This is the part I don’t understand about the whole 80% advice. Unless something goes dreadfully wrong, if I buy a house now at age 44 I should have it paid off by the time I’m old enough to retire at age 67. Without a morgage around my neck, why would I need 80% of my income when around 40% of my income over the next 20ish years would be going towards the morgage?
Does the advice assume I’m going to take on a new morgage in my 50s or worse be a renter for life?
Because assuming you get raises and promotions, the percentage of your income going to your mortgage will decline, even before it is paid off. One big advantage of owning versus renting.
That’s why I’m not paying any attention to the sort of advice that gives you a flat " you need to replace 80% of your income". I’m not sure what the advice assumes or doesn’t assume - but I know that it doesn’t assume a number of things that are true for me
Because I am planning to retire soon, I computed my taxes for my likely pension/deferred comp income income and my expenses will go down over $20K between the taxes and the premiums, so that’s nearly $20K I won’t have to replace. I also won’t need to replace SS and Medicare taxes or my contributions to my deferred comp account - so that’s another $16K or so. That’s approximately 36K all together - which means I should be fine with about 70% of my current income even if all my other expenses stay exactly the same.
This makes the 80% recommendation make even less sense…
Right. I never found any spending guidelines that made sense when I was getting ready to retire. The ones from various investment companies kept increasing your projected spending along with your projected savings, so bottom line was you always had to invest more to keep up.
We analyzed our check book and credit card bills to find out how much we were really spending. And we spend even less. But it is so specific to ones situation that no guidelines are going to apply to you.
Not to me, it doesn’t. Say your mortgage is 40% of your income. Then you get successive promotions until it is 20% - you will probably get used to spending that extra 20% of your income on vacations, eating out, clothing, etc. Then you pay off your house and retire. You don’t need that 20% for the mortgage anymore. But you still want the 80% to maintain your lifestyle. Sure, maybe you don’t need as much gas or eat lunch out everyday, but you may want more vacations or more (money-costing) hobbies if you don’t want to sit home all day (though some us like that idea). And, of course, healthcare costs do tend to go up, even with insurance, at least if you are in the US.
Of course, this is oversimplified, and varies person to person. But it makes sense to me.
On the other hand, if you put that extra money into retirement savings, you won’t need to do that after you retire, and you live on a smaller amount.
The retirement savings calculators assume your scenario - that you spend nearly every penny you get and get so used to spending it you need more and more.
Then that’s a good bet for you. I’m already older than either of my parents got to be, at age 63. So I adjust my calculations accordingly.
The 70%/80%/whatever% of income is a bit silly. If I make $100K per year, I’m supposed to replace $80,000 per year of income. But I have very little saved and that won’t work for me. So I re-dedicate myself to my career, I get a big promotion to $200K per year. I have more in taxes to pay but I basically save all the new money, at $60K per year after taxes. Am I closer or further to being able to retire comfortably? It seems like I’d be closer but the 80% rule says that all of a sudden, I need twice as much cash as I did before and I’m even farther behind than when I started. What if my biggest expense is my mortgage but I pay that off the month I retire? Why do I need to replace that income?
The assumption is also that people will drop their spending in retirement. Great, if that’s your plan but I knew people who planned to change their lifestyle in retirement. One guy bought an island (although he didn’t actually retire). One bought a boat that required a full time crew. Another had to budget for continuing to fly privately because his job had always paid for it and he didn’t want to go back to flying commercial. (He wound up negotiating a retirement package with his employer that continued to cover this for a while). Some want to pay for grandkids’ college, which can come well into retirement and turn into a big chunk of money even for the fairly well-to-do. You want to plan for the expenses you will have and decide how to meet them. They are not dependent on your income.
Yeah, understanding what you’ll be doing in your retirement is big. I “retired” early, but make about half of what I did before I retired with a part time business. I’m still in my 50s. My big expensive hobbies are knitting (yarn is surprisingly expensive) and travel and dining out. I have two young adult children who still need support (one is still in college). My husband still works. The house is refinanced to a little tiny mortgage (that I could pay off, but I’m better off with the money in the market).
Retiring - both of us, would probably take more than 80% of our income if we did it right now - unless we cut off the kids - my husband golfs (that’s expensive). We’d likely travel MORE. And we’d need health insurance. Once we reach Medicare age, we will still need supplemental health insurance - hopefully the kids will be pretty independent. But we’d like to snowbird - which isn’t cheap.
The money that you put into savings doesn’t count as income for the purposes of that calculation.
Not at all obvious from the retirement calculators I’ve seen, which ask income, not expenses.
Also, while you might spend more at 65 in fun, by the time you hit 80 you probably won’t be going on so many trips and junkets. You’ve done the stuff on your list already and a lot more seems like work, not fun.
Then why don’t the guidelines say that, instead of repeatedly talking about “income”? Sure, you can read the guideline as charitably as you would like until it makes sense to you but I will read it in English in which language the guideline is nonsense.
If it’s going into a 401k, it’s not income on as far as taxes are concerned. It’s been a while since I looked at one of those things but it’s usually explained in the guild lines in my experience. It’s clear enough to me that they mean your spending. Whatever though, as many in this thread have correctly noted, those guildlines don’t take a lot of individual things into account.
I retired last year at 56. I hired a financial planner right before I retired. He looked at my spending and my savings and assured me that I would be fine.
Assuming this does not mean drawing down too heavily on your other savings, it’s a worthwhile strategy. So if you retire at 67, and hold off on SS for 3 years, what do you live on in the meantime?
If you’ve got a big enough nest egg, that you can take 3 years of expenses out of it and still have enough money to supplement the social security, then you’re in great shape!
A friend of mine (same age as I am) has met with a financial planner periodically and the latest visit sums up as “For most people, I would advise against retiring at 62 or 63. But I see your savings patterns, and you can make it”. It helps that she has avoided expensive hobbies like husband and children, I expect 
. I think her current plan is to go to age 63 (about a year from now) then cut loose.
Yeah, waiting until max may only really work if you have other savings to live on and have the luxury of using SS more as insurance rather than necessary living expenses. If someone is really depending on SS to fund a significant part of their retirement, then I’m not sure it makes sense to wait. I could see how it’s better to start withdrawing earlier in order to maximize the amount withdrawn from SS.
Because it’s a guideline, not a commandment. “Income”, in this overly-broad sense, means “how much did your boss offer you when you took the job?” Yes - of course there are exceptions. Of course there are pretty common situations that don’t apply. But when I had to give retirement seminars to a room full of 100 people, people generally understood the sentiment. Especially since I’d also follow that up with why it’s 80% and not 100% - you’re no longer saving for retirement. You’re no longer paying into Social Security and other payroll taxes. You’re driving less, you’re cooking your own meals more often, etc.
If you’re getting by on less than 80% of your current income, then congratulations, you’re winning. Because in that room full of 100 people, far too many of them weren’t saving enough, and rough general examples that are easy to do the math on help drive home the point.
The 401K money wasn’t the issue, it was the post-tax money we were saving as we basically put the tuition money we had been paying into savings.
Not that I paid much attention to these sites, because it was clear what their game was as I adjusted income (whatever that means) and saw the result.
Actually looking at spending was far more useful.
Every situation is different. In my case, I decided to take SS early. That is based on the fact that I own an investment property that I plan to sell in 5-10 years, and that will provide a sizable injection of liquidity into my retirement accounts. But until then, I’m trying to minimize withdrawals from those accounts.
I was able to retire last year because we’re boring.
We always paid cash for little things like cars… which were vintage used little guys with stick shifts. Traveled cheap (Fancy dinners and all-inclusive resorts? Nope, pub fare and taco trucks).
And we’re still in the house that was too small for us and the kids, but now that we’re empty nesters… darn, it’s still too small.
But in my mid-60s, free time is more important to me than a new car or a big house.