What Percentage of Your Pre-Retirement Income are You Projecting You Will Need?

[willthrill81]

I think the question is flawed, and I don't blame the OP for it. Too many writers have tried to 'dumb down' personal finance to the point that they throw out statements like "you'll need X percent of your pre-retirement income in retirement." But we don't spend percentages of our income; we spend dollars.

Apart from the big unknown of healthcare insurance/HSM costs, we anticipate that are 'essential' spending needs will be about $35k in today's dollars when I retire (single income household) and we want to have an income of at least double that and preferably closer to triple. The additional income will be 'discretionary' and include things like travel, dining out, occasionally purchasing a modest vehicle, etc.

[JohnFiscal]

Agree that the question is flawed. But in any case, subtract the % of gross from your working gross income and certainly what you'll need to live on in retirement ("not working") shouldn't exceed that. ...unless (1) lifestyle creep, (2) health insurance for self/spouse not on Medicare, (3) etc.

The best thing is to create a draft "budget" to determine your expenses while retired.

[CaliJim]

everybody is different.

the one BIG thing is you no longer need to save for retirement.... though not saving is a bit of psychological hurdle for some, so I've heard.

track your spending carefully

develop your retirement budget from that data, making adjustments for things that you wont be consuming in retirement, and add back new things, (health insurance premiums).

Some costs do go down in retirement, especially if you use your new copious (lol) free time to work on perfecting your frugality game.

In our case, today I just hired the neighbors gardener to clean my gutters. I'm getting to old and unbalance to get on my flat roof and do it myself.

so a good related question is "What have you spent less on in retirement than you did pre-retirement?"

Michael Kitces seems to have posted some info in his blog about this topic: https://www.kitces.com/blog/estimating- ... ing-smile/ and apparently there is a book: https://www.amazon.com/Prosperous-Retir ... Retirement by Michael K Stein

[LiterallyIronic]

I project that I will need $24,000 in retirement and my current income is $75,000, so that's 32%. Of my monthly $6,250 gross income, the following expenses will be gone in retirement:
$625 to 401k
$1,000 to Roth IRAs
$962 to taxes
$400 to charitable contributions
$100 to vacation savings
$250 to car savings
$825 to mortgage
$225 to mortgage principal prepayment.

That leaves us at $1,863 per month.

[quantAndHold]

Pre-retirement income? Like 1/4. Pre-retirement spending? Roughly 100%.

Most of the retirement calculators make the same mistake, I think based on the old model where someone works for 40 years, then collects a pension. Most people today save and invest boatloads of money while they're working, especially as they're nearing retirement. Then the day after they retire, the spigot gets reversed, saving stops, and they start drawing down.

The last few years before I retired, we were saving over 50% of my income, had 2 houses (one with a big mortgage), and had other large expenses that went away soon after I retired. After I retired, we were down to one home with no mortgage, but had new costs (health insurance and travel mostly).

It's worth it to track current spending for a couple of years, then comb through it and figure out what numbers will go up or down after retirement.

The other thing is that a large percentage of our retirement spending is discretionary (mostly travel). If we had extraordinary expenses one year, for example large medical expenses or the house needs a new foundation, we could adjust the discretionary side of our spending. I suspect it's important to know whether this is true or not. If we didn't have the ability to cut discretionary spending, we would want more of a cushion in our overall budget.

Previous poster makes a good point. In young retirement, in an effort to be frugal, we do a lot of things for ourselves that we would have hired when I was working. We're buying paint and planning on painting our own living room. I do a lot of our car maintenance, etc. In older retirement, I suspect we'll revert to hiring that stuff out. Is it a big deal financially? I'm not sure yet.

[Chicken lady]

My spouse and I are retired and are both naturally thrifty. Our house was paid off while I worked; my spouse's income was limited. For many years before I retired one-half of my income was invested. Our expenses were consistent and modest during all those years. Now, we travel a fair amount so our expenses have increased by about 20%. Even with this increase in spending, our income is similar to that as when I worked and we're still saving and investing.

It can be easy. Want less. Spend less. Know where your money is going - once you know that, deciding how much to spend can be simple.

[heyyou]

What Percentage of Your Pre-Retirement Income are You Projecting You Will Need?

We worked until my pension credits equaled our spending. That spending was easy to see, gross income (not the IRS's Adjusted Gross Income (AGI)) minus taxes and annual savings shown on December's end of year savings accounts, is the number. Less important is where the spending went, since it is still gone. Yes, we spent more every month from our portfolio, but our base costs were covered.

Our risk was using the no-survivor, no-COLA pension as a bridge to age 70 Social Security, of a slightly smaller size than the pension. We were already living in a low cost retirement area. Note that inflation on lower living costs is less dollars than the same inflation on higher costs. I'm not advocating extreme frugality, just finding where you want to retire, even if that is downsizing in the same area where you chose it for the good schools.

[vectorizer]

60%

Stopping savings and a remarkable drop in income taxes should make it easy. Ask me in 5 years how it's working out because we're just starting.

[JGoneRiding]

It depends on spending. I am investing heavily to get a earlier retirement though.
Mine comes out to
60% for years I am paying a mortgage.
40% for years after the mortgage is paid off.

I calculate my spending as
Income
minus pre tax investing
minus taxes
minus post tax investing
minus mortgage payments
plus bonus
plus some extra fun money


Basically if the government isn't getting it and i am not investing it, I must be spending it.
The exception being the mortgage.

My calculation is similar except I also have children and other debt (with number 2 my husband essentially works to pay for them) so I figure about 50%

[Traveler]

I'm not yet retired but I agree with those who said looking at pre-retirement income is pretty useless. What matters is what you spend. Right now, including taxes, I spend about $90K/year with almost half of that being taxes. Once retired, I expect to spend about $75K/year with much lower taxes but higher medical expenses (at least prior to medicare). I am fairly efficient with money now so I don't know where I could realistically cut between now and retirement.

[tooluser]

Haven't retired yet. I have done both a top-down and bottom-up estimate of retirement income needs.

Top-down: Enough = gross pay - investments - taxes (social security, medicare, California SDI) - long-term disability insurance - union dues - mortgage* - federal and state tax reductions**
* - I expect to have a paid-off house ** - I expect to move to a lower tax state
Bonuses are not counted because they mostly end up as investments.

Bottom-up: Enough = total of spreadsheet line items: 5 tax lines, 27 necessity lines, 6 discretionary lines, 3 investment lines. First fill in your current expenses, then make another column with your estimate of retirement expenses. This forces you to think through every line item, which will give you much more confidence in your estimate.

I think it's important to do both, and work on them until they are fairly close to each other, adding further confidence.

[Dottie57]

I will likely spend about 50% of the last year gross. Smaller taxes, more medical expense, no retirement savngs.

[radiowave]

I never understood the "%-of-income" benchmark. Twice in my career, I voluntarily reduced my income to work part-time. The first time, I took a 40% cut in pay. The second time, I took another cut in pay so I was now earning about 30% of my original, full-time salary (which never exceeded $80k). So, when I hear "%-of-income?" my response is, "of WHAT income?"

By the time I retired 10 years ago, my expenses were about 83% of my last, low part-time income. As a percent of my theoretical full-time income, it would have been about 25%.

Expenses are what matters, not income.

+1

If I asked "what percentage of your yearly pre retirement income are your yearly retirement expenses?", could you answer that? Better yet, the ratio of preretirement income/expenses and retirement income/expenses. Hmmm. Maybe I should change the title.

So I'll answer the question directly but discuss below:
4/1 currently (expenses 25% gross income, 50% of gross income saved as tax-deferred and taxable, remainder taxes) projected 1/1 in retirment within 5 years (gross income from SSx2 and small pensionsx2 meet basic expenses).

I'm late career late accumulation phase so at maximum income generation. The question is difficult to address as earlier in my career I struggled just to save 5-10% so the ratio changes over the course of a work lifetime, less % earlier, and higher % savings later especially if you follow the Boglehead principle of living below your means. This is a parallel to savings rate discussions previously on the forum and agree with posts above that savings number or percentages are not relevant in the same context as ratios gross income/expenses. Please dont' take this as a negative comment, it's just not actionable.

[michaeljc70]

All- after accounting for taxes and savings. I live pretty frugally and don't see how retirement will massively cut costs. Yes, I will drive less and not need work clothes (not sure how this has even become a thing). However, I'd like to travel more and will most likely have higher healthcare costs (at least until Medicare). Keep in mind I had a very high savings rate.

[smitcat]

All- after accounting for taxes and savings. I live pretty frugally and don't see how retirement will massively cut costs. Yes, I will drive less and not need work clothes (not sure how this has even become a thing). However, I'd like to travel more and will most likely have higher healthcare costs (at least until Medicare). Keep in mind I had a very high savings rate.

Everyone is different - we will be moving and many things will get less expensive. No home mortgage, no payroll taxes, no college costs, no parent support, no state taxes, lower utilities, no commuting costs, etc.. I don't see anything significant that will rise....

[midareff]

I projected 140% of my net based on no longer saving for retirement + drawdown, and having the time to do the things I wanted... ie: See the world. As George Peppard used to say (or to the effect), Love it when a plan comes together.

[investingdad]

I'm of the opinion that, "advisors suggest you'll need 80% of your pre retirement income", is based on people spending 100% of what they earn, or more, and not saving anything.

Last year our expenses were 45% of our gross income.

I look at it quite simply.

My expenses are X. In retirement, my expenses will be 100% of X.

I should be ok to retire when my portfolio is (1.2*X)/(0.0325).

[Admiral]

The "% of income" and "% of expenses" are both flawed, IMO. Here's why:

% of income is immaterial since, as others have stated, many things are taken out (savings, taxes) before you even see your income.

% of expenses is immaterial since expenses are likely to change in retirement, esp if one has kids.

In my case, 60-70% of my NET income goes to housing (mortgage) and children (tuition, their clothing, their food, their activities, etc)

In retirement the mortgage is gone, and the kids are out of the house. Theoretically, this means I could live on 30-40% of my current net income. But, of course, other expenses will go up (more travel, purchases of things I've been putting off, home improvements, helping kids with their rent (if needed) and so on.

I've developed a baseline (using current expenses and subtracting out what will go away) of what my needs will be. That number is about $3,000 per month: that covers food, shelter, and utilities. I then add about $5,000 per month for discretionary things (a lot of travel, restaurants, etc). I then add another $2,000 per month for incidentals. That equals $10,000 per month, or $120,000 a year to live very, very well.

Everyone's calculation will be different because everyone's expenses are different.

[dcabler]

I'm not retired yet, and I don't use a % but I've looked at it two ways.

Tops down:
Start with my annual salary and removing things such as:
401K contributions, taxable savings deposits, medicare contributions, SS contributions etc., taking into account which things are removed pre-tax and which are post-tax. Then add things in I believe I'll have post retirement that I don't currently have like medicare related premiums, etc. Then deal with the mortgage as we currently have a mortgage but plan to downsize into no mortgage. Helps to have a good tax planning tool. At some point I'll add future Roth conversions into the analysis..

Bottoms up:
Actual spending estimates using current spending, adjusted somewhat for not working (less gas usage, for example), and adding things like medicare related premiums. Then again use a good tax planning tool to figure out what withdrawal supports that spending + taxes.

Unsurprisingly the two methods are pretty close, but still only estimates. Actual spending will certainly vary a bit from year to year.

[spreadsheetguy]

We've projected about 110% of our pre-retirement spending. It doesn't make sense to look at % of pre-retirement income because our income is highly variable. However, because we've tracked spending meticulously we know what we will likely spend (accounting for an increase in healthcare costs).

[smitcat]

The "% of income" and "% of expenses" are both flawed, IMO. Here's why:

% of income is immaterial since, as others have stated, many things are taken out (savings, taxes) before you even see your income.

% of expenses is immaterial since expenses are likely to change in retirement, esp if one has kids.

In my case, 60-70% of my NET income goes to housing (mortgage) and children (tuition, their clothing, their food, their activities, etc)

In retirement the mortgage is gone, and the kids are out of the house. Theoretically, this means I could live on 30-40% of my current net income. But, of course, other expenses will go up (more travel, purchases of things I've been putting off, home improvements, helping kids with their rent (if needed) and so on.

I've developed a baseline (using current expenses and subtracting out what will go away) of what my needs will be. That number is about $3,000 per month: that covers food, shelter, and utilities. I then add about $5,000 per month for discretionary things (a lot of travel, restaurants, etc). I then add another $2,000 per month for incidentals. That equals $10,000 per month, or $120,000 a year to live very, very well.

Everyone's calculation will be different because everyone's expenses are different.

"The "% of income" and "% of expenses" are both flawed,"
Yes - I agree with your assessment and solution.

[michaeljc70]

The "% of income" and "% of expenses" are both flawed, IMO. Here's why:

% of income is immaterial since, as others have stated, many things are taken out (savings, taxes) before you even see your income.

% of expenses is immaterial since expenses are likely to change in retirement, esp if one has kids.

In my case, 60-70% of my NET income goes to housing (mortgage) and children (tuition, their clothing, their food, their activities, etc)

In retirement the mortgage is gone, and the kids are out of the house. Theoretically, this means I could live on 30-40% of my current net income. But, of course, other expenses will go up (more travel, purchases of things I've been putting off, home improvements, helping kids with their rent (if needed) and so on.

I've developed a baseline (using current expenses and subtracting out what will go away) of what my needs will be. That number is about $3,000 per month: that covers food, shelter, and utilities. I then add about $5,000 per month for discretionary things (a lot of travel, restaurants, etc). I then add another $2,000 per month for incidentals. That equals $10,000 per month, or $120,000 a year to live very, very well.

Everyone's calculation will be different because everyone's expenses are different.

$3k for essentials and $7k for discretionary and incidentals? I'd love to have a budget like that. My budget is probably that flipped- 70% essentials and 30% discretionary and I expect it will be the same in retirement. If the mortgage is paid off, maybe it will go more 65/35. Once SS kicks in that will help too.

[SmileyFace]

Approximately 60% for me.
Some say the question is flawed - the reason most advisors/articles talk in terms of percentage of income is simply because most folks have no clue what their expenses really are. 80% of income is probably used because it is a nice safe number for those saving 10-15% toward retirement.

[rich126]

In my case I thought the best way to do this is to figure out my take home pay (after 401K contributions are taken, FICA, taxes, etc.) and go with that as the top end. Then I subtract out my mortgage (unless things change that will be paid off just before retirement) and use that as the amount to have per year. Fortunately, I think once I collect social security I'll exceed that but until I do, it will be close.

For most people it isn't realistic to plan on having more money in retirement (although with some pensions + soc sec + 401K it can happen) so if I can easily live off my current income then retirement shouldn't need more (of course health costs can add up but there is only so much I can do about that). And I think I'll probably need less money in retirement since I don't have expensive hobbies and don't see myself interested in dealing with the hassles of traveling very far as I get older.

Strictly a guess but except for the health care issue, I think most people on these boards probably end up saving too much and will leave a bunch of money behind for a lucky relative. Of course running out of money isn't good either.

[corn18]

I hope I am 2 years from FI and maybe RE. We are spending as if we are RE, so current expenses = retired expenses (sans tax and all the other garbage that goes away). Empty nesters, all college paid for. This makes me happy.

Our expenses are 8.3% of our gross income this year. We are saving for FI like crazy. Although my wife had some pool installer guy over today so we may have to delay FI (or fund another child )

[Sandi_k]

I currently live on about 50% of gross pay - with taxes, insurance, pre-tax retirement savings, etc. coming out first. Since we'll no longer pay for a lot of that (most especially FICA taxes and retirement savings), we'll effectively have a pay raise in retirement.

However, I've saved a lot more for retirement, so my savings will have to include DH's retirement expenses, especially his hobby expenses. So we're planning on 87% or so of my working salary as our target, retiring at age 60 and 62.

[Meg77]

Are you projecting that your expenses will stay the same, go down or up? Mine will (should) go down significantly (I think). I am asking those who may have some wisdom of unexpected costs or unexpected savings.

There is a lot of recent retirement research on this topic. For retirees who spend $100,000 or more per year, most do NOT increase their spending over time as standard retirement spending models would predict. Many have a bump in spending years 1-5 (taking big trips, paying for kids' weddings perhaps, things like that), but then they see their spending fall by quite a lot by age 75-80 before ticking back up in their final year or two due to healthcare spending (nursing homes, etc.). So it's more of a smile if you view the spending graphically.

Standard retirement models including the 4% rule assume that a retiree household will increase spending by the rate of inflation each year from retirement until death. This appears to be close to reality for lower income retirees - those who spend $25,000 for example. This is because most of their expenses are food, basic housing, etc which are subject to inflationary pressures. However for those who spend more, a larger portion of their expenses are discretionary - giving, travel, eating out, shopping. They therefore have more cushion in their budget to cut back during a downturn and may see more of a drop if/when one partner dies. They also tend to spend more on things that naturally will decline and then become impossible as they age - travel and dining for example.

Of course this is all very personal and can vary a lot from person to person, but this is what the population averages appear to suggest.

[pennywise]

the one BIG thing is you no longer need to save for retirement.... though not saving is a bit of psychological hurdle for some, so I've heard.

We save the max in each of our 403b accounts so that's $48K we never saw or spent.

Develop your retirement budget from that data, making adjustments for things that you wont be consuming in retirement, and add back new things, (health insurance premiums).

We won't be paying FICA or Medicare so there goes another $16K from our gross joint salaries. Rumor has it there may be a package offered to longtime staff that would continue health care coverage so fingers crossed medical insurance costs won't go up

Some costs do go down in retirement, especially if you use your new copious (lol) free time to work on perfecting your frugality game.

Our plan and hope is to live the same financial life we've always lived on the same amount we've always spent. So far there doesn't seem any reason to suppose we won't be able to do that but obviously being savers who live below our means gives us a BIG head start on that goal!

[fishnhunt]

I haven't crunched the numbers yet because I have 28 years until retirement, but I am planning to replace 100% of my current income. I have a pension through my work so that will cover approximately 50% and a roth ira at my current contributions should cover the other 50%. I'm also putting a small amount away into a 457 deferred comp account because I will be eligible to retire at 55 with a small reduction or 57 with full pension. I will be able to withdraw from the 457 with no minimum age so I'm putting in just enough to carry me until I am 59.5 then I can withdraw from my roth penalty free.

I plan to travel more when I retire. Also without working, that is an extra 4 or 5 days a week that I will be out doing stuff (fishing, hunting, driving around etc) which costs money. A typical work day I hardly spend anything. Maybe $4 for a lunch and a $3 in gas.

[The Wizard]

Approximately 60% for me.
Some say the question is flawed - the reason most advisors/articles talk in terms of percentage of income is simply because most folks have no clue what their expenses really are. 80% of income is probably used because it is a nice safe number for those saving 10-15% toward retirement.

I tend to agree with you as regards Average People.
But we seem to have a lot of posters here who take umbrage to that concept. "Who? Me? Average??"

Whether average people know what their expenses are, that depends. Most people DO have a decent idea what their take-home pay is.
If your take-home pay is $5000/month and you don't save any of it long term, then guess what? Your expenses are $60,000 a year plus certain payroll deductions for insurance.

But if you put $6000 of takehome pay into your Roth IRA this year, then bingo, your "expenses" are now $54,000 this year.
And so forth.

So yes, the 80% of final working income for retirement income is a decent bogey for the majority of the general population looking to retire...

[Scotttheking]

30-35% of gross income is current best estimate.

[Earl Lemongrab]

I'm still saving in retirement, just not as much. Right now, my pension exceeds my spending.

[Jack FFR1846]

If I exclude college costs, we currently live on 25% of our income. I expect when we're retired, and kids are on their own, we'll drop to maybe 20%, but I'm planning for 50%.

[Shallowpockets]

It's all about the spending, not the income. Know your spending and keep track and then you will know.

[CaliJim]

the one BIG thing is you no longer need to save for retirement.... though not saving is a bit of psychological hurdle for some, so I've heard.

We save the max in each of our 403b accounts so that's $48K we never saw or spent.

Develop your retirement budget from that data, making adjustments for things that you wont be consuming in retirement, and add back new things, (health insurance premiums).

We won't be paying FICA or Medicare so there goes another $16K from our gross joint salaries. Rumor has it there may be a package offered to longtime staff that would continue health care coverage so fingers crossed medical insurance costs won't go up

Some costs do go down in retirement, especially if you use your new copious (lol) free time to work on perfecting your frugality game.

Our plan and hope is to live the same financial life we've always lived on the same amount we've always spent. So far there doesn't seem any reason to suppose we won't be able to do that but obviously being savers who live below our means gives us a BIG head start on that goal!

unless your company is doing really well..... most packages don't include much in terms of medical. ymmv. many HR departments like to *think* that Cobra is a big benefit. IMHO... I just means you get to stay on the current company plan, by paying the premiums yourself. May you company has a lower risk profile that just getting a personal ppo policy. when I went through this. it was cheaper for me to get a new family policy than to use the so called cobra "benefit". In the old days... when an medical policy application could be denied for pre-existing conditions... cobra was really useful. but now, I'm not so sure what the benefits of cobra really are. maybe staying in a lower risk pool. my anthem BC PPO rates just went up 28%!!!!!

[Golf maniac]

I retired 3 years ago and we live very comfortably at 60% and do pretty much what we want. We still have a budget and stay within the budget. We could go down to about 40% if we had to but don’t need to. Of course with inflation the % should go up over time.

[xenochrony]

currently 50 years old. estimating 25-40%. as some of the unknowns become known over the next decade, this range will narrow to a more precise estimate.

[MathWizard]

About 45%

Health costs will highest expenses even while on Medicare followed by food, then housing (House paid off, but prop taxes, insurance and maintenance together make it the 3rd largest expense.)

[AerialWombat]

In 2018, my personal living expenses came to 8% of my net income. I project my standard of living to be identical to what it is now when I semi-retire in about one year, right around my 43rd birthday.

[HillCountry]

Just one data point here, I am spending 100% of my w2 earnings now. Expect same spending in 4 years when I retire.

[Miguelito]

We are 15+ years away from retirement, so it’s hard to know what our income will be prior to retirement, but as of today, we would need under 50% for very comfortable retirement and 25% for basic but not barebones retirement. Just 75% of projected calculated SS benefits would cover the very basics.

[HIinvestor]

Our household income has changed significantly throughout our 30+ year marriage. It has also changed in retirement.

We did track our expenses for several years pre-retirement and tried to estimate our expenses post retirement. We paid special attention to fixed essential expenses vs discretionary expenses that are more open-ended.

Fortunately for us, our income expanded in retirement and our fixed essential expenses were pretty close to what we predicted.

We have opted to dine out often and travel because we enjoy it and can afford it. We have also opted to support a loved one because we can afford it and it is important to us (though we hope the loved one may one day be self-supporting).

Even with our significant discretionary expenses, we are still spending less than our adjust gross income each year and able to save and invest the balance.

[Retired2013]

I have seen some "advisers" projecting an 80% pre-retirement income need in retirement. That seems very high. What are you projecting for your needs? For those retired, what did it turn out to be? More or less than projected?

Back when I was planning, I targeted 100% of pre-retirement income and a 3% / yr. boost due to inflation. So far in retirement, we're doing OK. Right on planned expenditures. Of course, I consider travel and gifts needs.

+1
I'm glad I was stupid back then!

I also took current salary (100% - 110%) and projected for a 2% - 3% inflation / pay increase for 20 yrs into the future. Why would I want to live on less than I currently make adjusted for inflation? I then took that amount and multiplied by 25 for the 4% SWR target amount. Oh, and Social Security was going bankrupt so don't count on Social Security. We didn't have ROTH accounts back then so everything was a tax-defer account. If I can earn money tax-deferred or taxable, tax-defer is much better. Load on up!

Eight years later, laid off. A year later, found new job at a 50% pay cut, but paid the bills. I still kept the original target amount and future income amount for retirement. Retired a year later than planned in 2013 only because I wanted to make sure Obamacare was going to be available for my health insurance. Original plan was to retire from first job with retirement health insurance. Didn't work out as planned.

When I turn 65 and go on Medicare, I'll be doing conversions to the top of the Medicare Income Penalty each year ($170,000 MAGI) going forward including when my RMDs are required. I'll be paying more in taxes than I ever have before. I also plan on my portfolio to grow by 2% - 3% for inflation, the savings component keeps going.

So I look at it as, current expenses will grow by inflation, taxes will be more than I have ever paid, and I still need savings. However, we still live as we always have. No changes other than we are retired and don't worry about finances.

[mtmingus]

In your retirement, would Roth Conversions from 401k/IRA be counted as added "expenses"?

[pennywise]

I currently live on about 50% of gross pay - with taxes, insurance, pre-tax retirement savings, etc. coming out first. Since we'll no longer pay for a lot of that (most especially FICA taxes and retirement savings), we'll effectively have a pay raise in retirement.

I use a similar calculation-we currently live (very well) on 41% of our gross income. The only portion of expenses in retirement I've not yet quite got a handle on is our income taxes. Although I can easily subtract out the FICA/Medicare withholding and our 403b deductions of course we will still be paying income tax, just not sure on what and how much. We just spoke with our accountant to get her feedback on how much our tax liability is likely to be in retirement and based on that, on how and when we should begin the various income streams we will be using (pensions, Social Security, rental income and 403b withdrawals).

Given her feedback I'm comfortable pegging our retirement income needs at our current expenditure level since we also save from our monthly allotment anyway.

[The Wizard]

In your retirement, would Roth Conversions from 401k/IRA be counted as added "expenses"?

Expenses? No.
Additional AGI, yes...

[SQRT]

Are you projecting that your expenses will stay the same, go down or up? Mine will (should) go down significantly (I think). I am asking those who may have some wisdom of unexpected costs or unexpected savings.

There is a lot of recent retirement research on this topic. For retirees who spend $100,000 or more per year, most do NOT increase their spending over time as standard retirement spending models would predict. Many have a bump in spending years 1-5 (taking big trips, paying for kids' weddings perhaps, things like that), but then they see their spending fall by quite a lot by age 75-80 before ticking back up in their final year or two due to healthcare spending (nursing homes, etc.). So it's more of a smile if you view the spending graphically.

Standard retirement models including the 4% rule assume that a retiree household will increase spending by the rate of inflation each year from retirement until death. This appears to be close to reality for lower income retirees - those who spend $25,000 for example. This is because most of their expenses are food, basic housing, etc which are subject to inflationary pressures. However for those who spend more, a larger portion of their expenses are discretionary - giving, travel, eating out, shopping. They therefore have more cushion in their budget to cut back during a downturn and may see more of a drop if/when one partner dies. They also tend to spend more on things that naturally will decline and then become impossible as they age - travel and dining for example.

Of course this is all very personal and can vary a lot from person to person, but this is what the population averages appear to suggest.

Interesting. Agree it’s very personal so a “rule of thumb” based on pre retirement earnings (rather than actual planned spending) unlikely to work very well for most people.

I’m 68, been retired 12 years. Our spending was quite high right out of the gate with expensive and frequent trips and two more vacation homes. Declined somewhat thereafter but has been increasing recently as we realize we have more capacity to spend in enjoyable ways. In all cases our retirement spending much more than spending while working.

Will be interesting to see if we really want to spend less as we age into our late ‘70’s? We have lots of plans that would seem to suggest otherwise.

[TomatoTomahto]

I find it hard to believe that this is given the time of day on this forum, full of intelligent people.

We were on track for retirement, but then my wife got a raise, so we’re behind again. If she keeps getting raises, we will NEVER be able to produce the suggested percent of salary. Doesn’t that sound stupid?

[SQRT]

I find it hard to believe that this is given the time of day on this forum, full of intelligent people.

Agree-you would think that. But on the other hand it is the internet and there is plenty of evidence of other “less than intelligent” or repetitious topics. Examples might include “Should I pay my mortgage off”?
“How much do I need”?
“Why are people not saving for retirement”?
“What did people say when you retired”?
“What should I do if my sibling asks for a loan”.
Plenty more?

[BanquetBeer]

Need: 50% (assuming ACA subsidy)
Want/plan for: 85%