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Old 05-31-2014, 11:19 AM
 
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I've been using some retirement calculators to get a perspective of my future and am confused about the percentage of current income you expect to need in retirement. They say you generally need 70-80% of your current income replaced. Isn't replacing 70% of current income from someone making 6 figures different than 70% of someone making 30-40k per year? The income replacement of someone making 100-200k a year could possibly be 50% compared to the low wager that may need 70-90%.

Since I am a 6 figure earner and don't plan to take many vacations or eat out (I prefer to cook my own food), can I realistically just replace 50% of my earnings for retirement? What kind of numbers do high earners usually use when planning retirement? Is it 70-80% across the board?
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Old 05-31-2014, 11:42 AM
 
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work off expenses not income and you will get a better idea. what income was may mean little.

with many time cost money and one thing you will have plenty of in retirement is time.

for most retirement spending will look like a smile. the early years can take more than you even earned as you take trips and do things . then by 70 things can taper down decreasing spending. by 80 things ramp up again with health care costs.

it really is not a good idea to plan based on what your income was .
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Old 05-31-2014, 02:35 PM
 
29,782 posts, read 34,871,258 times
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Quote:
Originally Posted by doss1 View Post
I've been using some retirement calculators to get a perspective of my future and am confused about the percentage of current income you expect to need in retirement. They say you generally need 70-80% of your current income replaced. Isn't replacing 70% of current income from someone making 6 figures different than 70% of someone making 30-40k per year? The income replacement of someone making 100-200k a year could possibly be 50% compared to the low wager that may need 70-90%.

Since I am a 6 figure earner and don't plan to take many vacations or eat out (I prefer to cook my own food), can I realistically just replace 50% of my earnings for retirement? What kind of numbers do high earners usually use when planning retirement? Is it 70-80% across the board?
Throw the calculators out and just ponder a basic math question related to your question.

If John and wife are making $200K a year raising a family etc and in retirement will be reduced to 50% of that income what will their income be?

A- 20K
B- 50K
C- 75K
D- 100K

Can you live off of the correct answer? Would most in your intended retirement area be more than happy with that as a working income? Forget the percentage and look at what will be available for your lifestyle when you retire and what expenses won't be there possibly including, mortgage, college for kids or kids period, saving for retirement and work expenses. Will you have health care? At 100K you have the potential to be Golden and still saving. As you move up from that amount the glow of your income increases as your ability to continue saving and investing will. MathJak and I have had a number of dialogs about which is better a retirement income in the six figures based on pensions and SS or one based on investments and SS. We have agreed that the best one is based on as large a variety of income streams as possible. I suspect he would agree with me saying to you the percentage of replacement income might not be as important as the diversity of your income sources. 50% of 100K is not as good as 50% of 200K so work on your own big picture.
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Old 05-31-2014, 03:01 PM
 
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Ive never understood how you can determine what percentage of your current income you need in retirement. The only way to figure what you need is to make a budget. Put down on paper what you think all your expenses will be in retirement. Its possible it won't be much different from what it is now.
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Old 05-31-2014, 04:41 PM
 
Location: Florida
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You need to make up a budget. The %'s are ok for planning at a younger age. Be careful, you will have lots of time to spend more money than you did.
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Old 05-31-2014, 04:55 PM
 
71,593 posts, read 71,751,865 times
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Quote:
Originally Posted by TuborgP View Post
Throw the calculators out and just ponder a basic math question related to your question.

If John and wife are making $200K a year raising a family etc and in retirement will be reduced to 50% of that income what will their income be?

A- 20K
B- 50K
C- 75K
D- 100K

Can you live off of the correct answer? Would most in your intended retirement area be more than happy with that as a working income? Forget the percentage and look at what will be available for your lifestyle when you retire and what expenses won't be there possibly including, mortgage, college for kids or kids period, saving for retirement and work expenses. Will you have health care? At 100K you have the potential to be Golden and still saving. As you move up from that amount the glow of your income increases as your ability to continue saving and investing will. MathJak and I have had a number of dialogs about which is better a retirement income in the six figures based on pensions and SS or one based on investments and SS. We have agreed that the best one is based on as large a variety of income streams as possible. I suspect he would agree with me saying to you the percentage of replacement income might not be as important as the diversity of your income sources. 50% of 100K is not as good as 50% of 200K so work on your own big picture.
you said it well
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Old 05-31-2014, 04:58 PM
 
71,593 posts, read 71,751,865 times
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Quote:
Originally Posted by carnivalday View Post
Ive never understood how you can determine what percentage of your current income you need in retirement. The only way to figure what you need is to make a budget. Put down on paper what you think all your expenses will be in retirement. Its possible it won't be much different from what it is now.
it is assumed as is the 4% that people will act like robots and just spend exactly like they did year after year.

the 80% number came from subtracting out social security and medicare payments as well as pension or 401k contributions but it is really a meaningless number.

lifestyles change for most in retirement, especially the early years and may take alot more dough then you earned.

Last edited by mathjak107; 05-31-2014 at 06:25 PM..
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Old 05-31-2014, 05:29 PM
 
Location: it depends
6,074 posts, read 5,335,268 times
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I agree with everyone who says to throw out the percentages, and figure out what you need for your own life.

And Doss, you are on to something when you talk about the difference between 6 figure earners and lower earners. There are many people whose growing income over the years was not matched by a corresponding increase in expenses or raising lifestyle to a new higher standard. They might live in a home that cost them three months income of late-career income, rather than the more typical two or three years' income. They may be saving a very large fraction of their after-tax income--and one of the things you can do when you retire is, stop saving for retirement.

How do you want to spend your days? What kind of money will it take to do so?
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Old 05-31-2014, 06:11 PM
 
Location: East of Seattle since 1992, originally from SF Bay Area
29,806 posts, read 54,470,896 times
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It's different for everyone. If you retire young and have to pay for health insurance, and stay in your home with mortgage you will save the commute cost and work clothing but might actually need more than when you worked.
On the other hand, if your home is paid off or has a lot of equity, and you plan to downsize to a less expensive area and pay cash for a home, and are old enough for medicare, you might manage on much less. While I wouldn't put any particular percentage on it as a general basis, I figured I can probably manage on 70% of what I make now. With my wife and I both getting pensions and social security we should be at or above that, the real difference will be how our 401K and other investments perform in the next 7-8 years.
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Old 05-31-2014, 07:24 PM
 
Location: Florida
4,365 posts, read 3,702,696 times
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Quote:
Originally Posted by rjm1cc View Post
You need to make up a budget. The %'s are ok for planning at a younger age. Be careful, you will have lots of time to spend more money than you did.
Also consider health costs and inflation. Your salary probably keep up with inflation so you might not have realized the effects of inflation.
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