Are you among those who should seek to replace 100% of income at retirement?

Many new retirees actually spend more in the early years of retirement and even when spending drops it’s not that significant.

If you look at averages, it’s clear that spending drops after retirement. The problem is, are you average? Or a better question may be, do you want to plan your retirement income on being average?

If you do use a strategy to start retirement with a total income equal to your basic working income, what can go wrong? Worst case you have extra cash.

On the other hand, plan for 70% replacement and you are locked in to spending less and who knows what the worst case may be. It may mean living in retirement close to necessary spending alone … otherwise known as paycheck to paycheck.

Research (2015) from the nonpartisan Employee Benefit Research Institute (EBRI) finds that while average spending in retirement falls in the first two years in retirement, nearly half (45.9 percent) of retired households actually spent more than they did just before retirement. That declines over time, and by the sixth year of retirement, just a third (33.4 percent) spend more than they did preretirement.



  1. I had no plan for retirement income. I did do some planning to avoid paying rent in retirement and to maximize pre-retirement income by deferring retirement as long as I could. Otherwise, I just trusted to luck. I did have good luck, and I’ve wound up with more retirement income than I ever had when I was working. Having good money in retirement has made my life much more pleasant.


  2. Every retiree’s financial situation is different, so 80% replacement might mean you are doing great and 100% replacement for some retirees might not be enough. I stopped working at age 50, with a small military pension to provide the basics of life, for the 12 years until I could receive SS benefits. During the 12 years I cut to the bone, no pay TV, no cell phone, almost no extras at all and I still ran up thousands in credit card debt, with no emergency fund for car and home repairs. It took me the first 18 months of SS benefits to zero out that debt. On average I was spending $100 to $200 extra per month and it does not take long to ratchet up the debt. Now I have an emergency fund with $6,000, and I will have $16,000 in the fund by Dec 2021. I have not had a car payment since 1986, always purchasing used cars for cash. I leased a new 2020 Ford Edge, in March 2020, with $4,000 cash down with a $351 per month payment and plan on purchasing the car at lease end for $19,888 Cash. I have always been told that leasing a car is not smart, but for me, it works, I will be paying the exact purchase price, with no added interest for the 3 year lease. This may be my last car purchase as I have been able to get 200,000 miles out of cars, because I do all the maintenance and repairs myself. My advice to all, get out of credit card debt, before retirement. Pay off the mortgage and car if possible, before retirement.
    I use credit cards now to pay bills automatically and earn cash back on every purchase. All of my credit card accounts are set up now, to pay off the statement balance each month. Even the low inflation that we now have can add up. The $38,000 in retirement income that I now have, buys what $24,600 bought in $2000. I am thankful that my retirement income is adjusted by the government COLA each year.


  3. Isn’t the 100% of income mis-named since it is really 100% of take home? When I look at my income as a working (but soon to be retired!) couple, $66k of our income goes to 401k\IRA contributions. I wasn’t sure if the 100% income replacement is a generalization for the masses or if 100% of take home can be so nuanced it would be difficult to parse except for each individual.


    1. Yes, to keep it simple and considering there are typically taxes to be paid on most retirement income including SS, I use base gross income. Most people are saving 10% or less pre-retirement so your example is unusual. People who are saving a very significant percentage of their income immediately before retirement need to make adjustments UNLESS their life style in retirement makes up the difference. For example, until last year what I was saving before retiring 11 years ago was fully offset by travel expenses. I contribute monthly to grandchildren’s 529 plans and I still save to maintain an emergency fund. In addition, my health insurance premiums are five times what they were while working.


    2. From my personal experience (other peoples experience may vary), it is 100% of the net take home pay which might very well be 80% or less of gross at age 55. It also depends on when you look at this number. Are you 40, 50, or 60? At age 60 you will have a much better ideal of your expenses and what your standard of living will be. At age 30, shoot for 100% gross or more as a total for all source of income available to you.

      The other thing to look at is what debt, if any, you are planning on carrying into retirement. If you plan on retiring debt free, stop contributing 10% to a 401K or Roth, and stop paying income taxes, that is money that you do not have to earn. Depending on your sources of income, you still may have to pay close to the same amount in income taxes. But getting rid of a $1k mortgage saves you from finding $12k+ per year in required retirement income

      If you like your standard of living while working with your debt load, then once all that goes away, your standard of living should remain the same. You were living on your net take home pay and that is what you were using for your daily and entertainment expenses. There will also be inflation and your plan will fail if you expect COLAs to keep up.

      All the work related expenses and comminuting expenses become a push or even cost more the first few years in retirement if you plan on traveling. Your entraining expenses are also going to go up at first. I suspect that that will shift to medical as you age forcing to slow down your travel. I am not there yet.

      If you were 20, I would tell you that you need to figure on 100-115% gross. This is because chances are that you will earn many times more at 60 than at 20. One will never be able to save that much, but it will set a plan in motion at a young age to take advantage of compound saving and the stock market. But trying to get a 20 year old to envision retirement when they finally have their own money will be like spitting into the wind.


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