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Editor’s Note: This story originally appeared on NewRetirement.
Contrary to what many financial planners suggest, you can live on a lot less than 100% or even 80% of your pre-retirement income. In fact, a survey by T. Rowe Price of new retirees who have 401(k) account balances or rollover IRAs found that you can live comfortably on a lot less.
The report suggests that nearly three years into retirement, the majority of retirees are living on just 66% of their pre-retirement income (on average).
Is 66% of Your Work Income Really Enough Retirement Income? Too Much?
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Only you can really know what you need. But, it is useful to understand what is actually happening in households across the country.
Eighty-five percent of the survey’s 1,507 respondents say they don’t need to spend as much as they did before retirement to be satisfied. And, 57% report they live as well or better than when they were working.
“It [the data] doesn’t surprise me,” says Cynthia Petzold, a certified financial planner with CommonWealth Financial Planning LLC in Roanoke, Virginia. “Each person’s situation is different, but I think that 66% is reasonable [to cover] basic living expenses.”
But the figure likely doesn’t include special or one-time expenses, such as traveling, house repairs, or car replacements, she adds.
Interest in living on less in retirement? Here are a few tips …
Don’t Rely on Rules of Thumb: Project What You Will Actually Need
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The consensus among financial planners is that there isn’t one magic income number that everyone should strive to achieve. The only real way to determine the amount you and your household will need is to make detailed budget projections. Maybe you’ll need 50%, 66%, 100%, or even 200% of your work income.
Get serious about budgeting for your next 20 to 30 years. That may sound crazy or unrealistic, but you can break your projections down into five-year increments or think about big milestones like kids graduating college or your spouse’s retirement.
You can also think about retirement in phases — an active phase when you first quit working and may be spending even more than when you were working, a slowing down phase when you start to spend less, and an end-of-life phase where health care costs might be expensive.
The NewRetirement Planner lets you do this kind of lifetime budgeting. Set as many different spending levels for as many different phases of retirement as you like as a whole or in 75 different categories. Budgeting your future helps you to envision and build a plan for the life …….