How to Retire from a Large Corporation #2: Ten Plus Years Away from Retirement? Know these Numbers Now

David Larson |

Are you like many people we know in Harrisonburg Virginia and in the Shenandoah Valley who are in their prime working and income earning years? Are you doing well financially and earning good money? If so, then maybe you have not had to worry much about your finances. Please take a moment to celebrate and appreciate that you do not need to stress about your money! Your financial life may even improve soon, since hopefully the kids will be on their own and off the payroll. Now may be the time to really ramp up your retirement funds.

Retirement seems like it is so far off, but in reality it will be here before you know it. Remember when those kiddos were in diapers? Yes, time flashed by as your expenses for diapers transitioned later to car insurance premiums and cell phone bills. In the same way, the expenses for college tuition you are paying for now will transition to your Medicare and your healthcare expenses before you know it.

So retirement may be 10 or 15 years away, but you don’t want to sneak up on you. You know that you should not put it off planning for something this important. 

The years leading up to retirement should not be spent stressed out or worrying about money. 

We are here to help. If you still have a long way to retirement, you can take steps right now to put yourself in a better position later so that you can have a kind of retirement you want. 

To begin to formulate a plan you must first get a handle on four key numbers:

  • Social Security - How much you will draw and when you should draw it?
  • Retirement Expenses - How much you will spend in retirement annually?
  • Retirement Account Balance Estimate - What is an expected range?
  • The Optimal Way to Draw Your Company Pension (if applicable)

Once you have these four numbers, you can begin to formulate a plan to transition to retirement.

Social Security

A lot can change with Social Security between now and the time you draw it. Even so, you should still run your estimates on However, after you run your estimates, reduce the monthly payment by 25-30%. You should plan on cuts in Social Security. They are not imminent, but they are necessary to continue the viability of the program. Note that the numbers provided are “current dollars,” meaning that they will adjust with inflation.

Retirement Expenses

If you are still several years away from retirement, you may not want to go through the trouble of refining a detailed budget. If taking the time to detail out all of your expenses excites you, then go for it! In reality, most people we meet who are a long way from retirement simply do not want to go through the process of creating a line-by-line budget. They don’t want to be handcuffed, even though the process can be liberating if done the right way. If this is the case, here is a simple exercise to help you save more now and estimate what your expenses will be in retirement.  To aid you in this exercise, we have created this Effortless Budget Worksheet.

Step 1: Determine your Net Take-Home Pay. Pull out a recent pay stub and write down your net take-home pay. Multiply that number by the number of times you are paid during the year to determine the net amount that shows up in your bank account annually. 

Step 2:  Determine your Baseline Income Need While Working. Simply compare the amount of cash you have in your checking and savings accounts on January 1 of one year to January 1 of the following year. If the amount you have in checking and savings is roughly the same year-to-year, then it sounds like you may be spending everything that comes into your cash accounts. 

If your cash accounts increase over the course of the year, then you have a surplus and you should start saving more into your retirement funds. If your cash accounts decrease, you have a shortfall. For instance, let’s pretend that your net take-home pay is $5000 every two weeks, and over the course of the year your savings increases by $20,000. Here is how we determine your Baseline Income Need While Working number:

$5000 x 26 pay periods = $130,000

Reduce by increase in cash accounts: -$ 20,000

Baseline Income Need While Working $110,000

Note that if you have a surplus in cash accounts, you will decrease your take-home pay to determine your Baseline Income Need. If your cash accounts fall, then you will increase your Baseline Income Need While Working number.

Step 3. Determine your Baseline Income Need When Retired. Once you determine your Baseline Income Need While Working number, simply add or subtract any items that will change in retirement. For instance, health insurance that is currently deducted from your paycheck will need to be added to your Baseline Income Need While Working number. If you plan on paying off your mortgage before you retire, then you will reduce your Baseline Income Need While Working number. Please go back to the Effortless Budget for assistance with this calculation. 

Many people find themselves in a lower tax bracket once they retire, but you still should build a cushion on tax projections because all of our taxes could go up before long.  Our government likes to spend money, and sooner or later we will all most likely pay more.  Who knows what the tax rate will be by the time you retire, so for now just assume 25%-30%. Take the Baseline Income Need When Retired number above and multiply it by 1.3 to estimate your gross retirement income need, and then also adjust for inflation using this calculator.  

Retirement Account Balance Estimate

If you have many years until retirement, you have the benefit of time and structure your savings strategy to set yourself up nicely for retirement.

Many folks we meet invest all of their money into pre-tax buckets, getting hammered in taxes as they go to draw down their funds in retirement. Consider setting money aside in your Roth 401(k) or Roth IRAs, which can save you in taxes down the road giving you more flexibility when you go to pull your funds out to spend.

Many large corporations offer retirement tools on their 401(k) website. Some may even offer complimentary consultations with licensed advisors. These “cookie-cutter” tools can be helpful when you are a long way from retirement, but usually are overly simplistic for people close to retirement. Still, they can be valuable. When using these tools, consider what actions you can take now that will improve your outcome in retirement. Will the output encourage you to save more? Spend less? Pay down debt faster? 

One simple tool to estimate how much you will have in retirement can be found here.

Unless you are using the tools to inspire action, then don’t waste your time with them.

The Optimal Way to Draw Your Pension

Since retirement is still several years away, you can relax. Be glad that you have a pension and be aware that the plan could terminate before you retire. If this does happen, don’t fret. Terminated pensions typically result in lump sum values that are still yours, but you must cash them out or roll them to an IRA. A life annuity may not be an option for you when you reach your retirement date.

If you have a pension, simply go onto your pension website and punch in a few possible retirement dates to estimate the lump-sum and life annuity values at each of these dates. 

Now that you have these numbers, you are on the path towards financial independence. To chart your entire course, consider reading an eBook we created, “How to Retire from a Large Corporation.” Click here to download the document. It is available for no charge on our website.


Wanting to learn more so that you are prepared for The Perfect Retirement? This is the second of many blogs we are writing to help you finish strong in life. Much of the material is pulled from an eBook we created titled  “How to Retire from a Large Corporation.” Click here to download the document

If you would like to discuss any of these topics in more detail, you can schedule a time to talk through this link.