| Most financial advisors say we will need to plan to | | | | advisors are using. But wait! There are expenses in |
| spend approximately seventy-five percent of our | | | | the $55K number that will disappear after retirement. |
| pre-retirement income to maintain our current lifestyle | | | | Also, the real retirement expenses can be broken |
| in retirement. Some even say that we will spend the | | | | into basic living expenses which are required for |
| same in retirement that we spend before retirement. | | | | survival and discretionary living expenses which are |
| I personally have a problem with this advice. I have | | | | "nice to have" but not totally necessary. Mind you, |
| researched this subject to determine current real | | | | the definition of which are which will vary by couple. |
| living expenses and what our real living expense will | | | | I examined the living expenses and eliminated those |
| be after retirement. | | | | that will disappear at retirement. I then classified the |
| To completely understand real living expenses, we | | | | expenses as basic and discretionary. The result: |
| need solid, accurate data as a basis from which to | | | | · Real retirement living expenses - $40,000 |
| start. | | | | (54.8% of income) |
| The best data source in the United States for this | | | | · Basic living expenses - $28,000 (38.3% of |
| information is from the Consumer Expenditure | | | | income) |
| Survey which is conducted annually by the Bureau of | | | | · Discretionary living expenses - $12,000 |
| Labor Statistics of the Department of Labor. This | | | | (16.45 of income) |
| information for 2006 (latest year available) can be | | | | This is a considerable difference from the 75 percent |
| accessed at the website listed below. | | | | "rule of thumb" used in the industry. |
| The data that most closely models a couple nearing | | | | My findings from this analysis are available at |
| retirement is found in the table, "Composition of | | | | Retirement Living Expenses. From that web page, |
| Consumer Unit". In this table the column "Husband | | | | you can download an Excel spreadsheet that you can |
| and wife only" contains the information that we need | | | | use to model your real retirement expenses. |
| to examine. | | | | I encourage you to study the information from the |
| From the survey, we find that there are over 25 | | | | survey of this average couple nearing retirement to |
| million couples in this "husband and wife only" group. | | | | see how your expenditures compare and what your |
| The average age of the reference member is 56.8 | | | | real retirement expenses will be. |
| years. The combined income of the couple is $73,032 | | | | You may not need as much money for a |
| and the after tax income is $69,350. Right here, the | | | | comfortable retirement as your financial advisor is |
| income tax savings is up to $3,682 depending on | | | | telling you. |
| how much tax this couple must pay after retirement. | | | | Author's Note: Read the Consumer Expenditure |
| We find from the data that the total living expense | | | | Survey for 2006 at BLS Consumer Expenditure |
| of our couple is $55,631 or 76 percent of income. | | | | Survey. |
| This is very close to the figure that the financial | | | | |