The question here is really -- for high earners --- do you really need only 70-80% of pre-retirement income.

Answer: For high earners this ratio makes little sense. You need to build out what your actual expenses would be and see where you end up. I will say that among high earners, most people spend about the same as now. Education costs that you now do not pay are used on grown kids. travel costs are much more. The real reduction as people have pointed out is no 401k or other savings. For high earners probably 100-200k that you saved that you no longer need.

Anonymous wrote:+2
Presumably in retirement I will stop saving and my mortgage will paid off. I understand that I'll still have property taxes, insurance, and maintenance, but my housing costs will drop.

We already paid off our mortgage and that was a 25% drop in expenses. When I’m not saving for college and retirement and not paying to feed my kids, there’s another drop. Yeah, I’ll travel but probably won’t spend nearly what I put away now and if I buy another home it will be to move and I’ll use the proceeds of my current house so that shouldn’t increase costs.

Anonymous wrote:This is the funniest post I have ever seen.

Yeah no s--t if you live more extravagantly during retirement it's gonna cost more.

The basic assumption is that most people will downscale their home, or finish paying their mortgage. Not that they will buy a second home or join a second club.

That plus less commuting, less eating out (more time to cook well) means generally lower expenses.

+1 This is also why people generally retire after the kids are launched. You can downsize your home to a lower cost of living area and pay cash for it, no more saving for college or paying for kids activities, etc.

OP, it sounds like you're trying to keep two homes, hence the two clubs. Can you afford this?

I think the assumptions are:

No more need to save
No more mortgage or a downsized home
No more kid expenses if they launches
No more college savings/loans
No commuting costs

These are huge! No mortgage or needing to save for college would be a big chunk of expenses alone for most.

+2
Presumably in retirement I will stop saving and my mortgage will paid off. I understand that I'll still have property taxes, insurance, and maintenance, but my housing costs will drop.

Anonymous wrote:This is the funniest post I have ever seen.

Yeah no s--t if you live more extravagantly during retirement it's gonna cost more.

The basic assumption is that most people will downscale their home, or finish paying their mortgage. Not that they will buy a second home or join a second club.

That plus less commuting, less eating out (more time to cook well) means generally lower expenses.

+1 LMAO

Late 50s here, HHI $280K. We currently spend about $3k/month on college expenses, so right there is 20% of our monthly take home. We won't be spending that in retirement.

We are only a few years away, so I've been diligently tracking our spending, and dreaming. Once we retire, I assume there will be more spent on travel and hobbies, and less spent on insurance (term life insurance, disability insurance), no more need to save in 529/college, no more saving for retirement, no more mortgage, etc.

So for those of us who had kids in our 40s and are now in our 60s, we’re still paying for kids’ tuition and living expenses. One graduates with a great job in a few months and I feel like we’ll be getting a raise. DH plans to retire in five years or so when the youngest is out of college. And then the ridiculous grocery bills, tuition, and living expenses should all decline. Also our utility bills! No more long teenage hot showers!

From Fidelity

Pre retirement income Replacement ratio
<$50K 80%
$50K-$80K 75%
80K-120K 70%
>120K 50%-80%

Sounds like a weird humblebrag. As another poster said, if you assume another mortgage and club fees, of course your expenses won’t go down.

Typically, expenses go down because you’re not paying payroll taxes, not saving for anything - retirement, college, etc. - and you have no debt - I.e. no mortgage, credit cards, or car payments. Also, some people move to states with no income taxes. In that scenario, you’re just paying to maintain the engine. Of course, some will step up travel, which will cost more, but it also depends on where and how you travel. Taking a roadtrip across the county and staying at modest hotels is different than 3 months in Paris, dining at expensive restaurants every night, and doing activities every day. Also, some may acquire expensive hobbies, like 3x week golf. But, that can be done at a public course or a club, with the latter being multiple times more expensive.

Our expenses are way up in retirement but our adjusted gross income is probably 70-80% of pre retirement income. We used to be pretty aggressive savers but that’s pretty much over. Between pensions, SS and required retirement distributions we can cover the majority of our expenses without much tapping into our non retirement accounts. If the equity markets grow 5-7% our increased net worth will build up our cushion.

This is the funniest post I have ever seen.

Yeah no s--t if you live more extravagantly during retirement it's gonna cost more.

The basic assumption is that most people will downscale their home, or finish paying their mortgage. Not that they will buy a second home or join a second club.

That plus less commuting, less eating out (more time to cook well) means generally lower expenses.

For me, the reduction has to do with the amount I will not be saving. Between my DH and I, we save ~25% of our gross income annually. I think you might be misinterpreting the guidance. Most advisors are not saying your expenses will go down 20%, they are saying you need approximately 80% of your gross income--two very different things. Since many people do not track their expenses and do not know what they spend, they can use the rule of thumb that 80% of their pre-retirement gross income is a fair estimate of the income they need in retirement.

My numbers for reference:

HHI $300k
80% of HHI is $240k
Current expenses $160k
Assuming I ramp up the travel and healthcare costs increase, maybe I help the kids/grandkids out here and there, $240k income sounds about right to me.

You don’t pay w2 taxes in retirement.

In one post someone wrote that retirement spending is often 70-80% of pre retirement spending. Is that the case here? Our spending excluding education, savings and taxes is much higher. We travel more, we dine out more, we now have two homes and two clubs instead of one each. Even if your lifestyle hasn’t changed in retirement I don’t see how your expenses can go down 20-30%. I can see how commuting costs can go down but where are the other big savings? Our second home and club are a big part of the increase but excluding those costs I can’t see how our spending would have declined. For those 10+ years from retirement be careful how you estimate your retirement expenses.