For many years, financial planners have espoused general formulas for determining the amount of income retirees will need.

The most popular is the “70 percent rule,” which suggests retirees will need to replace just 70 percent of their pre-retirement income to provide for their living needs in retirement.

That may have been an effective guideline a few decades ago when the rule was established; however, for many retirees, relying upon it today may be fraught with financial peril.

It’s a very different world today, and old guidelines based on conditions that existed 30 years ago don’t necessarily reflect real costs of aging today, which include:

1. A male turning 65 years old today can be expected to live another 19 years, versus 11 years in 1970; for women, they can expect to live another 23 years.

2. The chances of retirees or an elder family member requiring some form of long-term care is 7-in-10.

3. Many of today’s retirees are carrying some form of debt into retirement, including mortgages, consumer debt, and student loans.

4. Although inflation has moderated somewhat since the 1970s, lifestyle costs — such as housing, food, and transportation — consume a larger portion of a retiree’s budget today.

5. Although healthcare cost increases have slowed, the rate of cost increases continues to be well above the general rate of inflation.


For many retirees, the 70 percent income replacement rule might be an acceptable baseline for planning; however, with the risk of inflation, compounded by the longevity risk now confronting retirees, income planning should be based on the realities of aging today.

It’s not inconceivable that, for some retirees, their income-replacement need could be as high as 100 percent.


Essential Steps to Enhancing Lifetime Income Sufficiency

Track your expenses now. You should begin to track your living expenses and gradually adjusting your budget to smooth out your consumption between your living requirements now and your requirements in retirement.


Start living like a retiree now. Going a step further, you could take the approach of changing your lifestyle now to reflect how you expect to live in retirement.

That might mean downsizing your home now, reducing your leisure travel, driving more efficient cars, and generally adopting a more frugal mindset.


Increase your savings. Any combination of the first two steps should generate steady increases in excess cash flow, which should be saved for retirement.

Pre-retirees within 15 years of retirement should target contributing a minimum of 15 percent of their earnings toward their retirement.


Start exploring your Social Security options. Retirees who are able to postpone their Social Security benefits until age 70 can significantly boost their lifetime income; additional Social Security planning for spousal benefits could increase it further.


Don’t invest too conservatively. Although the natural inclination is to reduce your exposure to risk-based investments, such as equities, the closer you are to retirement, reducing your exposure by too much, too soon could stunt the growth of your capital.

To ensure lifetime income sufficiency, today’s retirees should always have some exposure to equities.

A broadly diversified, well-balanced portfolio of equities, bonds, and cash offers the best opportunity to maintain the necessary growth of capital needed while minimizing volatility over the long term.


Regardless of your planning method or process, it would be a mistake to succumb to standard formulas or a generalized approach to retirement planning.

Right now, your retirement vision, formed by your specific needs, wants, attitudes, and beliefs, rests in your mind, and it will undoubtedly change as your outlook and priorities change, but you should always base your income needs on realistic assumptions.


Personal finance pro Ray LeVitre, CFP, is the author of 20 Retirement Decisions You Need to Make Right Now and founder/managing partner at Net Worth Advisory Group. LeVitre helps individuals make key financial decisions during that critical yet oft-underestimated period of transitioning from the workforce into retirement.

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