Do you need 70% of your pre-retirement income

[daylatedollarshort]

I do think at least some of the 80% of salary in retirement is really more of a marketing slogan by the investment companies than a number with any factual basis. If you work until you drop it maximizes their income because you keep adding to your 401Ks and they keep collecting their fees.

It is just that needing 80% of salary has more marketing cache than work until you drop. The mutual fund CFP who did our "free" retirement plan kept bringing up the 80% number, when like others here we weren't spending anywhere near that when we were working full time. Post work years our kids will be off the payroll before too long, our taxes are lower, we no longer have to save for retirement or college, we have time for some leisurely driving vacations instead of always having to fly so as to not burn up vacation days, we no longer have job and commute costs, and we are free to downsize and/or move further out into the boonies where home prices are cheaper or even move to a lower cost of living city or state if we want to.

And best of all - early bird matinees and week day happy hours.

Instead of looking at our gross income, we started comparing our spending to the Consumer Expenditure Survey and looked for areas of opportunity to lower our run rate.

 

[hnzw_rui]

Another chestnut is "Save 15% of your income", which might be OK if you want to work for 50 years and take full SS if your health holds out that long. If professionals advocated the 50%+ needed for ER, they'd get no clients, just the usual blank looks of incomprehension when it comes to asking advertising-saturated Americans not to spend every dime they have. Great post!

Wouldn't financial advisers actually benefit from recommending higher savings rates? That would mean more assets under management ergo greater fees for the same amount of work. I do believe the 15% is the minimum savings rate recommended. Certainly, FAs collecting AUM fees would like you to think you need a much bigger nest egg than necessary to maintain your standard of living upon retirement. Of course, you probably do need a bigger nest egg if you're funding both your retirement and the FA's so you're gonna have to keep working longer.

 

[Markola]

Wouldn't financial advisers actually benefit from recommending higher savings rates? That would mean more assets under management ergo greater fees for the same amount of work.

Absolutely, but I'm guessing most FA's prefer to be able walk their talk, and there's no evidence I've seen that professionals are any better as a group at saving their income than they are at picking winning investments.

 

[scrabbler1]

To continue your same standard of living. That seems to be the "standard" the financial planners and some of the calculators? I realize this will vary wildly depending on your lifestyle and how many revenue streams you have, how long it has to last.

I'm also curious how many stick to the withdrawal amount of 4% that is the generic industry standard?

I know there are countless other factors but I'm always fascinated with the answers retirees give and their experiences/advice.

The 70% figure might have been right for me when I first began working full-time. But my salary grew while my expenses (other than income taxes) stayed pretty flat the whole time, enabling me to save more and more over the years. It didn't take long for that 70% figure to drop to 50% and lower.

Paying off the mortgage in 9 years greatly lowered my expenses to the point that I was able to take not one but two pay cuts (working part-time then further reducing those PT hours) and still be able to live on at most 70% of that reduced salary. And it wasn't like I was making a boatload of money, my highest annual FT salary was just under $80k.

As I was putting together my ER plan back in 2007 and 2008, one condition was that I did not want to have any change to my day-to-day lifestyle.

My SWR since I ERed has been in the 2.0%-2.5% range although it will rise closer to 3% for 2015 due to some medical issues. No changes to my day-to-day lifestyle on the money side but a few on the medical side.

 

[easysurfer]

No. When I was w*rking, I didn't even need 70% of my pre-retirement income .

 

[W2R]

The best answer I can give to this question is my actual numbers.

The amount I have actually spent during each full year of retirement, as a percentage of my highest annual salary (uncorrected for inflation) has been:

2010: 41%
2011: 35%
2012: 37%
2013: 43%
2014: 43%

This may look more encouraging than it should. Bear in mind that I have intentionally spent more in retirement than I ever did while working, and I have been trying to expand my lifestyle a bit.

2015: So far this year, I have spent 112% because I bought and moved into my dream house. That is even after subtracting the proceeds of my old house. But I don't care. You can't take it with you, and I will be fine.

(Edited to add: These percentages include taxes, medical, everything.)

 

[aja8888]

Question: Do you need 70% of your pre-retirement income?

Answer: That depends on if I can keep DW from spending on the granddaughter! Otherwise, we are OK!

 

[frayne]

Been retired for ten years and have been spending right around 50% of what I was making prior to retirement. Portfolio has grown to a greater amount than what it was when I retired. The concern now is what I will need to be taking when the RMD requirement kicks in, in about six years. Hope to leave a good chunk so when I take the dirt nap there is enough to help get the grandkids through college.

 

[unclemick]

Pre-retirement income is irrelevant. How much do you spend? That's how much you need.

12% my personal all time best one year. 15 - 25% ball park first decade. Maybe 110% one year post Katrina.

Withdrawal rate 2 - 6% variable over the 22 years in ER

heh heh heh - the ancient Dory36 post/article '33% That's My Story' got hooked on this forum in the first place.

P.S. DO NOT DO IT MY WAY!! I was waaay too frugal/cheap. My Pals at the IRS are ecstatic when they get their cut of RMD at the tender age of 72.

 

[Bestwifeever]

I think it depends on how much you need to have and how much you wish to have available. This year we are spending 100 percent of our preretirement income because several travel opportunities presented themselves and being in our midsixties, we are not wanting to postpone them. Take excessive travel and grandchildren indulgency out of our equation and we are easily at <50 percent. Some people also have expensive interests they have been waiting to enjoy, like snowbirding.

So best imo to have a good idea of what you need to spend and work around that and not the percentage of your preretirement income

 

[CaliforniaMan]

Might be better to ask how much of your pre-retirement spending rather than income you will need to replace in retirement.

As others have noted, much of the your pre-retirement income went into saving for retirement and to taxes. We found that we could actually spend a bit more in retirement than we spent before.

 

[kcowan]

The best answer I can give to this question is my actual numbers.

The amount I have actually spent during each full year of retirement, as a percentage of my highest annual salary (uncorrected for inflation) has been:

2010: 41%
2011: 35%
2012: 37%
2013: 43%
2014: 43%

We are pretty close to these as well, and that includes purchasing new appliances, new car and trip to Europe in different years.

 

[bclover]

Im going to say yes especially since If I travel the way I want to in retirement I will be spending more than I do know. Lol the purpose of me retiring early is too do all the things I don't have the time for now

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[Rustic23]

30% covers all expenses including travel
46% when I add in sunk cost like auto replacement, new roof and such.

 

[Teacher Terry]

WE are spending about half of our pre-retirement income. Some years are more depending on how much travel we do or purchase of big ticket items.

 

[Sirka]

pre-retirement income

Might be better to ask how much of your pre-retirement spending rather than income you will need to replace in retirement.

As others have noted, much of the your pre-retirement income went into saving for retirement and to taxes. We found that we could actually spend a bit more in retirement than we spent before.

+1
your pre-retirement income becomes history after a few years of retirement. It goes the way of 99c ground beef, 40c / gal gas ...etc

We just watch our spending as it goes up & up, out of our control.

 

[unno2002]

Opinion: The key to what matters is pre-retirement SPENDING, not income. Our retirement income is more like 30% of our pre-retirement income, but is in line with our pre-retirement SPENDING. While working, the rest we invested.

 

[THOMPMD]

WOW

Thank you everyone for your thoughts. My wife/I have always "planned" for retirement and it's pretty cool to find others w similar interests. A lot of what you said are the same as what we think and that's very reassuring. We are pretty simple and it doesn't take a lot to keep us happy. If our figures are even remotely close there shouldn't be any problems. We don't have degrees or trust funds we just go to work and do the best we can and will make necessary adjustments higher/lower as needed.

As many of you mentioned, we track and know ours costs now as well as our income streams which IMO are arguably the two most critical pieces.

 

[Danmar]

Depends on what your objectives are. If you are trying to retire ASAP you could very likely do so on less than 70% of pre retire spend. But if your desire is to have a retirement that is tailored to your plans, simple- just use the plans. Rules of thumb are just a starting point or for those with no detailed plan. Your retirement is too important to leave to "rules of thumb". Track your expenses.

 

[kcowan]

and question every line. We found that our spend on telecom was way more than what we need in retirement. VOIP eliminated LD, paygo vastly cut down on mobile plans in 2 countries, switching from cable to satellite cut our expense considerably, simplifying bank/CC accounts and eliminating all CC fees. It was not until our bank imposed ATM FX fees that we switched. A spreadsheet will let you quickly assess the impacts.

 

[Big_Hitter]

In qualified pension plan design, 70% to 80% of final pay replacement is the general target and has been for decades.


YMMV

 

[Dreaming of Freedom]

We live on 25% of our income now, not including income taxes, and will need 35% when we retire (including taxes & added health insurance expenses). We save about half of our income towards retirement now, and the rest goes to income taxes and remodeling & mortgage expenses for a future rental property.

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[Meadbh]

In qualified pension plan design, 70% to 80% of final pay replacement is the general target and has been for decades.

YMMV

That may be the case, but that is based on a flawed mental model of the employee spending up to salary while working, then eliminating work related and educational expenses at "retirement age". For those of us who have been LBYM all along, expenses and salary had only a weak correlation.

 

[Big_Hitter]

That may be the case, but that is based on a flawed mental model of the employee spending up to salary while working, then eliminating work related and educational expenses at "retirement age". For those of us who have been LBYM all along, expenses and salary had only a weak correlation.

that may be true, but the other 95% of the population need the high replacement percentage

those numbers are in every retirement plan design textbook

 

[Dreaming of Freedom]

My pension plan only pays out 52-70% of the final average salary after 30-40 years, and that is non-COLA'd. We used to contribute 4% of our income, but now we have to put in 6%. Wish I had a COLA'd pension.

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