Many financial advisors seem to think you only need 70-80% of your current income to survive on in retirement.  The reality is, I have yet to meet that person that is spending significantly less in retirement.  This rule of thumb that was generated in the 70’s or 80’s might have made sense because most people paid off their homes before they retired and didn’t drive as much.  They didn’t have cell phones, Facebook, or email where they could easily meet up with friends for dinner.  Most of my clients and the people we meet with who are baby boomers in or near retirement typically spend the same amount or more than when they were working.  There are a few reasons why that is.

#1 – Retirement Honey Moon Phase

The Retirement Honey Moon Phase typically takes place initially after both you and your spouse are retired.  All of a sudden, you both no longer have to go in to work.  You will notice that your hobbies will pick back up, you will find some new ones, and become closer with friends and family again.  Not to mention finally do the traveling you’ve always talked about doing and maybe even buy that convertible.  Maybe even finish that landscape job or kitchen remodel.  Like most people, you want to enjoy things while you are still capable of enjoying things.  Because of the retirement honey moon phase, you will typically spend as much or more than you are spending during your working years.

#2 – The Healthcare Phase

It’s no secret that as you get older, things don’t work like the use to.  You may still talk about how fast you did your mile time from high school, or how many pull-ups you use to be able to do, but those days for most are long gone.  It is harder to spring back into step after making a misstep.  Recovery takes a lot longer.  The good news is that there have been some great healthcare advances since the 70’s and 80’s.  The downfall is that it can be quite expensive.  With healthcare costs being the leader in inflation, your income needs to keep up.  You may not be doing as much as you use to, but the healthcare costs are making up for it.  This is why you will typically spend as much or more in retirement.

#3 – Every Day Is Saturday Phase

If you look back to which days you spend the most money, it typically is on the weekend.  Once you retire, every day is going to start to look like the weekend.  You might even lose track as far as what day it is.  That means you will find more things to spend money on, whether while running errands, or even shopping online.  You will now have the tool you always needed to do certain projects, or you can finally change your lawn mower blade, or finally have time to work out so you need all new workout clothes and shoes.  Because of the Every Day is Saturday Phase, you will be spending as much or more than when you were working.

The rule of thumb of only needing 70% percent of your current income in retirement has now become a myth.  Do not get stuck in a position where you are short cash flow in retirement.  These three phases alone will make it more difficult to live on less than what you use to.  Create an income plan and investment plan to avoid running out of money in retirement.

Video Transcription

Hi, Vincent Oldre, certified financial planner and here with you with another educational video. This video is about one of the number one questions I get, how much income do I need to retire? A lot of financial advisors would say you need 70-80% of your current income to maintain your lifestyle in retirement. So far, of all the people that I’ve met with, which is quite a bit, I’ve yet to see anyone live off of 70-80% of their current income. What we notice is that most people are spending the same amount as they are spending today, which means they need about the same amount of income or they’re spending more than what they are using today. The reason why is for a couple of reasons. One is what we call the honeymoon phase of retirement. When you go to retire, you typically want to do a lot of things because you are able to. You are healthy and you have this bucket list that you want to tackle. You might do a lot of traveling, visit the grandkids, maybe take a trip around all 50 states. All these things cost money, that means you might spend more or if not, as much as you are spending today. Hi, Vincent Oldre, certified financial planner and here with you with another educational video. This video is about one of the number one questions I get, how much income do I need to retire? A lot of financial advisors would say you need 70-80% of your current income to maintain your lifestyle in retirement. So far, of all the people that I’ve met with, which is quite a bit, I’ve yet to see anyone live off of 70-80% of their current income. What we notice is that most people are spending the same amount as they are spending today, which means they need about the same amount of income or they’re spending more than what they are using today. The reason why is for a couple of reasons. One is what we call the honeymoon phase of retirement. When you go to retire, you typically want to do a lot of things because you are able to. You are healthy and you have this bucket list that you want to tackle. You might do a lot of traveling, visit the grandkids, maybe take a trip around all 50 states. All these things cost money, that means you might spend more or if not, as much as you are spending today.  The other thing that we see is the healthcare phase. You may not be as healthy as you used to be. We know you can’t run the mile that you could run when you were back in high school or do as many pull-ups as you used to be able to do. For most people, that’s not true. For some, your mile time might have actually improved, but what we know is healthcare is the leading cause for inflation. It’s the number one inflationary idem that we have, especially for people who are in or near retirement. Your healthcare costs are going to continue to rise. That is why most people having to spent as much as what they are spending today or even more. If you want to retire earlier, it’s even of bigger question because your employer’s covering some of the cost of your healthcare, but if you are going to retire, those costs are going under cover. Do you have to pay every penny to cover your premiums and to cover the deductible? That healthcare phase is also the other reason why you are spending as much as you will be because of the healthcare and inflation. The other is what we call every day starts to look like a Saturday. If you think about it, before you are actually retired, you typically will spend most of your money on the weekend. When you go to retire, you will actually notice that every day will start to look like a Saturday, which means you will typically spend more money than what you usually did. You’ll go golf more. You might go out with friends for some drinks or go out to dinner a lot more and go to the movies. All these things cost money that you typically weren’t spending during the week. This is why we never really see anyone need about the same amount as far as 70% of their income or 80% as far as what they need to spend. It’s actually 100% of what their spending habits are today or even more than that.  I understand that your house might be paid off. That will cut down your expenses, but for most of you, you no longer are staying in that home forever. Paying out that home never is that dream anymore. The other thing is we aren’t saving as much as we used to as far as putting money into the 401ks and the IRAs. Typically, even though you are no longer going to be funding into those IRAs or 401ks, it may increase our taxes. All these things are going to change what your outcome’s gonna look like, which typically means you’re gonna be spending the same amount that you’re spending today, which typically means we need almost as much income that you’re making today if not more. The way that we figure out how much income you need to spend is actually going to plan together. Putting this plan down as far as looking at what your spending habits are and looking at your cash flow, then we can get a better understanding as far as how much income you really will need when you retire.  If you want to check out some of the calculators that we have, please visit our website or come to one of our educational workshops or even watch my webinar where we cover [heart attack 00:04:35], social security, make sure you have a proper investment form put together and making sure you don’t run out of money when you retire. Till next time, let me know what questions you have and we’ll out a video together just for that question. Thank you.

How much Income do you need to retire
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