One of the biggest questions faced by prospective retirees is “How much money will I need in retirement?” The answer differs from person to person, but there are some rules of thumb used by financial planners. Perhaps the most common rule of thumb is that 80% of gross pre-retirement income should be sufficient.

This rule assumes that you will have paid off your mortgage, will have lower expenses and will no longer be paying payroll taxes. When you’re a long way from retirement, this rule gives you a good target to shoot for.


Of course, your situation might not fit this rule of thumb; you might need/want more or less income in retirement. Or, you may be closer to retirement and want a more precise figure than 80%. You should always look at your own situation before making any financial decisions that could affect your retirement lifestyle.

When you get close to retirement you can use your current cash flow (income and expenses) as a guide to how much you may need in retirement. If you are planning changes in retirement (such as relocation, more travel, etc.) cost out the changes as best you can.

Here are some adjustments that can be made to your current budget:

1) You will not be paying payroll taxes (Social Security, Medicare and FERS/CSRS contributions) on your retirement income.
2) You will no longer be saving for retirement via the TSP.
3) If you elect a survivor benefit for your spouse, you will have to pay for it from your FERS/CSRS pension.
4) Transportation expenses may go down as a result of your no longer commuting to work.
5) Expenses for food outside the home may be lower as you will no longer be buying lunch on work days.
6) Clothing expenses may be lower as you will no longer be buying work clothes.
7) Travel and vacation related expenses may increase with more free time on your hands.
8) Recreational expenses may increase.
9) Your mortgage may be paid off.

As you analyze your own income and outgo, you will get a better handle on how much money you “need” in retirement.