Taking to heart the request in this Pit thread for a discussion about how much is needed to retire and so on… Herewith follow some thoughts.
(1) The 80% of your pre-retirement INCOME figure is, frankly, bull. A more realistic number would be based off of your pre-retirement EXPENSES. Why? Because pre-retirement you have expenses that you won’t have during retirement – such as retirement savings, a mortgage (assuming you pay it off before retirement), and various work-related expenses.
Offsetting those decreases in expenses, to a greater or lesser degree, are health care costs, which we all assume will go up as we get older. But each person’s (or family’s) costs are going to be different, so the only realistic way to project this is to look at your own situation in detail.
(2) It’s generally recognized that you can only withdraw about 4-5% of your principal each year “safely.” (Safely, in this context, means without running out of money in 30 years.) See here for details.
Given that assumption, you’ll need to amass 20-25 times your annual expenses by the time you retire. So if your expenses are $20,000 per year, you’ll need $400,000 to $500,000 in your nest egg. (Do note, however, that you need to include taxes in your annual expense projections.)
(3) Where you live obviously has a major impact on how much you spend – as for a mortgage. Some people have sold (or are planning to sell) their home in an expensive part of the country and moved to a cheaper part of the country. This may or may not be a viable strategy at the time you’re planning to retire, depending on the vagaries of the housing market.
That also may not be attractive for some people; I, for one, have no desire to live in a rural area. I’m a city girl, through and through, though I don’t need a BIG city – just one with a decent college, high-speed internet access, and some cultural events. That said, there are lots of cities that meet those requirements that may have a lower cost of living than Las Vegas. It’s certainly something to look at as I get closer to retirement.
Basically, the upshot is that your own situation is unique. You have to look at your own numbers, not some one-size-fits-all rule of thumb.