Article on How Much is Needed to Retire

[stephenandrew]

I thought this was a good article that addressed the "fallacy" of needing 80% of your pre-retirement income to have a comfortable retirement. Obviously everybody's circumstances are unique, but much of this seemed reasonable to me, and consistent with what I have seen posted here before.

The 80% myth: Rekenthaler Report: Aiming for 80% of pre-retirement income in retirement is not only hard for many to achieve, it's also not absolutely necessary

 

[MasterBlaster]

My financial plan doesn't require much savings

A sack of beans once in awhile will complete your no-savings high-debt retirement.

Party on Garth !

 

[traineeinvestor]

I have never understood why retirement needs should be linked to a percentage of pre-retirement income at all.

We are basing our retirement needs on pre-retirement expenses subject to a number of short term and longer term adjustments (either upwards or downwards) - our current income is relevant only in so far as it provides the savings we will use to fund that retirement.

 

[Delawaredave5]

I agree that retirement budget should be "bottom up" rather than "percent of current income".

However I still agree with needing 80% for us. When I look at our budget, I do not see many expenses going away - and I see expenses being added - like more travel and entertainment.

So yes, taxes and savings contributions go down, but are "replaced" by more travel.

 

[donheff]

That's old news around here. Realistically analyzing actual pre-retirement expenses and anticipated post-retirement expenses is where the efforts should go.

 

[dm]

When I was working we were living on aprox. 50% of our income. Now we are closer to 30%. But the drop is mostly from the kids getting out of school and moving out.

 

[jdw_fire]

I agree that retirement budget should be "bottom up" rather than "percent of current income".

However I still agree with needing 80% for us. When I look at our budget, I do not see many expenses going away - and I see expenses being added - like more travel and entertainment.

So yes, taxes and savings contributions go down, but are "replaced" by more travel.

i also agree with the bottom up approach for planning your retirement budget however the % of income rule of thumb is supposed to be getting you the same standard of living you had while you were working. in your case, with the added travel and entertainment, your standard of living actually goes up, so your 80% is an apples to oranges comparison.

 

[Delawaredave5]

When I was working we were living on aprox. 50% of our income. Now we are closer to 30%. But the drop is mostly from the kids getting out of school and moving out.

Wow. Friend of mine has spouse "between jobs" - early 50's, severance package from old job, not sure if they'll work forward or not.

Friend commented how at home spouse is spending more - lunches out, hobbies, piano lessons, etc. All reasonable stuff - not excessive - but their expenses have gone up with one spouse semi-retired.

As said on this board many times, best advice is to "dry run" your retirement budget during last years of w*rking.

 

[MasterBlaster]

Income replacement ratios are just a guide

It's all relative and up it's up to you and what exactly you want. If you want you can get by with basic housing, medical, and food. One can get by with an old car or even go without and use public transport. That's all you really need. The rest is fluff.

So you really need very little to get by in retirement. based on that perhaps a 30-40 percent income replacement ratio is too much.
I could probably get by on a 20 percent Income replacement ratio. A 30-40 percent would then seem like luxury. At 80 percent I would be in hog heaven.

However many of us want more than a poverty lifestyle. Personally I am not willing to settle for less than I had hoped for. My target income replacement ratio is considerably higher. I have big dreams.

 

[jdw_fire]

It's all relative and up it's up to you and what exactly you want. If you want you can get by with basic housing, medical, and food. One can get by with an old car or even go without and use public transport. That's all you really need. The rest is fluff.

So you really need very little to get by in retirement. based on that perhaps a 30-40 percent income replacement ratio is too much.
I could probably get by on a 20 percent Income replacement ratio. A 30-40 percent would then seem like luxury. At 80 percent I would be in hog heaven.

However many of us want more than a poverty lifestyle. Personally I am not willing to settle for less than I had hoped for. My target income replacement ratio is considerably higher. I have big dreams.

again apples to oranges as you are talking about a change in standard of living. dont get me wrong, you should plan for what you want in retirement and if it is a change in standard of living then your planning should account for that but dont confuse that with the % of preretirement income needed to provide the same standard of living in retirement.

 

[ronin]

http://www.aon.com/about-aon/intellectual-capital/attachments/human-capital-consulting/RRStudy070308.pdf

This is an interesting study on the subject.

 

[ziggy29]

Wow. Friend of mine has spouse "between jobs" - early 50's, severance package from old job, not sure if they'll work forward or not.

Friend commented how at home spouse is spending more - lunches out, hobbies, piano lessons, etc. All reasonable stuff - not excessive - but their expenses have gone up with one spouse semi-retired.

That's good to keep in mind. If you're the type who spends more with a lot of free time on your hands, retirement can be expensive.

 

[FUEGO]

Wow. Friend of mine has spouse "between jobs" - early 50's, severance package from old job, not sure if they'll work forward or not.

Friend commented how at home spouse is spending more - lunches out, hobbies, piano lessons, etc. All reasonable stuff - not excessive - but their expenses have gone up with one spouse semi-retired.

My experience as well. When DW was briefly a SAHM, she had plenty of time to think up things that we "need", then go shopping for them. Lots of driving around.

 

[Midpack]

DW and I are planning on 100%. But we deliberately cut back on a lot of the things we expect to in retirement to get used to living on that level of income and to enable us to achieve FI that much sooner. The idea that we'd live at one level of spending and then dramatically reduce when we retire seemed undesirable, we'd rather live the same before and after. There are indeed a few recreational expenses we have now that will go away, but they will be offset entirely by projected health care expenses when MegaCorp health care is no longer available to us. A rule of thumb isn't very useful IMHO.

 

[audreyh1]

We based it more on what we wanted to be able to do on retiring, and given that we were retiring pretty early, it made no sense to retire until we felt pretty sure we had enough to support our envisioned lifestyle.

We spend way more in retirement than we did when working.

Why?

Well - first look at our pre-retirement lifestyle - seriously LBYM:

• We saved aggressively while working.
• We worked long hours and didn't have much time to spend money! This was a biggy!
• Stressful work environment meant that we didn't take as many vacations as we might have liked to while working. It was just so hard to get away, and to make good enough plans for a decent vacation!
• We never upgraded to a larger house or fancy cars or other stuff that tends to be expensive to maintain while working. (No kids either - that sure saved money!)

Now that we are retired we have plenty of time to travel and we love to travel and travel costs money! Even if you are pretty clever about how efficiently you travel, it's easy for the $$$ to add up.

Many hobbies cost money - although you can be really clever about this after the initial startup.

So you really have to look hard at what you want to do when you retire.

Audrey

 

[teejayevans]

There is an old boating joke: how much does it cost to go cruising, the punchline: how much do you got?
I'm guessing retirement is like that, the more you have the more you will spend.
Although if you have LBYM for so long, will that continue into retirement?, probably so.
TJ

 

[audreyh1]

There is an old boating joke: how much does it cost to go cruising, the punchline: how much do you got?
I'm guessing retirement is like that, the more you have the more you will spend.
Although if you have LBYM for so long, will that continue into retirement?, probably so.
TJ

That's basically it!

I mean, you spent all this time saving and carefully investing the money. Retirement is the time to spend it! Prudently, of course. But your serious saving time is over and you've earned FI.

LBYM habits still continue and can help a great deal. For example, you don't need to spend more money on basic living expenses or things that aren't important to you. You can even save quite a bit of money on basic living expenses because you have way more time to do things for yourself, and more time to take advantage of bargains. A lot of retirees see significant savings from having a lot more time to deal with things.

But when it comes to doing what you want and having fun - you better go ahead and do it if you can afford it, because we know how much money we've got, but we don't know how much time (or health) we've got!

It does require some mental adjustment making this kind of switch.

Audrey

 

[youbet]

So you really have to look hard at what you want to do when you retire.

There ya go...... It's what you want/need to spend in the future that counts. Your previous income is moot.

I give a pass to FP's and authors who do refer to percentages of pre-retirement income though as some FIRE wannebee's just haven't done their homework about planning RE spending and current income is all the FP or author has to use.

I often wonder what I'd say my pre-retirement income was. It varied all over the map for the 5 - 6 yrs prior to pulling the plug. Take an average?

 

[ziggy29]

My experience as well. When DW was briefly a SAHM, she had plenty of time to think up things that we "need", then go shopping for them. Lots of driving around.

Vouch. When my wife started working, our finances improved more because she wasn't out (and sometimes bored) driving all over the place to spend money than because of her paycheck.

Plus, unlike earning more money, there's no tax on spending less of it.

 

[Independent]

I thought this was a good article that addressed the "fallacy" of needing 80% of your pre-retirement income to have a comfortable retirement. Obviously everybody's circumstances are unique, but much of this seemed reasonable to me, and consistent with what I have seen posted here before.

The 80% myth: Rekenthaler Report: Aiming for 80% of pre-retirement income in retirement is not only hard for many to achieve, it's also not absolutely necessary

Yes, this type of thing needs more press. Kotlikoff has been saying it, I don't know who else.

The problem is that young people with mortgages and children are told they need to save for retirement so they can spend 80% of their curent gross income in retirement, even though the kids and mortgage will be gone by then.

 

[Bimmerbill]

Plus, unlike earning more money, there's no tax on spending less of it.

I like that! Thanks!

 

[dm]

Wow. Friend of mine has spouse "between jobs" - early 50's, severance package from old job, not sure if they'll work forward or not.

Friend commented how at home spouse is spending more - lunches out, hobbies, piano lessons, etc. All reasonable stuff - not excessive - but their expenses have gone up with one spouse semi-retired.

As said on this board many times, best advice is to "dry run" your retirement budget during last years of w*rking.

It helped that our pre retirement income was good. Also I started tracking my spending several years before retirement as ER, or at least the ability to ER, was always in my plans. Before I retired I had two sons that were either at home, or at college that were expensive. Plus I still had a house payment. Our standard of living has definatly not gone down, we have just alway's lived below our means.

 

[teejayevans]

I think for most people, who don't LBYM, 80% is a good amount. Y'all understand that the people on this board are not a large majority, right? I be shocked if more than 10% of the working population saved more than 10% of their income for retirement.
TJ

 

[teejayevans]

Plus, unlike earning more money, there's no tax on spending less of it.

Technically there is, a few examples:
Inheritance tax
Tax on your social security if you make a certain amount from your investments/IRA withdrawls, including the tax free munis.
No financial aid for higher education if you have savings
TJ
psst, don't give congress any ideas, they may come to the conclusion than anyone if more than $200K in savings is rich and that wealth should be spread around.

 

[Katsmeow]

As said on this board many times, best advice is to "dry run" your retirement budget during last years of w*rking.

To some extent but not entirely. I've been spending a lot of time looking at expenses lately (had a long thread on it). While DH and I are both working with teenagers in the house it is really hard in some areas to simulate a retirement budget. In some areas, sure it can be done. Other areas, not so much. Of course there are the obvious ones. Driving/automobile expenses that might be much higher while working. Work clothing and related expenses much higher. And, so on.

But it isn't just that. In looking at spending, I realize that we spend a lot of money for things that DH and I don't have time to do while we both work and have 3 kids at home. We trade money for convenience at times. If we were retired we would eat much differently because I would have time to cook. Right now, I get home and most everyone has already eaten by the time I'm home and I'm tired and don't feel like cooking. There is a lot of stuff where by spending more time researching or doing it ourselves the cost could be less. And, if retired, we would do that. But, while working, we don't. Once we downsize the house I do want to get closer to the retirement budget but recognize it will have a lot of exceptions in it while we still are both working.