As we strategy our retirement finances, we have all run into the widely accepted "rule of thumb" that we will require 70 - 85% of our pre-retirement income as our income right after we retire.
It appears strange that this percentage may be applied across all retirees since there are so a lot of variables that may affect every single individual situation.
While reading SPEND til THE END by Dr. Laurence Kotlikoff, Professor of Economics at Boston University and Scott Burns, nationally syndicated monetary columnist, I found the source of the 70 - 85% rule -- and was I surprise what I found out about it.
According to the book, the replacement rate is calculated every single three years by the Center of Risk Management and Insurance Research at Georgia State University. The calculation began in 1969. It truly is based on the Department of Labor's Consumer Expenditures Survey. The study project is funded by AON Corporation, an insurance brokerage, consulting, and underwriting firm based in Chicago.
SPEND til THE END takes you by means of how the number is derived. Take a couple just preparing to retire who're generating a combined salary of $70,000 and subtract the numerous present expenses which will not apply right after retirement as follows:
Combined Pre-retirement Salary $70,000
Less Pre-retirement
FICA 5,355
Federal Income Tax 7,040
State Income Tax 1,678
Retirement Savings 2,421
Related work expenses 1,975
Plus Retirement
Federal Income Tax 1,264
State Income Tax 278
Total Retirement Income $53,073
Replacement Rate 76%
That will be the replacement income percent as shown by the authors in SPEND til THE END. It seems so logical and straight forward, but it will in all probability be wrong for many people. 1 size does not fit all in this calculation.
Take your individual case. If you are paying your mortgage into your retirement, will it be paid off several years soon after your retirement? If this is the case, your necessary retirement income is going to be substantially much less than the regular 76% will indicate.
Is your spouse considerably younger or older than you? If one spouse passes away lengthy before the other, there is going to be a lengthy time when your retirement savings need to support only 1 individual. This just isn't factored into the 76%.
Will you still be supporting youngsters or parents at retirement? This support won't go on all in the course of your retirement (you hope!). When the support stops, your spendable income will rise considerably. This is not regarded as in the rule of thumb 76%.
As you'll be able to see from the above examples, the 76% may considerably overstate the quantity of income you might basically need to have for your retirement.
Before you believe the 70 - 85% rule, calculate your actual existing expenses. Then take into consideration each one to determine what your true retirement living expenses are going to be. You may have expenses which will rise in the course of retirement for instance travel or medical care. You will discover guidance on calculating retirement expenses on the most effective Retirement Calculators web site.
Visit Invest til THE END.com for more details about this revolutionary and intriguing book.
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