Retire on 80% of Your Income? |
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A little while back Flexo from Consumerism Commentary asked "do you need 80% of your current income in retirement?" While that might be accurate for some people, like most "rules" in personal finance there are exceptions. It is these exceptions that make it difficult for me to endorse.
There are numerous factors that weigh into that 80% number. For one example, there's a lot of military families out there and they'll be getting pensions (yes, I still believe government pensions will be there, we'll just pay taxes to make it work), and very well subsidized health care. This would eliminate one of the biggest costs or retirement as well as bring in income that "doesn't need to be saved" in advance. My fiancée is in the military so this is definite possibility.
For another, there are the people that are living below their means and saving money now. I know it's rare, but if you are reading this, the odds are higher that you are one of them. If you are are socking away money and living beneath your means now (and you are 35 or younger), you'll have accomplished two very important things:
1) You'll have adjusted your lifestyle to the point that living on 80% of your current income is the norm. Jonathan from My Money Blog is living off of 57% of this his after-tax income.
2) You'll have saved enough money that there's the a chance that you'll actually make more than 80% of your current income in retirement.
In the end, you need to look at what's right for you. Maybe it's a good guideline for you and maybe it's not. I guess that's what a lot of personal finance is about.
This post deals with: ... and focuses on:Retirement
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Considering what I earn, I cannot imagine NOT needing 100% of my current income in retirement. Which is to say, I expect that retirement will never even be an option for me.
As you state, rules of thumb are meant to be guidelines – not hard rules. Some will need 80%, but some more and some less. I think that the idea is to plan now, so that you will ONLY need 80% of your after-tax income, and you will be on the right path. For example, if you own your own home, you will not have to pay a mortgage – but, if you didn’t have to work all the time, would you be out spending more money on travel, home repairs (or improvement), golfing, etc.
For most once you can get rid of a mortgage, it becomes much easier to live on a lower percentage of your income.
Just to let you know, your whole right sidebar is at the bottom of the page in IE 6.
Considering what I earn, there’s no way I could get a mortgage, therefore no way to pay one off, therefore no way to reduce or even stabilize my housing costs.
If you think it about it living off less than your regular income shouldn’t be that hard if you’ve managed to pay off a mortgage; that alone would drastically reduce your expenses. But on that same token it really depends on the lifestyle you choose for retirement.
Not only that but it all depends on your retirement lifestyle as well. If you plan to travel all over the world or simply go fishing 50km from home, there is a huge difference. You might need 80% of your income at retirement, but you might also need 120%!
FB.
I am not sure what I will NEED. But, I plan to USE about 120% of my income in retirement. I want to have my final home paid off by age 45 but not need to ramp up my savings at that point. Then, I’ll spend 10 years using 90% of my current income and spend a bit more once I retire.
I was on vacation recently. We were staying in a time share in florida. While waiting in a line for lunch, I overheard an older couple saying that once they retired, they began vacationing 1 week a month (12 weeks a year). That sounds like a lifestyle I would enjoy :) But, that means spending about $25k a year just on that. So, that makes up the differnce vs pre-retirement. I imagine increased healcare costs will cut in to that a bit.
You’re the first commenter on this topic I’ve seen to recognize that some people do live on less than their income. We’re a couple that does that — we live on about sixty percent of it, with another twenty percent going to Uncle Sam and his pals. To me, that means we’re effectively living on about eighty percent, a number that will drop somewhat as taxable income drops. I do NOT think that our expenses will drop when we’re retired — my gut feeling is that some expenses will, but they’ll be matched (and possibly more than matched) by expenses we don’t have now — increased travel, medical. Thats our biggest single point of concern, long term.