What %age of your pre-retirement income do you need in ER?

[nun]

I believe that the 80% income dogma is wrong. So let's test it by doing a poll of the %age of your pre retirement gross income you are living on (or plan to live on) in ER.

 

[aaronc879]

I believe that the 80% income dogma is wrong. So let's test it by doing a poll of the %age of your pre retirement gross income you are living on (or plan to live on) in ER.

I believe the mean(not the, average but the mean) income in the US is under $40K/yr. For the half of all workers who earn less than that, 80% is probably pretty accurate. Most people on this forum make much more and therefore shouldn't need as high of a percentage. It's not "one size fits all". For those who made under $25K/yr in todays dollars for their entire career they will likely need >90% while those who earned $80K should NEED less than 50% although they may WANT more.

 

[bbbamI]

I voted 51 to 60%, but since the poll said 'need' I should have gone one step lower.

Our discretionary expenses hover around 17%. IMO, there should be a little extra in the budget for 'wants'...if not, retirement wouldn't be much fun.

YMMV

 

[LauAnn]

I am not sure which segment of the pool to choose.

For the past several years I have been consuming 33% of my annual salary. The other 67% has gone into my retirement fund. When I ER in 16 months, my income stream will increase by 40% and that does not include funds set aside for emergencies, health insurance, and major appliances/roof and car replacements.

 

[FIREd]

In 2011, we spent 22% of what was our combined income before I retired.

Next year, who knows... Big changes are coming.

 

[Spanky]

We have been living less than 40% of income. Thus, our estimated post retirement income need would be slightly higher because of higher medical insurance premium cost (that was paid by the employer earlier).

 

[nun]

I believe the mean(not the, average but the mean) income in the US is under $40K/yr. For the half of all workers who earn less than that, 80% is probably pretty accurate. Most people on this forum make much more and therefore shouldn't need as high of a percentage. It's not "one size fits all". For those who made under $25K/yr in todays dollars for their entire career they will likely need >90% while those who earned $80K should NEED less than 50% although they may WANT more.

This is a well made point. However, after three decades of stagnating wages, and increasing costs of medical insurance and their kids' college education many median earners simply can't save enough to retire. Also in the retirement examples I see from planners they use the 80% income replacement dogma for earners far above the median.

 

[IBWino]

For 2011, we lived well on 36% of our gross income from employment (I'm excluding investment income). Since we still have a few years left on our mortgage, I expect that our post-retirement expenses will be similar to our current expenses, with our mortgage payment being replaced by the cost of health insurance.

Edit: I want to add that for 2011, we also saved 40% of our gross income from employment. This is the first year that our savings exceeded spending (although we've been very close the past several years).

 

[nun]

So the early results show the median and mode are 31-40%.

 

[W2R]

How could anyone save for retirement if they spent 80% of their gross salary while they were working? Taxes and FICA took more than that out. If someone is used to spending less while working, they would probably be fine spending less than 80% when retired as well.

That formula may have worked 50 years ago, but does not seem to be relevant in my world.

 

[Midpack]

I believe that the 80% income dogma is wrong. So let's test it by doing a poll of the %age of your pre retirement gross income you are living on (or plan to live on) in ER.

There is no right number. And this audience is not representative of the mainstream, this poll will be lower on average than the population at large, so good luck with your poll.

The earlier you want to retire, the lower your % replacement will have to be. 80% is right for some people, there are people who spend more in retirement than their working income, although that implies a much shorter retirement (unless spectacular investment results, inheritance, lottery, etc.).

 

[nun]

There is no right number. And this audience is not representative of the mainstream, this poll will be lower on average than the population at large, so good luck with your poll.

Obviously this forum is way out of the mainstream and I expect the results to be skewed by that. Still it's an interesting exercise and it might highlight the basic contradiction inherent in the 80% dogma. Those on large incomes can save enough to retire because they don't need 80% of their income to live on. Low earners can't save enough to retire because they must live on 80% of their income.

 

[MichaelB]

This topic is frequently discussed here, and the consensus generally is spending in retirement is a function of assets, not income or spending when working. My income varied a great deal so it makes little sense to relate our budget now with income or spending then. The children have been through college and left the nest, so our needs are also much different.

I believe the mean(not the, average but the mean) income in the US is under $40K/yr. For the half of all workers who earn less than that, 80% is probably pretty accurate. Most people on this forum make much more and therefore shouldn't need as high of a percentage. It's not "one size fits all". For those who made under $25K/yr in todays dollars for their entire career they will likely need >90% while those who earned $80K should NEED less than 50% although they may WANT more.

The 2010 Consumer Expenditure Survey says median household income after tax was $60731 and median household expense was $48109, which equates to 79%. Perhaps this is the basis for the 80% estimate.

 

[MichaelB]

Obviously this forum is way out of the mainstream and I expect the results to be skewed by that. Still it's an interesting exercise and it might highlight the basic contradiction inherent in the 80% dogma. Those on large incomes can save enough to retire because they don't need 80% of their income to live on. Low earners can't save enough to retire because they must live on 80% of their income.

Many people with high incomes spend beyond their means and others with low incomes save. It would be very interesting to see research correlating savings with income.

 

[LOL!]

I believe the mean(not the, average but the mean) income ...

Is anyone else confused by this statement?

 

[NW-Bound]

Aaron, the word you want is "median", but I understand what you meant. And I agree 100%.

Yes, the average worker does not have the large excess income over the basic needs like many posters here. And not all can be like Jacob.

 

[Onward]

18%. Two years in. This is the first time I'd done the calculation.

 

[mickeyd]

My current expenses are about what they were prior to retiring, so I cast a vote for 100%.

 

[ziggy29]

If I eliminated SS and Medicare taxes, eliminated my savings and investment allocations (retirement and non-retirement), adjusted taxes downward to reflect the lower income and added some health care costs back in, we'd probably be around 40% of current total income. If we really wanted/needed to make it happen to retire, we could easily scale back some of our discretionary expenses and possibly go down to one car. But for now we're assuming a standard of living comparable to what we have now, so I'd say 40% is in the ballpark.

 

[Koolau]

I believe that the 80% income dogma is wrong. So let's test it by doing a poll of the %age of your pre retirement gross income you are living on (or plan to live on) in ER.

I had to make some assumptions and guesstimates because my "gross income" prior to ER was all over the place. There were investment results (occasionally even negative!) but, in any case, always left to grow in the investments. There were "bonuses" but I included those in "salary" as they were predictable within certain parameters. There was DW's income (rarely 20% of mine and variable - again, most of the net was saved, no matter how much it varied). There were gains from the family business, but, again, these varied widely. Often, these cost us money within a given year as the gains were taxable, but we often didn't take the money out - even to pay the taxes. So, because it's "complicated", I chose my final salary (with typical bonus) as my starting point. I assumed (not quite clear from the poll - but pretty sure) that we were comparing what we spent after retirement - not what we needed from our portfolio. So, regardless of source (pension, port., SS, etc.) I voted 91 to 100% plus. Looks to be almost outlier territory. Still, it fits the plan and I have backups in place in case it doesn't some day. YMMV

 

[CyclingInvestor]

I retired on a gross investment income of just over 40% of my final salary - however, -SS, -401k deposits, -regular savings, +health insurance, -mortgage I had recently paid off, my aftertax income was slightly higher than my net salary.

 

[nun]

My current expenses are about what they were prior to retiring, so I cast a vote for 100%.

That's not what the poll asks, I expect my expenses to be the same pre and post ER too, but those expenses are 28% of my pre-retirement gross income.

 

[unclemick]

ER'd 1993. Range 12k(once never repeated) to 89k one year post Katrina. Salary in 1992 61 k. Did some temp(jobshopper) work in the 90's at a 90k rate.

Basically was el cheapo early in ER and post 2000 decade have been running 100% and higher on occasion. And I can vary quite bit as 'core' expenses are usually below 50% of yearly expenditures.

heh heh heh - fear of running low on portfolio was a motivator in early ER to be really tight. . Now after 18 years more worried about running out of time instead of money.

 

[Mulligan]

Im spending about same amount now that I was before retiring. It is about 75% of my take home pay. Getting a 2% cola this month so that will knock it down a tad. Mine should keep on dropping from here out. When my DD gets off the dole in 2 years, that will knock me down toward 65%. In another 10 years or so when house is paid off, I will be under 50%.

 

[joeprintz]

Money in retirement.

I've always thought percent replacement is a fallacy. It is number that can be calculated from a budget.. One might want to travel more, gift more, help children/grandchildren more.It is also possible that healthcare previously paid for by an employer might in retirement not be available. Anyone who retires without figuring out cost is looking for trouble.