Question:† Is there some simple way to calculate how much I can afford in retirement and not make a new calculation every year?
Answer:† There is a simple method for retired people with Social Security, a significant pension, and a conservative allocation of investments, but you still have to make a new calculation every year.† The amount you can spend would be Annual Social Security + Annual Pension x (Your age divided by 100) + Savings (exclusive of reserves) divided by (100 - Your age). If you use after-tax values in the equation, spending does not have to include income tax. The main caution is that reserves are sufficient to cover emergencies and replacements of things that wear out or become obsolete.† There are articles on www.analyzenow.com that cover how to estimate how much you need for replacement reserves.
A 90 year old friend of mine who does not use computers any more has used this formula now for twenty years.† He has been delighted with how well it has worked for him.† However, he has a substantial pension and invests conservatively.
You'll find that the affordable spending does not vary a lot year to year unless the savings contribution above is largely invested in equities or you do not have a significant pension.† However, I strongly recommend the Pre and Post Retirement Planner on www.analyzenow.com for those that have Excel because itís a lot easier to input uneven expenses and income as well as give you some perspective how well or poorly things might turn out.† It also lets you better plan for survivorís benefits.
None of us can predict the future.† You'll likely find that there are many events during your retirement that can change your future outlook even more than a drop or increase in the stock market.† A daughter with children might get divorced and come back home to live, you may have some large uninsured event, a spouse might require assisted care early in retirement, Medicare may not cover a required treatment, etc.† Also, the government might greatly increase tax rates (likely), change entitlements (also likely) or you might experience hyper-inflation (possible with current national and state debt projections).
As a practical matter, you will probably be able to avoid an annual re-calculation for a number of years, but you'll almost certainly know when you have to make a new assessment as large and abrupt things happen or you find your budget just won't cover all needed expenses.† Then you'll either have to find supplemental income (downsize home, reverse mortgage, part-time work, support from children, etc.) or find a way to reduce what you consider to be "needed expenses."† Remember too, that often the largest expenses often come very near the end of life.