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Scott Burns: How Much Retirement Income Do You Need?

FYI: Will you suffer if your retirement income is only 60 percent of your earnings before retirement?

A recent article on the Bankrate.com website suggests just that. I beg to differ--- as I have for decades. The financial services industry claims that we need to replace 70 to 85 percent of our pre-retirement income. But simply isn’t true for a great most people.
Regards,
Ted
https://assetbuilder.com/knowledge-center/articles/how-much-retirement-income-do-you-need

Comments

  • Okay, read this article in our local Sunday paper and similar articles in the past...and I tend to agree.

    After subtracting our total payroll deductions, mortgage, IRA contributions and a student loan payment, we are left with 46.3% of our gross income. A current car payment (presently have 2 cars but in retirement?) would subtract another 3.7% for a total of 42.6% of our gross left over to be replaced according to Burns.
  • Be careful. I'm guessing that those payroll deductions include income taxes. Despite Burns' calculations, it is likely that most retirees will owe some income taxes (though likely less than when working).

    Here's a SS Issue Paper, dated Dec. 2015, that projects 52% of SS beneficiaries will owe income taxes on their benefits in 2015.
    https://www.ssa.gov/policy/docs/issuepapers/ip2015-02.pdf

    Here's a CBO paper from Feb 2015 saying roughly the same thing ("about half of all SS beneficiaries owed some income tax on their benefits in 2014, CBO estimates").
    https://www.cbo.gov/publication/49948

    If most (over half) of SS beneficiaries owe taxes on SS, then most retirees are above the 0% income tax threshold. That means the traditional IRA distributions taxed too.

    Mortgage payments aren't going to stop just because you retire. For some people, they stop years before retirement; for some they continue into retirement. That need for cash doesn't change at retirement. Same thing for most of the other expenses Burns mentioned. It's time/age, not retirement status that makes them go away.

    On the other hand, it is true that one won't be saving for retirement once one retires; nor will one be paying into SS - rather the opposite.

    The bottom line is that what happens is very individual. I expect to spend more in retirement than while working - more time to do more things. I also expect medical expenses to go up, without an employer paying for insurance (even Medicare/Medigap can cost a few thousand dollars).

    Worst of all, I'll have to buy my own pens.:-)
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