Visit FedSmith.com to subscribe to our free email list!

How Much Income Do You Need in Retirement? It Depends

How much income will you need during retirement? A lot depends on your preferences, your lifestyle and financial decisions you have made prior to retiring.

What level of income do you need in retirement?  The answer is that old standby that those of us who work or worked in HR know so well; “It depends”.

“Upon what does it depend?”, you might ask.  The lifestyle you desire in retirement is the primary determinant of the amount you will need each year. 

  • If you have a retirement home that is paid for and a simple lifestyle, you can get by on significantly less than the amount it takes you to live today.
  • If the travel sections of the Sunday newspaper color your view of retirement, you might even need more.  A recent feature in the Sunday Chicago Tribune was all about India.  If you’re interested, you can get a luxury room in a hotel where every room has a beautiful view of the Taj Mahal for only $600 per night.

If you are close to retirement, you can get an idea of what you’ll need to live on by looking at your current budget (you do have one, don’t you?) and adjusting it by prospective changes that will occur when you retire.  For example:

  • You will no longer be paying 8.45% payroll taxes.
  • Your commuting expenses may be lower.
  • Your travel expenses may be higher.
  • Your mortgage may be paid off.
  • You may spend less for food outside the home.
  • You may spend more for recreational activities (but you’ll get senior discounts).

If you’re further from retirement there are several “rules of thumb” that are available.

First, there is the rule that you can have a similar standard of living on 70% to 80% of your current income.  It is important to be aware that this rule assumes that your mortgage is paid off at retirement, and that you will live somewhat more inexpensively then.  If your mortgage is not going to be paid off until after retirement, you will need to factor that in.  A recent USA Today “Snapshot” showed that almost half of homeowners, age 65 or older, still were making mortgage payments.

Then there is the 91.55% rule.  This rule is based on the fact that 91.55% of your Adjusted Gross Income (AGI) will give you a retirement income that is virtually the same as your current income.  Using 91.55% factors out payroll taxes of 8.45%.  Using AGI factors out tax deferred savings, such as the TSP, as they are not included in AGI.

Whether you use any of these rules, or have developed one of your own, having a handle on how much you will need in retirement gives you a leg up in your retirement planning over those who haven’t a clue what they’ll need.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at [email protected] to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.