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The rule of thumb for a comfortable lifestyle in retirement is 80% of your salary

Mark Levitt
By Mark Levitt

This article appeared originally in the June 2015 Levitt Letter.

This Wise As A Serpent installment and April’s “Retiring Your Nursing Home Concerns” may prompt interested readers to spend less and save more. Rather than offering advice, my bimonthly Serpent articles provide information from well-informed financial columnists to help readers better weigh what they hear from advisors and salespeople.

Cambridge graduate and personal-finance columnist Jonathan Clements recently wrote “Why You Will Need Less Money Than You Think For Retirement” in The Wall Street Journal. The article’s main takeaway was set in large type: “The rule of thumb [for a comfortable lifestyle in retirement] is 80% of your salary, but that figure may well be too high.”

Clements subtitled three significant possibilities regarding his assertion that those preparing for retirement will be able to live comfortably off of less than 80% of what they currently make:

  • Your children are off the family payroll.
  • You were saving more than 10%.
  • Your mortgage is paid off.

The reality for most retirees: “We save what we can and then make do.” A 2014 survey of 1,507 retirees, “who had a median net worth of $473,000, were living on an average of 66% of their pre-retirement income.” 85% of them agreed that they are satisfied with spending less than before.

Many retirees not only stop saving for retirement but also no longer have to pay the employee’s 7.65% for Social Security and Medicare. Reaching age 65 qualifies taxpayers for more-generous standard deductions. Itemizers often can deduct unreimbursed medical and dental expenses in excess of 7.5% of income, versus 10% for those age 64 and younger. Most Social Security benefits are at least partially tax-free.

Of course there’s the wild card of medical expenses. Not to mention the inclination to travel more and eat at fancier restaurants. It is a helpful financial irony that “The more you save, the less you need for retirement.” For example, those who save 25% of their income can sustain their current lifestyle with as little as 65% of their pre-retirement earnings because they were already living on 75%.

Having your mortgage paid off can reduce the income you need by 10% or 15%, according to Denver financial adviser Charles Farrell, author of Your Money Ratios. He believes many retirees “might be comfortable at 50% or 60%.”

Believers who live too “hand to mouth” to even think about saving for a rainy day often quote the wisdom of Matthew 6:28: “Consider the lilies of the field….” Rather than finding any biblical imperative to retire, I’ve seen both Testaments uphold the merits of working (e.g. Psalm 90:17, 1 Tim. 5:8). Moreover, Philippians 4:6–7 advises, “Be anxious for nothing, but in everything by prayer and supplication with thanksgiving let your requests be made known to God. And the peace of God, which surpasses all comprehension, shall guard your hearts and your minds in Christ Jesus.”

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