Thread: Income Needed in Retirement

Originally Posted by Jorgan

We've all seen the rule-of-thumb that your gross income in retirement should be 60-100% of your pre-retirement gross.

In my case, and probably some of you other civil servants, more than half of my current gross goes to savings or employment costs which will go away at retirement.

I took my LES and subtracted ALL of the deductions that will NOT following me into retirement. That left pretty much only income tax, Medicare, FEGLI Basic, and FEHB. I take home (and live on) about 45% of my gross now.

So, if I assume I'll need 70% of gross in retirement (as the experts say), my calculations show nearly TWICE as much disposable income needed in retirement as I live on now.

I think, rather than use a percentage of gross, it's more accurate to use "100% of pre-retirement take-home plus tax, insurance, etc."

Anyone see any error in my logic?

You make a good point... the trick is to make sure you figure in all the expenses that you will have and will not have.

Ultimately, those percentage schemes aren't very useful in that they are only general by nature. A serious consideration of retirement income and expenses should be very specific and detailed, and not based on what one makes now, but rather, what one will need then...

Some will have a surplus, others will need a second job in retirement...

Budget,

I tell this to people all the time. Create a budget that shows where your money is going. When you have that, you can honestly see where money is going now as opposed to then.

Examples:

If I'm not driving to work everyday, then in my budget, I should correct my "future" budget to reflect the expected amount. Also, your car may last longer and a new car every 6-8 years may not be needed.

Housing costs can be reduced by moving into a smaller house lowering mortgage (if any), heating/AC costs.

I may also not buy lunch every day, so I can recoup the difference between what I can get lunch for at the grocery store.

Clothes can be a huge cost. If you buy clothes for work on a regular basis, you may not need to do so in retirement at the same rate.

Tax deferred/Non-taxable income. If you are getting tax breaks, they may not be there as ALL your income could be taxed.

Health insurance: OMG, my parents pay full rate until my mom is 62, its 750 a month PLUS deductibles (which are NOT 20-30 a visit). You can also speculate pre-existing conditions and project their costs as well.

Then you can calculate the inflation rates into those budgets on a yearly basis.

As far as life insurance goes, your premiums will bounce up as well.

So many things to consider, so little TSP trades to work with!

A Penny Saved Is A Penny Earned.....Benjamin Franklin

Unless its in TSP...then it's 1/4, 1/5, 1/6 of a penny a day lol!

Rule of thumbs are nice but detailed expense lists and projections are much better when making decisions. When projecting expenses over many years, don't use the official govt percentage inflation. Construct your own inflation rate by individual expense category expected growth. I think you'll find it's about double.