Traditionally, the rule of thumb in retirement planning is that you need 70-80% of your current income during retirement. This lower figure represents all the expenses (transportation, income tax, etc.) that may not appear in your retirement budget. However, basing the size of your retirement nest egg on the size of your income target doesn't always make sense.

It's like basing your grocery shopping on the size of your refrigerator. You don't shop just to fill up the fridge. What really matters is the type of food you like to eat and how large your appetite is, not the size of the storage container.

Similarly, your current income levels are less relevant to retirement planning than your spending patterns. Your spending, not your income, reflects your lifestyle. And you have to save enough to allow for the retirement lifestyle you want.

There is no magic number of “how much” you need saved before you retire.

“How much” you need to retire is a personal decision – it depends on what you want to do, your lifestyle, your current savings and projected income, your risk level, what type of inheritance you want to leave behind, etc.

While it may make sense to save as much as possible, you need to balance your future needs with your current expenses. If you already have “enough” saved and are confident that your pensions will be sizeable, maybe you can spend more now. Balancing future needs against current expenses is difficult. However, having a financial plan that looks at your overall cash-flow, both pre-and post-retirement, can provide a realistic number of how much you should save now.

While it's prudent to prepare for tomorrow, don't forget about today and make sure your savings plan meets both your current and future needs.