Do You Really Think You’ll Spend Less In Retirement
September 2, 2008 – 6:09 am
A lot of folks throw around the “70% rule”, meaning that they believe the average person will only need 70% of their income at retirement. And there’s some logic to this. If you invest 10% of your income, you won’t need to do that in retirement. That drops you down to 90%. Social Security taxes account for 7.5%. And don’t forget the commuting, clothing, and other costs of going to work. That could easily push you down to the 70%-80% range. Right?
Perhaps not. You need to consider costs that will increase in retirement as well. Will you still have a mortgage? Are you still going to buy new cars with payments? What about new hobbies? Trips to Vegas? And lunch out with the Bridge Club*? And what about medical costs? Think those will go down or up in retirement?
And what are you going to do with your free time. The fact is work may keep you from spending money, because you’re there doing something for 8-10 hours a day five days a week. If you plan to spend most of your retirement reading library books, your expenses may go down. But if you plan of working around the house, picking up a new hobby, or joining a few clubs it may get expensive.
Although I am risk averse I’m not in the same camp as a lot of people who think they need $5 million dollars to retire. I also don’t think you should live a miserly live so you can dramatically improve your standard of living in retirement.
In my mind though here are the two key points:
- debt is most likely going to be a retirement killer. If you go into retirement with a mortgage, car loans, and other debt it is unlikely you will have the cash flow to live on less than your current income. And I’m not talking about retiring to an island like many firms advertise. (Canadian Dream wrote a great article about this here.)
- if you really want to know how much you’ll spend in retirement, you need to invest the time and effort to plan it out in detail, on paper. What will you spend? Where will the income come from? My guess is a lot more people end up spending less than their working income because the HAVE TO, not because the WANT TO.
*My wife and I at one point knew we were looking at a house that was way out of our league when the realtor mentioned that most wives in this neighborhood didn’t work but rather played bridge several days a week. My wife was like “I don’t want to play bridge all day!”
Image Credit: mandj98
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5 Responses to “Do You Really Think You’ll Spend Less In Retirement”
We are retired and in our 50’s, we retired about 3 years ago. I agree with you that debt is a retirement killer, the only debt we carry is our home and we are just a few short years from paying that off.
We have both savings and 2 government pensions, we sacrificed for many years and although we make less now than when we worked, we are still socking away money in savings for all the cruising we love to do.
We are busier now in retirement than when we were both working full time, we both have commented that we don’t know how we ever found time to work.
Retirement is fabulous and we’re doing it with flair.
By Mamaflo on Sep 3, 2008
Thanks Mamaflo for the comment! I’m glad to hear retirement is going well, especially for someone so young! Having “secure” pensions must remove a bunch of worry from your retirement plan too.
By
todd (Who am I?) on Sep 6, 2008
One way to stretch your retirement dollars is by becoming an expatriate. Mexico…many of the countries in Central America are all great possibilities.
By
Mike (Who am I?) on Sep 16, 2008