The number most people start with in retirement planning is usually the wrong one.
They ask:
“How much of my current salary will I need?”
A common rule of thumb says 70% to 80% of pre-retirement income.
That can be a useful starting point.
But it is not the answer.
The more important question is:
What will your life actually cost once work stops?
Some expenses may go down.
You may no longer be saving for retirement, commuting, or paying payroll taxes.
Other expenses may stay the same or even increase.
Travel
Healthcare
Helping family
Home projects
Hobbies
Long-term care
That is why two people with the same income today may need very different amounts in retirement.
The next step is understanding where retirement income will come from.
That may include:
• Social Security
• Pensions
• Retirement accounts
• Taxable investments
• Part-time work
• Rental or other income
The goal is not simply to replace a paycheck.
It is to coordinate several income sources in a way that supports spending over time.
Withdrawal rules can also be helpful, but they should not be treated as guarantees.
The often-cited 4% rule may provide a useful benchmark, but the right withdrawal rate depends on factors such as:
• Retirement length
• Market conditions
• Spending flexibility
• Investment risk
• Inflation
Healthcare deserves special attention as well.
Medicare premiums, out-of-pocket costs, and possible long-term care expenses can become a larger part of the budget later in retirement.
What I have found is that retirement confidence usually does not come from reaching one perfect number.
It comes from seeing how the pieces fit together.
What will you spend?
Where will income come from?
How will withdrawals adjust if markets or life change?
For individuals and families, a retirement income plan should be personal, flexible, and revisited over time.
Because the real question is not:
“How much does the average retiree need?”
It is:
“How much income will support the retirement I want?”Together, we can work to keep you on-track toward your financial goals.
Request a consultation to learn more.
Read more articles by Ryan Johnson