The 80% Assumption, Maybe Not

Submitted on Sun, 07/28/2013 - 8:50 am

Planning for retirement is usually over-simplified and full of bad assumptions, like this one: "Assume you will need 70%-80% of what you earned pre-retirement." Well you won't be sending your children through college and maybe you will have your mortgage paid off. And you won't have commuting costs, or still be trying to save for retirement. But on the other hand you will have much higher medical expenses, you may be sending your grandchildren through college, you may be providing financial assistance to your children or your parents. And what are you going to do all day if you're not working? Many of the options cost money, maybe more money than you spent when you were busy working all day.

The other thing that's ironic about this is that the estimates are based on your current earnings, not your current current expenses. And some people can, and do, live way below their income, and some live way above it.