- 100%
- -7.65% Social Security Contributions (15.3% if self-employed)
- -10% Savings for Retirement
- -25% Mortgage Payments since your mortgage is paid off
Janet Novack wrote and article titled, “The Spending Question” in the Forbes 2006 Retirement Guide published in June 2006. Ms Novack cites a study by Erik Hurst of University of Chicago noting, “…retired households spend 31% less eating out than nonretired ones; they still go to table-service restaurants yet make six fewer pit stops a month at fast-food joints. They trim their at-home food bills by spending nine hours a month more than younger families on food prep.”
Financial Engines – a web based investment advice service used by 5 million people uses a spending figure of between 70% and 87%. Schwab recommends planning to spend 100% of pre-retirement income. Economist Laurence J. Kotlikoff says figures like these are way too high. He spent 13 years building an elaborate software system to predict retirement spending and how much savings and insurance a family will need through the years. It is called ESPlanner. Mr. Kotlikoff says almost all retirement calculators significantly overestimate retirement spending.
Overestimating retirement spending is risky because, “If your spending target is too high, you may find yourself pushed toward a riskier asset allocation than you’d otherwise favor.” “You may end up regretting that you didn’t enjoy life [before retirement] as much as you should have.”
If you want to spend $199 and read through an 83-page user’s guide you can get very detailed about what you will need by buying and using ESPlanner. It may be less than you thought.
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