Income in Retirement, Misconceptions

Income in Retirement

The common orthodoxy among retirement specialists about the amount of income necessary for a comfortable retirement ranges from 75% to 90% of your pre-retirement income. Those guidelines are misleading for many. They can lead some to delay unnecessarily a much desired retirement date and others would be encouraged to retire prematurely.

There are two critically fallacious assumptions behind those recommendations. First: that pre-retirement income is identical with pre-retirement expenses and Second: that pre-retirement expenses will continue post-retirement.

Income
Some people don't spend every penny they earn, they put it into savings. Some of the money they do spend is for salary withholdings like taxes which may be reduced or unnecessary after retirement. Social Security FICA for example disappears unless you work. For many people in lower income brackets their federal, state, and local taxes are markedly lowered. Withholdings for your retirement plan end when you retire. There can be therefore, a significant and positive impact on your disposable income from these differences.

Expenses, other than withholding
Most people pay off their mortgages or markedly reduce them during their working career. When you get to be sixty-five or their-abouts you already have most of the consumer goods that younger generations have yet to acquire. Many towns provide property tax discounts to encourage seniors to stay in their homes. Medicare Part D is providing, for some people, a major reduction in costs for prescription drugs.

On the other side of the expense ledger are inflation and the risk of needing long term care These should be factored into your plans.

In summary, your projected income in retirement should be measured in relationship to your projected expenses in retirement not pre-retirement income
posted by Tom Madson @ 6:52 AM