How much do you need in retirement?

How Much Will You Need in Retirement? 

One reads that required retirement income is 60-80% of pre-retirement income. However, given the increased time available for leisure and travel, it is not difficult to imagine income requirement equal to or greater than pre-retirement. Clearly there is a difference between essential and discretionary expenses.

The traditional approach to retirement planning is to arrive at some percentage of the available assets for the first year of retirement (4%? 5%? 6%?) and then adjust the dollar amount for inflation annually. However, Ty Bernicke published a paper entitled Reality Retirement Planning: A New Paradigm for an Old Science”  which brings new data to the table and make persuasive arguments that the traditional constant spending model need a fresh look. The data he starts with is the U.S Bureau of Labor’s 2002 Consumer Expenditute Survey, which shows that spending decreases during retirement (although the data needs to be adjusted for long-term care needs) and that the traditional approach is too conservative, and may overstate the assets required and the probability of running out of funds in retirement. Factoring in these considerations, which he calls “reality retirement planning”, can lead to not just lead to possible earlier retirement, but may also impact estate planning, tax planning and investment management. This feels intuitively right, not just because there is significant support data, but also because it is reasonable to understand that the activity/spending level of 55-65 year olds will be higher than 75-85 year olds.


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