Tags: Clements | retire | 80% | income

WSJ's Clements: Retirees Probably Needn't Worry About the 80 Percent Rule

By    |   Wednesday, 15 April 2015 09:00 AM

One retirement rule of thumb posits that your retirement income should total 80 percent of your final salary to maintain your standard of living.

"But there is a decent chance you could happily retire with far less," writes Wall Street Journal columnist Jonathan Clements.

He cites a 2014 survey of recent retirees by T. Rowe Price Group showing that on average they were living on 66 percent of their pre-retirement income.

But that wasn't sending them to the poor house. A total of 57 percent were living as well or better than when they were working, and 85 percent felt "I don’t need to spend as much as I did before I retired to be satisfied."

Remember that in retirement you no longer have to save for retirement, you no longer have to contribute to Social Security and Medicare, your taxes will likely go down, and at some point you will start receiving Social Security income.

But this doesn't mean you should adopt a carefree attitude toward your retirement finances, of course. Walter Updegrave, editor of RealDealRetirement.com, cites four major mistakes we're making in retirement planning. Here are two of them:
  • "Stinting on saving," he writes. In a TIAA-CREF retirement survey, almost half of the near-retirees who were asked what they could have done to better prepare for retirement said they should have saved more. "Good answer. Because over the course of a career, failing to push yourself to save can cost you big time," Updegrave says. The more and earlier you start saving, the more your money can compound its gains.
  • "Overpaying for investments." The more you pay in investment fees, the less you benefit from the magic of compounding. Updegrave offers a telling example. Say a 25-year old saves 15 percent of his/her income and amasses a $1.1 million retirement kitty. That assumes a 5.5 percent annual return after expenses. Cutting expenses 0.5 percentage point a year would mean a $1.4 million retirement horde.

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One retirement rule of thumb posits that your retirement income should total 80 percent of your final salary to maintain your standard of living.
Clements, retire, 80%, income
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2015-00-15
Wednesday, 15 April 2015 09:00 AM
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