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Tuesday, October 4, 2016

Should You Plan to Retire on 80% of Your Income?

A classic retirement planning rule states that you should retire on 80% of the income you earned in your last year of work. Is this old axiom still true, or does it need reconsidering? Some new research suggests that retirees may not need that much annual income to keep up their standard of living.

The 80% rule is really just a guideline. It refers to 80% of a retiree’s final yearly gross income, rather than his or her net pay. The difference between gross income and wages after withholdings and taxes is significant to say the least.  The major financial challenge for the new retiree is how to replace his or her paycheck, not his or her gross income.   

Retirees need to determine the expenses that will diminish in retirement. That determination, rather than a simple rule of thumb, will help them realize the level of income they need. New retirees may not necessarily find themselves living on less. The retirement experience differs for everyone, and so does retiree personal spending.  A 2013 study from investment research firm Morningstar noted that a retiree household’s inflation-adjusted spending usually dips at the start of retirement, bottoms out in the middle of the retirement experience, and then increases toward the very end.1

A retirement budget is a very good idea. There will be some out-of-budget costs, of course, ranging from the pleasant to the unpleasant. Those financial exceptions aside, abiding by a monthly budget (with or without the use of free online tools) may help you to rein in any questionable spending.

Any retirement income strategy should be personalized. Your own strategy should be based on an accurate, detailed assessment of your income needs and your available income resources. That information will help you discern just how much income you will need when retired.

 

Citation

1 - money.cnn.com/2015/12/02/retirement/retirement-income/ [12/2/15]

 


Posted by: Patrick Carroll at 10:16 AM
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This material is intended for historical purposes and may be outdated. Its contents should not be relied upon as current information. For more up-to-date information regarding these topics, contact your financial professional.







All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. Securities offered through Triad Advisors, member FINRA/SIPC. Advisory Services offered through ACI Partners, LLC. ACI Partners, LLC is not affiliated with Triad Advisors.