Comparing Working Couple's Expenses to Retired Couple

[eytonxav]

Probably nothing that most don't already know, but Scott Burns can always sum things up succinctly:

AssetBuilder - Keeping Up With the Retired Joneses - AssetBuilder Inc., Registered Investment Advisor

 

[rbmrtn]

I knew from my own experience the 80% replacement was BS. Then some were even saying you need 100%. But your income level also plays a part, I think they assume you live paycheck to paycheck and are in debt.

I only took home about 65% of gross and was probably saving half of that.

 

[youbet]

I knew from my own experience the 80% replacement was BS. Then some were even saying you need 100%. But your income level also plays a part, I think they assume you live paycheck to paycheck and are in debt.

I only took home about 65% of gross and was probably saving half of that.

As discussed in another thread, I've needed 100%+ of my final take home pay in retirement and it makes sense. Been doing it for almost 9 years. It all depends on individual circumstances.

 

[Cobra9777]

From the article:

What’s important is that most financial planning says that you need to replace 70 to 85 percent of your pre-retirement income to have the same living standard when you retire. The figures in this column, casual as they are, tell us something else.

I agree. Our expenses in retirement (including tax) are only 40% of pre-retirement gross income. However, basic living expenses, and thus our living standard, are completely unchanged. Total taxes (income tax and payroll tax) are a tiny fraction of what they were, and contributions to savings are essentially zero. Those two items account for 75% of the difference. The rest comes from paying off the mortgage and getting the youngest out of college and off the payroll. The smaller variables all offset... travel and health insurance up slightly... commuting costs, clothes, groceries, etc, all down. Once you're retired, there's more time to analyze how you spend money, in order to eliminate waste and find cheaper ways to accomplish the same thing.

 

[rodi]

As discussed in another thread, I've needed 100%+ of my final take home pay in retirement and it makes sense. Been doing it for almost 9 years. It all depends on individual circumstances.

The article, and many of these discussions are talking about GROSS income.

I'm living on about 100% of my NET working income. But my gross income was reduced by: SS tax, Medicare tax, 401k contributions, FSA accounts, DCA accounts... plus medical benefits.... My net pay was about 45% of my gross pay.

Most people think of their salary in gross, not net, when plugging into the retirement calculators that suggest 80% of your final income.

 

[daylatedollarshort]

Our expenses are less than half our former gross income and we still have kids in college. Social security, federal and state income taxes are a lot lower now and we no longer have to save for retirement, plus with being home we have more time for DIY, price shopping, going to early bird movies, eating out at lunch when prices are cheaper and other money saving habits.

We did bottom up retirement planning. We didn't look at our former income. If we weren't working that was irrelevant. We looked at what kind of budget could we live on and be happy.

 

[eytonxav]

Speaking of money saving habits in retirement, we also have more time to attend those free retirement planning dinners. I used to get one of these almost every week when i was working, but now its down to perhaps one or two a month

 

[MikeWillRetire]

The article shows that the retired couple only needs 60% of the income that the working couple needs. That makes sense, but I'm surprised he didn't factor the cost of raising children into it. The retired couple should be done raising their children, so the percentage can be much lower, depending on how many kids they raised. In my case, my estimated retirement income is around 40% of my current income (I spent way too much money on my kids...)

 

[daylatedollarshort]

The whole 80% prediction seems to be a way for the investment companies to keep people working until they drop so they can to hang on to their customer's money longer. Did Bill Gates need 80% of his income to retire? I don't think so. There is no one size fits all formula, especially if you are supporting kids before retirement and/or saving money towards retirement.

 

[Gunny]

I could care less about what percentage of my working gross I need to replace. I think it currently it currently works out to be something like 50 percent. It's all about expenditures. It's more useful to figure what percentage of my working take home pay will I need to continue the same lifestyle in retirement. In my case, once I subtract SS and other taxes, retirement savings, work related expenses, and the COL in my work city as compared to my retirement city, my retirement net income will be roughly 80 percent of what my working net was and I will actually get a raise in discretionary funds.


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[mpeirce]

The article, and many of these discussions are talking about GROSS income.

I'm living on about 100% of my NET working income. But my gross income was reduced by: SS tax, Medicare tax, 401k contributions, FSA accounts, DCA accounts... plus medical benefits.... My net pay was about 45% of my gross pay.

Me too.

I had been shoveling a hefty percentage of my paycheck into savings of various types. Pile on taxes of many flavors and my goodness!

So after retirement, our spending didn't really change (well, travel spending went up, but nothing else did) and we didn't need anywhere near 80% of my gross paycheck.

To me the key seems to be to track your spending before retirement. It's important to know that number. And unless you need some a really fabulous wardrobe for work or drive 100 miles each way, spending probably won't vary all that much.

 

[Big_Hitter]

uh, anyone else notice Scott left out medical expenses?


Rx can be extremely expensive for retirees and many workers have extremely low Rx copays

 

[rodi]

uh, anyone else notice Scott left out medical expenses?


Rx can be extremely expensive for retirees and many workers have extremely low Rx copays

His hypothetical retired couple is in their late 60's. Therefore on Medicare with a Plan D for prescriptions.

For many - medical costs drop significantly when they hit medicare at age 65.

 

[Big_Hitter]

a random variable nonetheless


"According to the latest retiree health care cost estimate from Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need an average of $220,000 (in today’s dollars) to cover medical expenses throughout retirement."


note that is a flat dollar amount which means a big ? as a percent of pay....


https://www.fidelity.com/viewpoints/retirement/retirees-medical-expenses

 

[Bamaman]

I've been retired 6 years (since age 58 1/2), and find ourselves spending more now than when I worked. I'd say 120% of what I used to spend.

I was spoiled to a company and expense account when traveling 3-4 days a week.

And I'm having to take care of a daughter and her 2 kids--a common situation.

We're fortunate to have saved for our retirement, played the stock market aggressively for 35 years.

But don't think that you can live on 60% of what you made. It's just not going to happen.

 

[rodi]

I've been retired 6 years (since age 58 1/2), and find ourselves spending more now than when I worked. I'd say 120% of what I used to spend.

I was spoiled to a company and expense account when traveling 3-4 days a week.

And I'm having to take care of a daughter and her 2 kids--a common situation.

We're fortunate to have saved for our retirement, played the stock market aggressively for 35 years.

But don't think that you can live on 60% of what you made. It's just not going to happen.

Well then a lot of us are screwed. A lot of us are living on 60% or our gross or less.

I'm spending almost exactly 60% of our combined gross income. That is the SAME spending we had prior to retirement. I'm no longer deferring 26% of my gross to max out my 401k (with catchup). I'm no longer making extra mortgage payments... or any mortgage payments at all.

Also the expense account stuff was SPENDING you had - but you weren't paying for it.

This whole discussion highlights the point that early retirees need to know what their spending is/will be to accurately judge their retirement plans. For many of us the spending was not correlated to the income prior to retirement - so the SWAG of 80% (or 60%) of gross income is just that a SWAG with no bearing on reality.

 

[Maenad]

But don't think that you can live on 60% of what you made. It's just not going to happen.

I don't understand this argument - we're currently living on 25% of our combined gross. Why on earth would we need to triple our spending in retirement?

 

[GravitySucks]

A few months before I retired a Fidelity rep came by to give a seminar and answer questions. He said they figure between 80 - 90 % of gross to keep up the standard of living.
Personally, I'm slightly under 50% of my previous gross.
No idea what my spending was (would have been) prior as so many changes happened in that last year.

 

[daylatedollarshort]

A few months before I retired a Fidelity rep came by to give a seminar and answer questions. He said they figure between 80 - 90 % of gross to keep up the standard of living.
Personally, I'm slightly under 50% of my previous gross.
No idea what my spending was (would have been) prior as so many changes happened in that last year.

The Fidelity people told us that, too. We said we weren't spending 80% now (at the time). Most of my income went either to taxes or savings. And my husband's income was covering kids, braces, car insurance for teens (yikes!) and a mortgage on a family sized, single family home - expenses that will eventually decrease. They told us we would travel more and develop more expensive hobbies. Guess what? We didn't. We were frugal then and didn't suddenly turn into spendthrifts in retirement. We weren't travel or hobby deprived before, and with more free time we have found ways to lower those costs much more than when we were both working full time.

 

[Bamaman]

Sorry, to stir up the pot folks about monies spent. We had a daughter later in life, and she's still in our pocketbook.
My wife is expected to have future mobility issues (bad back), and we're seeing the world while we can. We are very budget travelers, but two big trips a year get expensive.
We also have been replacing very aging assets like cars, boats and campers. We have been very fortunate to inherit a really nice lake house, and upkeep, taxes and utilities are not cheap. Thankfully, we're debt free.
After saving 10%-14% in matching 401K's for 35+ years, funding IRA's and playing the mutual funds aggressively, we're not going to outspend our retirement accounts.
And we have enough tax paid cash to last until we're forced to make mandatory IRA withdrawals at age 70 1/2.
We just cannot see cutting back on our quality of life and ultimately that relates to spending to where we'd be living on a small percentage of what we used to make. We prepared ourselves well for retirement, and are enjoying life while we're in good health.

 

[dd564]

Sorry, to stir up the pot folks about monies spent. We had a daughter later in life, and she's still in our pocketbook.
My wife is expected to have future mobility issues (bad back), and we're seeing the world while we can. We are very budget travelers, but two big trips a year get expensive.
We also have been replacing very aging assets like cars, boats and campers. We have been very fortunate to inherit a really nice lake house, and upkeep, taxes and utilities are not cheap. Thankfully, we're debt free.
After saving 10%-14% in matching 401K's for 35+ years, funding IRA's and playing the mutual funds aggressively, we're not going to outspend our retirement accounts.
And we have enough tax paid cash to last until we're forced to make mandatory IRA withdrawals at age 70 1/2.
We just cannot see cutting back on our quality of life and ultimately that relates to spending to where we'd be living on a small percentage of what we used to make. We prepared ourselves well for retirement, and are enjoying life while we're in good health.

Everyone has a different lifestyle for retirement. You're will cost more than others appear, but it's tailored for how you want to live so congratulations on being able to do that because it's important to you and your family.

 

[daylatedollarshort]

Sorry, to stir up the pot folks about monies spent. We had a daughter later in life, and she's still in our pocketbook.
My wife is expected to have future mobility issues (bad back), and we're seeing the world while we can. We are very budget travelers, but two big trips a year get expensive.
We also have been replacing very aging assets like cars, boats and campers. We have been very fortunate to inherit a really nice lake house, and upkeep, taxes and utilities are not cheap. Thankfully, we're debt free.
After saving 10%-14% in matching 401K's for 35+ years, funding IRA's and playing the mutual funds aggressively, we're not going to outspend our retirement accounts.
And we have enough tax paid cash to last until we're forced to make mandatory IRA withdrawals at age 70 1/2.
We just cannot see cutting back on our quality of life and ultimately that relates to spending to where we'd be living on a small percentage of what we used to make. We prepared ourselves well for retirement, and are enjoying life while we're in good health.

There is no one size fits all percentages that work for every household's circumstances. You might be still be spending less in total dollars in retirement than a household with $2M a year in salaries pre-retirement, even though their percent of spending post retirement might be quite low.

Households with $200K and $100K former gross incomes can live on 50% or 100% of their former gross incomes in retirement and still be spending the same $100K in retirement. And that $100K buys a very different quality of life depending on whether they live in Manhattan or Little Rock.

 

[Katsmeow]

I've been retired 6 years (since age 58 1/2), and find ourselves spending more now than when I worked. I'd say 120% of what I used to spend.

I was spoiled to a company and expense account when traveling 3-4 days a week.

And I'm having to take care of a daughter and her 2 kids--a common situation.

We're fortunate to have saved for our retirement, played the stock market aggressively for 35 years.

But don't think that you can live on 60% of what you made. It's just not going to happen.

It is fine to talk about why that isn't going to happen for you, but that doesn't mean it isn't going to happen for everyone.

Last year we spent about half of pre-retirement income (DH is retired and I semi-retired and work very part-time). That said -- the reason it was so high was because we have 2 kids in college. Once they are off our dime (end of next year), we have looked at our expenses since DH retired and I semi-retired and subtract out those kid related and some other things that we believe will change and the result is about 25% to 30% of our pre-retirement income. (Essentially 25% most years with occasional years more like 30% due to things that aren't annual).

 

[Teacher Terry]

WE live on 50% & take one big trip a year, weekend getaways, go out to eat, concerts, movies,etc & also pay 10k/year for our health insurance. I think many people live on less later due to paid for home, etc.

 

[INTJ10]

We use Mint to track our expenses. Since we have about 3 years history it isn't too hard to forecast out spending by category based on history. The big unknown is healthcare. As others have said our expenses have little to do with our income.


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