Don't Just Think About Income When Saving for Retirement


I keep hearing how people should plan their retirement according to their income, but that method is flawed at best and...(oh, I won't be allowed to type those words) worst. Statements like "you can probably live with 80% of your income," and "your net worth should be your income minus this divided by that times your age" are a good estimate of how most of us save and spend in retirement. But as to whether it will be enough for you? It's just a guess.

The Flaw in the Plan

I don't know about you, but my bills don't adjust based on my income. When I splurge on an iPhone, AT&T charges me $199 (at the very least) and then $70 a month for the foreseeable future. It doesn't matter if I am a billionaire or a struggling college grad; $70 is $70, and the bills come like clockwork month after month. Oh and those senior prices you were hoping for? They're something like a 5% discount — wip-a-dee-doo.  

The Real Key to Retirement Is Your Spending

By measuring how much we need in retirement against how much we make, we have accepted that yes, we do spend more when we make more. It's as if all of a sudden we are okay with lifestyle inflation. It's your money after all, so spend as you please, but don't think that spending more equates to more happiness. When we equate everything with our incomes, we are putting way too much emphasis on how much we make. It's no wonder why we always compare our incomes to other people's. Don't become a slave to the rat race! Some would kill to make $500,000 a year, but if that comes with $500,000 in spending every 12 months, it's extremely stressful and risky. What if that person gets fired? What if the industry tanks and the salary is reduced to $200,000? It makes for good stories, but I bet it would be tough to live for the rest of your life knowing that a chance for a great retirement was ruined for the entire family because spending couldn't be controlled.

The key to retirement is how much you saved as it relates to how much you spend. The simpler your life is, the less money you need to retire. If you want a comfortable retirement, concentrate on your expenses first. Income is important, but without controls in spending, a comfortable retirement is just not possible.

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Guest's picture


I think one of the keys to a successful retirement is to have a paid off house and to remain debt-free. There is a big rent versus own debate and the math looks great when you are young. But, when you retire and your rent keeps going up, you would need a lot more retirement income to support this.

Guest's picture

I totally agree, spending more than earn or even equal to what you earn can seriously impact your retirement. We are savers and live on a lot less than we earn. I am more concerned about keeping busy, stimulated and engaged in retirement. I am working on that aspect now to avoid the issue later.

Guest's picture

The article above highlights the key issue of focusing on spending. However, i believe it is both, spending and income, that should go hand-in-hand. Some expenses like utility bills, groceries, etc cannot be reduced after an extent. That's when, i believe, one will have to start thinking about the income. Control on spending will essentially come when one realizes that retirement savings is not enough. But what then? He will have to think about increasing his monthly income.

Guest's picture

Spending is obviously critical as is having your house paid off, and these should be included in any retirement projection, but the key is simply to have a big enough nest egg. I've had friends retire and suddenly change their outlook to one of 'preserving' their wealth and frankly not have any fun -- they're too worried about running out of money! I"m not expecting extravagance by any means, but they become so chintzy that they are duds compared to their former selves. If you can't comfortably maintain a lifestyle that's close to your current one, in my opinion, you aren't ready to retire.

Guest's picture

Excellent post as always David. Both my husband and I have fully retired in Lebanon, PA and we've always believed in how spending habits affect one's retirement plan. If you're living frugally and find ways to earn even before retirement, you'll find in yourself in better fiscal situation than those who spend, spend, spend while they're still working.

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