When can I retire? Two simple calculations (and a little bit of philosophy) to get you close to an answer.

The question people are really asking when they ask “When can I retire?” is “When can I retire so I don’t run out of money in my lifetime?” Wouldn’t it be great if there were a simple answer to tell you how much you need to retire without financial worry? Everyone is different, and the right amount for you will be different than the right amount for your neighbor. However, there are calculations each of us can make to determine the optimal time to retire and live the life we want.

However, there are calculations you can make to determine if you have enough to retire and live the life you want.

While it obviously makes sense to gauge how much you will need, many of us avoid the topic because we fear knowing the truth about our financial situation–that we might not have enough. And it forces us to face the fact that we are aging. While the ostrich approach is certainly an easy one to take, it’s not the best. It is far less stressful to do the math, face reality, and figure out an action plan than it is to get to retirement and come up short.

Research shows the happiest retirees start planning at least five years before their desired retirement date. And I can make a strong case to start planning much earlier because the earlier you start to plan, the more knowledgeable you become about your situation, your options, and the financial arena. Knowledge is not only power, it is also comfort.

The sooner you run through the calculations, the sooner you will find out if have enough to retire when you’d originally planned. If you don’t, you can proactively address your options to improve your future. There are many options, especially if you’re open to making changes to your lifestyle (yes, that may go beyond eliminating your daily expensive frou-frou coffee). Perhaps you can work a bit longer, find ways to earn extra money, reduce expenses, or move to a lower cost area, perhaps from the suburbs to a metropolitan area where you don’t need a car.

If you are willing to live on less and don’t have a lot of savings, to reach retirement sooner you might consider an alternative retirement lifestyle. You can explore becoming an expat in a country like Portugal, where it’s cheaper to live or live in an RV in a campground and earn part your keep as the campground manager.

Are you psychologically prepared to retire?

Do you see yourself enjoying endless days of reading, yoga, gardening and golf? As you daydream about retirement, give some serious thought to the activities that interest you. What hobbies would you like to begin or re-start? Are you going to travel extensively in your first years of retirement when you have the energy and stamina to do so? Which organizations inspire you?

Or would you like to continue working in some way, not just because of the income? For some, retirement is seen as an escape from an unpleasant job. I caution clients to honestly assess whether they are looking at retirement as an escape hatch from their current situation or if they would simply like to reconfigure what work looks like, even if making a job change comes with a reduction in pay. I’ve seen future retirees who are simply not cut out for retirement. They like the fast pace, the interaction, the sense of purpose and responsibility that comes with a job. If this sounds like you, the answer as to when you should retire is “later.” Or it could be “never.”

Do you have enough to retire soon?

If you really want to know if retirement is a viable option in the near future, you’ll need to do some personal calculations based on when you want to retire, and how much you want to spend while in retirement. You can calculate how much you need to retire by projecting your income and expenses, and determining “the gap.”

Here’s how the calculations look in real life:

Let’s say you anticipate spending $75,000 a year in retirement and you project you will have $35,000 a year in fixed income (Social Security, annuities and pensions). The gap you need to fill with savings is $40,000 a year. At age 65, let’s conservatively assume you want to know this level of spending can be maintained for 30 years. With simple math, ($40,000 x 30) that adds up to $1,200,000 of withdrawals over your expected retirement lifetime. If you have more than that or will have more than that saved by retirement, you will almost certainly have enough to retire.

This is the “under the mattress” method of savings and spending that assumes your savings earned no interest in the years leading up to retirement and will earn none during 30 years of retirement. It makes it harder to accumulate your target retirement fund and does nothing to protect it from the ravages of inflation after you retire.

That’s why retirement funds are accumulated and distributed through investments. Let’s assume that you can count on 3% return, enough to keep pace with inflation and realistic for the next decade. It’s not wise to count on historical average returns because at least half the time you will earn something less.

So, how much do you need to accumulate in order to take $40,000 payments for 30 years if you are receiving a 3% return on your nest egg? Calculating the present value of above, the amount is $784,017. Present value is the amount you need to have in the bank today, to deliver a future stream of cash. And it’s considerably less than the $1,200,000 in our previous rough calculation.

So in this case, if you have more than $784,000 saved by age 65, you would have enough to retire. If you have less, you would need to work longer, save more between now and retirement, or plan on spending less in retirement. For example, if you cut spending by $5,000 a year, then you would only need to withdraw $35,000 a year and the present value of $35,000 for 30 years, assuming investments earn 3%, is $686,015.

The best-laid plans…

However, you can’t always plan out your retirement date just the way you want to. Sometimes life has something else in mind. If you have a plan in place, you’ll know what items need to be adjusted if your retirement date shifts (often due to health reasons, corporate restructuring, or the economy). I’ve seen this occur many times. Clients Kate and Greg are a good example. They ran a small business and were thinking of selling it. When we put together their retirement plan, they realized the amount they could safely withdraw was not enough to support their desired retirement lifestyle. They rallied and focused on building the business. A few years later, Greg passed away, rather unexpectedly. Because we had a framework in place, Kate was able to evaluate her options fairly quickly. She couldn’t run the business on her own, so she located a buyer, sold the business, and went to work part-time for a former employer doing something she enjoyed. The decisions were stressful, but the stress was minimized because she and her husband had taken the time to do the planning ahead of time. She was emotionally and intellectually equipped to shift plans.

Fundamentally, retirement is about the alignment of two things: money and values. When anxiety about the money is foremost, we neglect the values side. With a sound plan to handle the financial side, it frees you to focus on the values side. Then, you’ll be well-positioned to live the life you want to live, ideally, with no anxiety. That is indeed something to strive for.