How much income do you need in retirement?

[Deleted]

From the below article:

"... basing your retirement needs on income is like basing your fuel needs on
the size of your car’s gas tank. What really matters is how far you
have to go and what kind of gas mileage you get."

How Much Should You Save for Retirement?

By J.D. RothDec. 05, 2012

It’s one of the toughest financial questions to answer: How much do
you need to save for retirement? Save too little and you might find
yourself working at McDonald's
during “retirement” — or living with your son-in-law. Save too much,
though, and you’ll end up sacrificing the good life today for an
uncertain tomorrow.

If you listen to many financial planners (or trust most online
retirement calculators), you need to replace 70% or more of your
pre-retirement income in order to maintain your current
lifestyle. But basing your retirement needs on income is like basing
your fuel needs on the size of your car’s gas tank. What really matters
is how far you have to go and what kind of gas mileage you get.

To get a better idea of how much you should save, base your
projections on your current spending patterns. Your spending reflects
your lifestyle; your income doesn’t.

How much should you save?

According to the 2012 Retirement Confidence Survey
from the Employee Benefit Research Institute, only 14% of Americans are
“very confident” that they’ll have enough cash to live comfortably in
retirement. And no wonder: 60% of workers have less than $25,000 saved
for old age (not counting home equity).

Which helps explain why the retirement confidence survey shows that 37% of workers expect to retire after age 65. (That number was 11% in 1991.) That $25,000 in retirement savings won’t get you far no matter how low your spending is.

But things aren’t as grim as you might think. According to the
survey, 70% of workers expect that they’ll have to work for pay in
retirement. In reality, only 27% of retirees report having to do so.
What’s more, “almost all retirees who worked for pay in retirement…gave a
positive reason for doing so.” In other words, even when retirees have
to work, they don’t necessarily hate it.

The 2010 iteration of the Retirement Confidence Survey shows something else that might surprise you. Just about half of retirees spend less in retirement than before (23% spend much
less), and 37% spend about the same. Only 13% spend more in retirement —
and of those, 6% said their expenses were only “a little higher”.

In other words, your pre-retirement expenses are a pretty good
indicator of how much you’ll spend in retirement. That sounds like a
great place to start your planning.

There are dozens of retirement calculators scattered across the web,
and each is a little different. Some seem more useful than others.

• The Motley Fool has two useful calculators, one that estimates your retirement expenses and one that lets you see if you’re saving enough.
• Bankrate’s retirement calculator bases its results solely on your savings. Moneychimp has a similar, but simpler, calculator.
• Choose to Save has a ballpark estimate tool that you can use online or off (or on your smartphone). It’s the best of the calculators that use income instead of expenses.

For a great combination of simplicity and complexity, check out FireCalc.
Though the site can seem overwhelming, its method is actually fairly
elegant. It gives you an idea of how safe your retirement plan is based
on how it would have withstood every market condition we’ve faced since
1871.

By plugging your numbers into several calculators, you can get a better feel for how much you’ll really
need in retirement. But don’t just play with the numbers. Talk with the
people you know. Chances are they’ll tell you to save. But if the
Retirement Confidence Survey is any indication, they’ll also tell you
that things aren’t as bad as you’d think.

Have you looked at how much yearly income you really need in retirement?

After setting up a sample retirement budget, I believe we'll be able to live comfortably on 28% of our current income pretax (23% post tax).  That's definitely way below than the suggested 70+%!

[Deleted]

I assume 70+%. I want to travel well, eat well, etc. in retirement, current plan is to continue living in a very expensive area with very high state and local taxes, and god only knows when we'll buy an apartment (so god only knows when we'll stop having mortgage payments).

[Deleted]

Jan 24, 2013 10:06:40 GMT -5 v said:

I assume 70+%. I want to travel well, eat well, etc. in retirement, current plan is to continue living in a very expensive area with very high state and local taxes, and god only knows when we'll buy an apartment (so god only knows when we'll stop having mortgage payments).

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

[Deleted]

My parents have enough saved to live off of for the next 30 years or so, thanks to my mom's pension and having my parents' healthcare covered by her former employer for the most part. However, my mom says she can't afford cable/satellite AND high speed internet at a cost of ~$80/mo - she has to pick one or the other. Plus, my mom still works full-time and doesn't yet collect SS (dad is older and does collect SS).
So I am going under the assumption that we will need more than the minimum we think we need. I see us trading our large expenses now (mortgage and the anticipation of daycare, namely) for other large expenses like travel and healthcare.

[Deleted]

Jan 24, 2013 10:17:38 GMT -5 d0ri said:

Jan 24, 2013 10:06:40 GMT -5 v said:

I assume 70+%. I want to travel well, eat well, etc. in retirement, current plan is to continue living in a very expensive area with very high state and local taxes, and god only knows when we'll buy an apartment (so god only knows when we'll stop having mortgage payments).

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

I figure (hope?) that with all our new free time, we'll be eating out and traveling even more than we do now (at least during our healthy years) so I would probably want to allow like twice our current expenditures on those things (although I suppose bar tabs will go down).  And they're already pretty big expenditures for us.  So I figure that I might as well plan for the worst case scenario if I can and if that ends up to be way too much money -- well, our niece and nephew will benefit from that.

[Deleted]

Jan 24, 2013 10:17:38 GMT -5 d0ri said:

Jan 24, 2013 10:06:40 GMT -5 v said:

I assume 70+%. I want to travel well, eat well, etc. in retirement, current plan is to continue living in a very expensive area with very high state and local taxes, and god only knows when we'll buy an apartment (so god only knows when we'll stop having mortgage payments).

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

I don't think $500/mo is enough for healthcare.

I work with Medicare beneficiaries every day and $500 is the average per person cost between supplement plan premiums, drug plan premiums and prescription copays.

ETA: And that doesn't take into consideration changes that I anticipate wrt Medicare, like greater cost-sharing with new supplement plans.

ETA2: Plus, Medicare Part B premiums themselves are based on your income. So if you have a high income in retirement, you won't pay the base premium (currently $104.90/mo). If your joint income is 170k+ (again these are 2013 numbers) you pay more.

[Deleted]

We plan to live it up in retirement, so 70% of current income levels or possibly more sounds fair/conservative. Like V, we hope to live in a a big city with lots of fun things to do.

[Deleted]

Yes, I remember posting similar sentiments when I became a SAHM. if we can live just fine on DH's income, why would we need to consider any % of mine in retirement.

[Deleted]

Jan 24, 2013 10:22:05 GMT -5 v said:

I figure (hope?) that we'll be eating out and traveling even more than we do now, at least during our healthy years, so I would probably want to allow like twice our current expenditures on those things (although I suppose bar tabs will go down).  And they're already pretty big expenditures for us.  So I figure that I might as well plan for the worst case scenario if I can and if that ends up to be way too much money -- well, our niece and nephew will benefit from that.

I agree for planning for the worse.  We're shooting for 100% income, but who knows if everything pans out.  It does feel good to know that we'll be able to live comfortably on a much lesser amount.

Daycare/private school and kid related stuff take a huge chunk of our income.  There's also mortgage and retirement savings that takes a huge chunk that we expect not to have in retirement.  It will be a huge upgrade in lifestyle if we're going to be living on 100% income in retirement.

[hocus]

Jan 24, 2013 10:21:46 GMT -5 @mrsspunky said:

My parents have enough saved to live off of for the next 30 years or so, thanks to my mom's pension and having my parents' healthcare covered by her former employer for the most part. However, my mom says she can't afford cable/satellite AND high speed internet at a cost of ~$80/mo - she has to pick one or the other. Plus, my mom still works full-time and doesn't yet collect SS (dad is older and does collect SS).
So I am going under the assumption that we will need more than the minimum we think we need. I see us trading our large expenses now (mortgage and the anticipation of daycare, namely) for other large expenses like travel and healthcare.

While I think people can live pretty well on "less" in early retirement the costs go up once you get older. Somewhere between 80 and 90 you loose of lot of Independence. My grandam was living in her paid off home at 80. By 90 she was living in a "life care facility" because she was loosing the ability to cook (couldn't stand for long periods), do up and down stairs and drive. Her facility is amazing and preserves a lot her Independence but it is very expensive.

[Deleted]

Jan 24, 2013 10:35:49 GMT -5 d0ri said:

Jan 24, 2013 10:22:05 GMT -5 v said:

I figure (hope?) that we'll be eating out and traveling even more than we do now, at least during our healthy years, so I would probably want to allow like twice our current expenditures on those things (although I suppose bar tabs will go down).  And they're already pretty big expenditures for us.  So I figure that I might as well plan for the worst case scenario if I can and if that ends up to be way too much money -- well, our niece and nephew will benefit from that.

I agree for planning for the worse.  We're shooting for 100% income, but who knows if everything pans out.  It does feel good to know that we'll be able to live comfortably on a much lesser amount.

Daycare/private school and kid related stuff take a huge chunk of our income.  There's also mortgage and retirement savings that takes a huge chunk that we expect not to have in retirement.  It will be a huge upgrade in lifestyle if we're going to be living on 100% income in retirement.

No kids, so we don't have them eating up our income, and no mortgage that will go away, so I think the only things that definitely disappear for us in retirement is retirement and other savings.  They take up more than 30% but still... we want to plan for a fabulous and expensive retirement.

[Deleted]

Jan 24, 2013 10:23:24 GMT -5 @mrsspunky said:

I don't think $500/mo is enough for healthcare.

I work with Medicare beneficiaries every day and $500 is the average per person cost between supplement plan premiums, drug plan premiums and prescription copays.

ETA: And that doesn't take into consideration changes that I anticipate wrt Medicare, like greater cost-sharing with new supplement plans.

ETA2: Plus, Medicare Part B premiums themselves are based on your income. So if you have a high income in retirement, you won't pay the base premium (currently $104.90/mo). If your joint income is 170k+ (again these are 2013 numbers) you pay more.

The $500, I'm budgeting it for medicines/copays.  I admit I did not look at medicare.  We plan on retiring before we qualify for medicare and will be on my employer's plan for the same amount of premium we're paying now.

[Deleted]

Jan 24, 2013 10:26:14 GMT -5 @choco said:

We plan to live it up in retirement, so 70% of current income levels or possibly more sounds fair/conservative. Like V, we hope to live in a a big city with lots of fun things to do.

We plan on retiring in Hawaii.  There's lots of fun things to do there that doesn't cost $$$. 

[Deleted]

I feel like I need more than I think I do because a) We want to extensively travel b) we'd like to have a home in Italy and c) if I become sick and unable to care for myself, I dont want to go to a county-run nursing home (I represent them, believe me, these are sad, sad places). I want to be living it up in a posh assisted living facility somewhere warm with my own nurse's aid, etc. So I's rather save waaaaaaay too much money- and "risk" dying before I use it all- than not have enough. Plus, obviously, the more I have, the more goes to my kids. Saving a lot is win-win. I dont see a downside.

So honestly, I don't care if I am only going to be spending 20-30% less in retirement, I'm saving as much as I can. I can't wait to save even more than we are.

[Deleted]

Jan 24, 2013 10:37:40 GMT -5 hocus said:

Jan 24, 2013 10:21:46 GMT -5 @mrsspunky said:

While I think people can live pretty well on "less" in early retirement the costs go up once you get older. Somewhere between 80 and 90 you loose of lot of Independence. My grandam was living in her paid off home at 80. By 90 she was living in a "life care facility" because she was loosing the ability to cook (couldn't stand for long periods), do up and down stairs and drive. Her facility is amazing and preserves a lot her Independence but it is very expensive.

My FIL owns an assisted living facility. At some point within the next few years, DH will be forced to take a greater role in its management, so if something were to happen to my parents or ILs where they'd need such care, cost wouldn't be an issue.

However, I know this isn't the case for everyone.

[delawarejen]

Thank you for sharing the article. I don't know that I'll be particulary spendy in my early retirement years, but I want to live in the nice nursing home. Being single with no children, I will probably end up in a home at a younger age than those who have someone to take care of them during the years when they're going downhill. I had a great-grandmother live to be 96, and a grandmother on the other side is still alive at 86 (her sister is 91, and the oldest sister died in her 90's). Right now my biggest concerns are cutting lifestyle (increasing my gas mileage as it were). I should be more focused on improving my health for the "how far you have to go" part, but that puts me in the sticky situation of not wanting to take care of myself so that I *don't* live to be so old...

[barefootcontessa]

We spend so much of our income on our kids, it is hard for me to imagine how we would need 70+ percent of our current income, especially when you consider the house will be paid, student loans gone, etc. We are still shooting high, though. A lot of my DH's compensation is deferred, so we are not paying for retirement out of take-home funds currently.

[aspentosh]

I think 70% is about right. We shouldn't have a mortgage or school loans (repaying H's SL or saving for college). No daycare. Hopefully no car payment. That right there is almost 55% of our takehome.

[aspentosh]

Jan 24, 2013 12:22:19 GMT -5 barefootcontessa said:

We spend so much of our income on our kids, it is hard for me to imagine how we would need 70+ percent of our current income, especially when you consider the house will be paid, student loans gone, etc. We are still shooting high, though. A lot of my DH's compensation is deferred, so we are not paying for retirement out of take-home funds currently.

haha, apparently I should have just said ditto to you

[sillygoosegirl]

I use DH's current salary (adjusted for inflation) as our target income in retirement. That is twice our current annual expenses, and less than half our current combined income (I plan to SAH perminantly after we have kids). Frankly, I don't know what we'll need/want in retirement, but if we can replace DH's income, then at least we won't be in for a big shock. There is so much uncertainty in all this, it seems likely to me that our retirement date could shift 5-10 years in either direction depending on what things look like as we get closer.

[kadams767]

We are saving as much as possible, but I think it is more realistic that we will not be spending more than 60-70% of our current income in retirement, given that we currently only spend about 50%, if that. As is stands now, we contribute close to 30% of our gross income to retirement. Student loans, mortgage (principal and interest, no taxes or insurance) and car payments take up another 15% of gross. Even adding in additional healthcare expenses and some additional travel, I don't see us being at the 80-90% replacement markers.

[gt7301b]

I plan on spending a shit ton of money in retirement. We plan to have our house paid off, but at that point I am sure everything will need to be upgraded. I also plan to spend a lot of time traveling and spending time with our hypothetical children and/or grandkids.

[kateross]

So what's your hypothetical retirement amount? I'm assuming we'd only need $5K a month with paid off house and cars and no loans, but if we are to factor in high medical costs and home care towards the end of our years, that will not be enough.

Our local home care facility charges about $5K a month

[genet313]

Jan 24, 2013 10:17:38 GMT -5 d0ri said:

Jan 24, 2013 10:06:40 GMT -5 v said:

I assume 70+%. I want to travel well, eat well, etc. in retirement, current plan is to continue living in a very expensive area with very high state and local taxes, and god only knows when we'll buy an apartment (so god only knows when we'll stop having mortgage payments).

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

My parents pay almost $2000 a month for health insurance.  Granted, my dad had colon cancer and now has advanced kidney disease, but even my 100% healthy mom's premium is quite high. I'd factor in more than this, sadly enough.

[kadams767]

Jan 24, 2013 13:45:49 GMT -5 genet313 said:

Jan 24, 2013 10:17:38 GMT -5 d0ri said:

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

My parents pay almost $2000 a month for health insurance.  Granted, my dad had colon cancer and now has advanced kidney disease, but even my 100% healthy mom's premium is quite high. I'd factor in more than this, sadly enough.

This is probably a stupid question, but they pay $2,000/month on top of Medicare?

[Deleted]

Jan 24, 2013 12:34:36 GMT -5 aspentosh said:

Jan 24, 2013 12:22:19 GMT -5 barefootcontessa said:

We spend so much of our income on our kids, it is hard for me to imagine how we would need 70+ percent of our current income, especially when you consider the house will be paid, student loans gone, etc. We are still shooting high, though. A lot of my DH's compensation is deferred, so we are not paying for retirement out of take-home funds currently.

haha, apparently I should have just said ditto to you

I'm in the boat with you all.  I will spend less on clothing, food, utilities, household items, gas, and just about everything else when we are are family of two and don't have the kids to pay for.  We will have the house paid off but will likely down-size at some point after retirement because it will be a large house with a lot of yard for just two people.  All of our kids will be grown and, hopefully, moved out and on their own by our early 50s.  Those 10+ years (time between kids graduating and retirement) will be very telling for us.

[genet313]

Jan 24, 2013 13:54:22 GMT -5 @forcuatro said:

Jan 24, 2013 12:34:36 GMT -5 aspentosh said:

haha, apparently I should have just said ditto to you

I'm in the boat with you all.  I will spend less on clothing, food, utilities, household items, gas, and just about everything else when we are are family of two and don't have the kids to pay for.  We will have the house paid off but will likely down-size at some point after retirement because it will be a large house with a lot of yard for just two people.  All of our kids will be grown and, hopefully, moved out and on their own by our early 50s.  Those 10+ years (time between kids graduating and retirement) will be very telling for us.

They're not Medicare age yet.  Although, I will add, my dad did get Medicare coverage for the kidney disease b/c he's a transplant recipient, and he still pays 2K a month, even after having received Medicare for that.

[Deleted]

Jan 24, 2013 13:45:49 GMT -5 genet313 said:

Jan 24, 2013 10:17:38 GMT -5 d0ri said:

My sample budget in retirement does not include mortgage payments since I expect owning a house free and clear then.  That definitely helps. 

I believe we'll be able to live well, eat well and travel well with the budget I came up with.  I put $800 per month on food/restaurant a month.  $1500/mo for travel?  I think that's a good amount.  I even added a line item for medicine/health expenses of $500.  LOL.

My parents pay almost $2000 a month for health insurance.  Granted, my dad had colon cancer and now has advanced kidney disease, but even my 100% healthy mom's premium is quite high. I'd factor in more than this, sadly enough.

I hope to retire from current employer where my premium will be the same as when employed.  It's currently less than $300/mo for 2 people.  Not sure about medicare, etc.  I would be surprised if it's $2000!

[Deleted]

Out of curiosity, I did some calculations on how to get to 100% income in retirement.

Assumptions:
Amount saved by age 35 = 1x salary
Retirement age = 65 yo
Salary increase per year = 2%
Annual ROI = 7%
Withdrawal Rate at Retirement = 4% (it used to be 5%, but read an article recently recommending 4%)

With the above assumptions, one will need to save around 32% of income from 35-65 to be able to get 100% of income in retirement.

If I change the salary increase per year to 3%, savings rate will have to increase to 40%! OUCH!

[kershnic]

I just calculated that we allocate about 40% of our income to retirement, student loans, and savings (which will become daycare/kid expenses when there's a child). I figure these will all be gone, so maybe we'll need 60%? I also hope we'll live in somewhere slightly lower COL. But I'm also not really sure that my lifestyle at age 30, pre-kids, beginning of my career says all that much about the lifestyle we'll want 35 years from now. If we get used to a better lifestyle as we get older I might want to continue that in retirement.