| As we plan our retirement finances, we have all run | | | | Federal Income Tax 1,264 |
| into the widely accepted "rule of thumb" that we will | | | | State Income Tax 278 |
| need 70 - 85% of our pre-retirement income as our | | | | Total Retirement Income $53,073 |
| income after we retire. | | | | Replacement Rate 76% |
| It seems strange that this percentage can be applied | | | | That is the replacement income percent as shown by |
| across all retirees since there are so many variables | | | | the authors in SPEND til THE END. It seems so logical |
| that can affect each individual situation. | | | | and straight forward, but it will probably be wrong |
| While reading SPEND til THE END by Dr. Laurence | | | | for most people. One size does not fit all in this |
| Kotlikoff, Professor of Economics at Boston | | | | calculation. |
| University and Scott Burns, nationally syndicated | | | | Take your individual case. If you are paying your |
| financial columnist, I found the source of the 70 - | | | | mortgage into your retirement, will it be paid off a |
| 85% rule -- and was I surprise what I found out | | | | few years after your retirement? If this is the case, |
| about it. | | | | your required retirement income will be substantially |
| According to the book, the replacement rate is | | | | less than the standard 76% will indicate. |
| calculated every three years by the Center of Risk | | | | Is your spouse considerably younger or older than |
| Management and Insurance Research at Georgia | | | | you? If one spouse passes away long before the |
| State University. The calculation began in 1969. It is | | | | other, there will be a long time when your retirement |
| based on the Department of Labor's Consumer | | | | savings have to support only one person. This is not |
| Expenditures Survey. The research project is funded | | | | factored into the 76%. |
| by AON Corporation, an insurance brokerage, | | | | Will you still be supporting children or parents at |
| consulting, and underwriting firm based in Chicago. | | | | retirement? This support will not go on all during your |
| SPEND til THE END takes you through how the | | | | retirement (you hope!). When the support stops, |
| number is derived. Take a couple just preparing to | | | | your spendable income will rise considerably. This is |
| retire who are making a combined salary of $70,000 | | | | not considered in the rule of thumb 76%. |
| and subtract the various current expenses that will | | | | As you can see from the above examples, the 76% |
| not apply after retirement as follows: | | | | might significantly overstate the amount of income |
| Combined Pre-retirement Salary $70,000 | | | | you will actually need for your retirement. |
| Less Pre-retirement | | | | Before you believe the 70 - 85% rule, calculate your |
| FICA 5,355 | | | | actual current expenses. Then consider each one to |
| Federal Income Tax 7,040 | | | | determine what your true retirement living expenses |
| State Income Tax 1,678 | | | | will be. You might have expenses which will rise during |
| Retirement Savings 2,421 | | | | retirement such as travel or medical care. You will find |
| Related work expenses 1,975 | | | | guidance on calculating retirement expenses on the |
| Plus Retirement | | | | Best Retirement Calculators website. |