Are you aware of just how much you are going to spend in retirement? Most people aren’t. Traditionally, retirement planning rules suggest that you retire on 80% of the income you earned in your last year of work—the real question is, does that still hold true today?
The 80% rule is more of a guideline than set in stone rule. It refers to 80% of a retiree’s final yearly gross income, rather than his or her net pay. That being said, the difference between the two, gross income and wages after withholdings and taxes, is significant.1
This leaves retirees with the challenge of replacing his or her paycheck not his or her gross income.
Many factors play into how much you will need for retirement, there are a few that are not included in the 80% rule, and should be considered.
- Retirees are no longer putting a portion of their paycheck into retirement accounts
- Retirees are no longer involuntarily contributing to Social Security and Medicare
- Retirees no longer commute and rack up daily expenses that come with it
- Retirees often retire into a lower tax bracket
Including those factors, many believe that to maintain a comfortable lifestyle during retirement, retirees could retire on 60% of his or her average annual lifetime income.1
How does this affect you?
In order to determine just how much you will need to retire on, you will need to determine the expenses that will continue as well as those that can be eliminated after you retire. Making a budget is a very good idea, no matter how painful you feel that is. (Most Americans despise budgeting according to a recent survey). A monthly budget will assist you in identifying and reining in any questionable spending habits.
If you're interested in creating your own budget download aprintable budget to get started today!
