Is 80% of income really the right goal in retirement? Explain

[Winemaker]

I never monitored all expenses, always been blessed with annual surplus over the years.
However, several years ago, I monitored all utilities, mortgage, property taxes, the cost of the annual hog and beef, license fees, car maintenance for three vehicles, and all insurances except health; came in at $30-36k. 7 years left on mortgage will cut that by $19k. Health insurance was a 18.6k stinker but it hasn't rained on the parade yet. Rentals have been cash positive since Day 1, seventeen years ago. Yes, we have been blessed.

 

[Closet_Gamer]

I will go beyond the "80% is baloney" and say it's an actively destructive suggestion.

The 80% approach:
1). Presupposes that your lifestyle is scaling with your income
2). By extension makes it harder to retire every time you get a raise!

At best it's a useful scare tactic to wake up people who have never bothered to think about proper retirement planning.

A FAR better rule of thumb is 30-40x your spending (depending on when you want to hang it up). That puts the focus squarely where it should be: managing expenses. Raises don't make it harder to retire...wiring recurring expenses into your lifestyle does.

That country club membership looks fun...until you realize that $18k/yr means you need to save another $550k to maintain it after you retire!

80% rule is destructive.

 

[mpeirce]

I will go beyond the "80% is baloney" and say it's an actively destructive suggestion.

The 80% approach:
1). Presupposes that your lifestyle is scaling with your income
2). By extension makes it harder to retire every time you get a raise!

Very good point.

Lots of people's spending is directly tied to their income. Most people I know.

Most of the people here had spending and they had income and there was a substantial gulf between the two - that's called serious savings.

Moving from the former situation to the latter is key...

 

[daylatedollarshort]

One thing we realized closer to retirement age was that for us cutting the fat out of our budget had more of an impact on our retirement plan than working another year or two. For example, every $10K we could cut off our annual expenses over 50 years meant needing $500K less in total retirement funding, which was a lot more fruitful for us than working another year and saving even $100K.

We made probably a hundred or more small changes like making the house more energy efficient, doing our own taxes and yard work, using Groupons when we go out to eat, dropping the landline, changing where we grocery shopped, changing hair stylists, etc. and it shaved quite a bit off our annual run rate without lowering our standard of living. They all added up to tens of thousands of dollars less a year in expenses for us. We actually ended up buying nicer cars and have a bigger entertainment budget now, because we lowered our overhead quite a bit.

I still keep looking for ways to shave little expenses and ways to add passive or simple extra income every year so our retirement plan has been getting better over time. We still have a long list of potential projects so it is a fun hobby for me to implement a few each month.

 

[brucethebroker]

That is overly simplistic. You need to do the work to see where your money goes now and to project how it will be different when retired - no mortgage, no more saving, hopefully no more college / weddings, healthcare insurance costs until Medicare.

+1.
And look at taxes. We spend less, but we also have less income and therefore, pay less in taxes. Try running the numbers at 65%. Most retirees I speak with are more in line with that number. BUT, they aren't a high spending crowd.

 

[brucethebroker]

One thing we realized closer to retirement age was that for us cutting the fat out of our budget had more of an impact on our retirement plan than working another year or two. For example, every $10K we could cut off our annual expenses over 50 years meant needing $500K less in total retirement funding, which was a lot more fruitful for us than working another year and saving even $100K.

We made probably a hundred or more small changes like making the house more energy efficient, doing our own taxes and yard work, using Groupons when we go out to eat, dropping the landline, changing where we grocery shopped, changing hair stylists, etc. and it shaved quite a bit off our annual run rate without lowering our standard of living. They all added up to tens of thousands of dollars less a year in expenses for us. We actually ended up buying nicer cars and have a bigger entertainment budget now, because we lowered our overhead quite a bit.

I still keep looking for ways to shave little expenses and ways to add passive or simple extra income every year so our retirement plan has been getting better over time. We still have a long list of potential projects so it is a fun hobby for me to implement a few each month.

Well said and excellent points all.