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I've read many different theories about what percentage of your pre-retirement income you need after you retire. I recently saw where Fidelity is saying you will need to generate 70% of pre-retirement income in order to live in retirement.
That number seemed high to me. Especially considering you would no longer need to "save" for retirement.
So for those of you who have already retired, what % of your pre-retirement income have you found you need to live comfortably in retirement ?
And where did your biggest monthly cost savings come from in retirement -vs- pre-retirement ?
I don't believe you can calculate this figure at all. So much changes, particularly over time, during retirement. Inflation eats up your cash as does additional medical expenses associated with old age. Then, one's priorities may change, as might one's choice of lifestyle. I say you need every bit of 100% of pre-retirement income plus! Otherwise, you may be forced to downsize and tighten your belt.
Whether going by a percentage of pre-retirement income is a good or bad way to figure, people's individual situations differ so broadly as to make any ball park amount almost meaningless. Consider these situations:
-- You earn minimum wage. In this case you'll need about 100%.
-- You earn megabucks, say $200,000, and you want to continue a very lavish lifestyle. in this case 70% may not be enough.
-- You earn the same megabucks ($200,000) but are content to downsize and live more simply in retirement. In this case 50% would be more than enough.
-- You have a job in high finance which requires $300 dress shoes for men (see the thread on that topic) and a high-end car. If you figure you don't care about maintaining that style of dress and transportation, then you can realize substantial "life-style" savings upon retirement.
I was more or less part of the permanent underclass (high school teacher). My biggest savings in retirement come in the form of deductions which I no longer have: union dues and the 8% for the retirement system. As for actual expenditures out of the net paycheck(food, transportation, entertainment, etc.) I spend more retired than working. As for health care, under Medicare I spend less than while working, as the Medicare premium is less than the employee share for health insurance used to be, while the copays remain about the same.
So it all depends on the assumptions which enter into the calculations.
Having been retired 14 years now I can tell you comparing working life to retired does not add up. Even the amounts used for one thing over time does not. Certainly medical can be a big loser or winner depending on health but also how you cover it. Pre-Medicare good insurance plus health savings is a great help. Health savings account ;good supplement to Medicare afterwards as you age even with good health. Generally even a healthy person will need more testing as they age which shifts spending and with a few procedures the savings can be quite a bit overtime. The income itself will shift with expenses no matter when it comes in and never be steady but covering health needs can make it much more stable as to expense when otherwise it can be a runaway cost over just a year or two as I have seen with many.
I was also told that I needed 70% of my pre-retirement income to retire comfortably. However, as you point out, in my final and highest earning working years, I was socking away a substantial amount into my retirement funds and paying off my mortgages. Using the above formula however, I am living comfortably on about 50% of pre-retirement income. My biggest "savings" come from living with no mortgages and moving to a state with no income taxes.
Problem is budget takes a lot info not likely to mean much until its based on next year or so.Huge shifts come in time also .When I retired at 52 the overall budget was much different when I look at spending charts my wife has done compared to now at 66.One thing is mostly assured that is medical shifts big as to per centage no matter the health if your going to get normal care over time and having that covered can mean not having to cut in other areas. I have seen one medical event put several into multi year hole as far as budget is concerned.
So for those of you who have already retired, what % of your pre-retirement income have you found you need to live comfortably in retirement ?
And where did your biggest monthly cost savings come from in retirement -vs- pre-retirement ?
We tracked expenses for a couple of years before we retired and decided 80% was a good figure. Trying to remember how we arrived at that, but it eludes me. Regardless, turns out our retirement income is just about what it was when we worked, due to DH's salary deferral. When that runs out, we'll have the enhanced SS from waiting until 70. It appears our major money concern for the next few years will be trying to reduce our taxes, who knew? We still track expenses though and it appears 80% would work for us, i.e. no lifestyle changes needed, if it came to that.
Two years into retirement, our spending savings are modest. All that comes to mind are commuting costs - $150 monthly on gas and transit fares for both of us combined. A little on clothes and dry-cleaning. That's pennies compared to the extra money we now spend on travel and entertainment.
Where we really come out ahead is in no longer saving for retirement. We socked away 15-20% just about every year we worked. Oddly we didn't take that into account, we did all our forecasting based upon take-home pay. Basically, for the first time in our lives, our income exceeds our outgo (since all surplus was previously put into savings or investments). We still can't wrap our heads around this new "don't save" paradigm. After 45+ years of doing so, it's a hard habit to break.
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