Calculating Retirement Income Requirements

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    I see all this advice to be able to replace 80% of my current income at retirement to live the same lifestyle. What are the assumptions behind this number. Say I make $100,000. I contribute $17,500 to my 401K to get the 5% match from my employer (never pass up free money). I have a mortgage that I’m paying off quickly by paying bi-weekly payments (an extra payment each year) totaling $22,100/year which includes escrow and taxes at about $6K. I have no credit card debt and while my 11 year old car is showing it’s age, I can hold on for a while and continue dropping $100/month in a Sharebuilder account to hopefully have a good downpayment or maybe cash total in 5 or 6 years. After it is all said and done, the take home is about $2800/month after all these payments and health insurance are taken out. So with a $100,000 gross, in the hypothetical, you are actually living on $33,600 for food, clothing, entertainment, utilities, fuel, etc. Now the mortgage will be paid for at retirement so that’s $16,000 that really doesn’t need to be replace. You won’t be saving the $17500 toward retirement, and there won’t be a car payment. So What Income am I really needing to replace at 80%? The Gross $100,000? The Net $33,600 or something in-between?


    Though it may seem high, the conservative recommendation of 80% of gross income has a few not completely unreasonable assumptions. Especially the one where, even though you are no longer paying your mortgage, many or most seniors will have increasing medical/long-term care and insurance costs. Medical procedures and medications are often not fully covered by Medicare. That might change in the future but don’t count on it! This is a good article on long-term health insurance:

    Also, how much fun do you want to have in retirement?

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