What's your magic number for retirement?

By Bankrate.com

How much will retirement cost? If that question stops you in your tracks, you're not alone. More than half of workers have yet to compute how much money they'll need when they quit working. Among them, 77% can only "guess" how much will be enough, according to the Employee Benefits Research Institute.

That's a shame because studies indicate that people who have set retirement goals and saved for their retirements say life in retirement is actually better than they had expected. You don't need an advanced degree in finances to come up with how much you'll need in retirement. Just follow these five steps to arrive at that magical number:

What's your spending style?

Your first consideration should be taking a look at your expenses. If you've got a budget, you're a step ahead of the game because at this point you really need to know what you spend on a daily basis. If you don't have a current spending plan, it's time to start tallying numbers, from groceries to entertainment, mortgage or rent, utilities and so forth.

There are a slew of ways to get a handle on these costs. Keep track of bills and receipts for a month or two, or use financial software, such as Money or Quicken, to help. But as you look at the numbers, start thinking about if you'll get by with more or less in the future.

If you're not sure, take a cue from the pros. Financial advisers generally recommend you amass a nest egg that's big enough to get by in retirement on at least 70% to 80% of your working income. Other experts say it's much safer, and realistic, to plan on spending more, even up to 100% of your pre-retirement income.

How old will you be when you retire?

How low, or high, you set this number depends on a slew of personal factors. First and foremost is your age of retirement. If you plan on swapping that briefcase for a tennis racket at 60, you may be in for a case of sticker shock. It's not just that you'll likely have two or three decades of retirement, but financial resources may be greatly diminished if you cut out early.

Notably, workers now have to wait longer before they're eligible to receive full Social Security benefits. Those born in 1960 or after will now have to reach age 67 before they're able to receive full Social Security benefits. If they jump the gun, say at 62, they'll get less for the rest of their lives.

Most other retirement funds, such as 401(k) plans, IRAs or Roth IRAs make you wait before rushing into retirement. That's because you'll generally be subject to a 10% penalty on earnings if you tap into them before age 59½.

The sheer cost of retirement, and the fact that many workers want to do something active, are pushing many to think about "downshifting" into retirement rather than jumping in at once.

Three-quarters of baby boomers born between 1946 and 1964 now plan on working part time, extending work or moving into a different career, either because they have to for financial reasons or because they want to, says Bob Skladany, the vice president of research for Retirementjobs.com.

"The old model of retiring at 62 and relying on Social Security, savings and a pension is really over," Skladany adds. "The new fourth leg is work."

Meanwhile, life isn't necessarily getting cheaper for retirees.

Take housing, for example. There was a time when many seniors burned their mortgages after paying them off. But that milestone may be becoming less familiar. More than 80% of seniors age 65 and older own a home. But 26% of them are still paying off mortgages with a median debt of $44,000, according to Joint Center for Housing Studies at Harvard.

The upshot: Add the debts together, the possibility for a long retirement and the potential for pricey health-care costs, and it may well prove best to plan on spending as much tomorrow as you do today, says Bill Baldwin, the president of Pillar Financial Advisers in Waltham, Mass.

"We believe it costs at least as much in retirement, if not more," insists Baldwin. "No one ever anticipates a step down in terms of their standard of living. I've never heard one person say, 'I'm willing to lower my standard of living.' "

Keep inflation in mind

Now you'll project today's costs into the future. Don't panic: It's not tough to do, as most retirement calculators simply let you plug in an inflation rate. Historically, that's been around 3%. But follow the advice of financial advisers, and they'll likely recommend using a slightly higher number.

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