement -- the amount you'll need to come up with to replace your salary when you retire.

My annual Social Security benefits at full retirement age will be roughly 65% less than the salary I took home last year. I suspect yours will look similar, percentage-wise.

Don't panic just yet.

Making Up the Difference, Part 1

Pull up the number you wrote down earlier for the estimated benefit "At Age 70." Multiply that number by 12. You'll notice that it's significantly higher than your benefit at full retirement age. Mine was 24% higher. That reduces the gap between Social Security and last year's salary.

At age 70, my Social Security benefits amount to just 55% less than the salary I took home. Not great, but more manageable.

So, the first way to start making up the difference in income is to postpone Social Security checks until your 70th birthday.

Now, some folks will have a pension that will completely -- or nearly -- make up the remaining difference. But the rest of us have to take matters into our own hands.

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Making Up the Difference, Part 2

Let's assume your annual household income is $50,000 a year -- roughly the national median.

According to your calculations, at age 70, Social Security will provide you with $22,000 a year. So to replace your annual income when you retire, you'll need to come up with $28,000 a year.

One way to achieve this is to pick up a part-time job. Even working just 20 hours a week for slightly more than minimum wage ($10 an hour for example, greeting folks at Walmart or helping do-it-yourselfers at Home Depot) will provide you with $10,400 pre-tax.

Now, your shortfall is at just $17,600.

The rest will need to be replaced by savings.

At age 70, your life expectancy is approximately 17 more years. To fund 17 years' worth of spending $17,600 annually would require almost $300,000 in savings, assuming no growth (hopefully you'll have a portion invested, so this amount will grow). This may seem like a lot, but depending upon your age, it's not all that scary a figure.

Here's a rough outline of how much you should be saving to achieve this, again assuming no growth:

Clearly the sooner you start, the better. And if a portion of this money is invested in a mix of stocks and bonds, it will grow over time -- meaning you'll need to save less on an absolute basis.

Of course, these numbers won't be identical to your own. But with some simple math -- and some personalized digging on the SSA website -- you can find the scenario that will help you determine exactly how much income you'll need to replace when you stop working, and start planning your route to that secure retirement.

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This article was written by Motley Fool analyst Adam J. Wiederman. Click here to read Adam's free report on how to ensure a wealthy retirement. Motley Fool newsletter services have recommended buying shares of Home Depot and creating a diagonal call position on Wal-Mart.