# 75% of your pre-retirement income



## Tostig (Nov 18, 2020)

Question for all you retirees: Are your total expenses really at 75% of your pre-retirement income?

Yeah, it's just a rule of thumb that takes into account of your pre-retirement lifestyle, minus expenses for working full time and adding new expenses retired people do and other factors, like mortgage and dependent children.


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## AltaRed (Jun 8, 2009)

As you suggest, each of us will have a different answer because each of us has our own specific situation. Any of our answers would thus, for the most part, be meaningless. 

It would be more important to compare with pre-retirement expenses net of things like contributions to pension plans, investment portfolios, savings plans, CPP and OAS. On that measure, my expenses are considerably more in retirement than when I was employed, partly because I no longer have those pre-retirement expenses.


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## agent99 (Sep 11, 2013)

I would ignore that "rule". It again, is just a rough guide to help you figure out if you have saved enough.
A better approach, is to make a retirement budget. Eliminate all the work related expenses and contributions. Add any retirement expenses you foresee like travel or other activities like renovate home etc.
Once you have your annual budget, figure out if your savings along with cpp, oas, pensions are sufficient. If not trim your budget!
Good luck.


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## kcowan (Jul 1, 2010)

DW and I were making so much money in the last 5 years of employment that our expenses were barely 25% of our final earnings. Mainly because we did not grow our spending to match our higher incomes. The ROT applies to wage earners on average. Plus kids graduated, no parents to take care of, no further deductions, etc.


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## Tostig (Nov 18, 2020)

agent99 said:


> I would ignore that "rule". It again, is just a rough guide to help you figure out if you have saved enough.
> A better approach, is to make a retirement budget. Eliminate all the work related expenses and contributions. Add any retirement expenses you foresee like travel or other activities like renovate home etc.
> Once you have your annual budget, figure out if your savings along with cpp, oas, pensions are sufficient. If not trim your budget!
> Good luck.


I was curious and wanted to know how close to that 75% people were achieving.


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## Gruff403 (Jan 30, 2019)

I'll give you my numbers. For 2019 we created approximately 88% of our full time net working income. In two years when Government programs kick in we'll be at about 98%. I came to the realization that if I could afford my lifestyle while working full time it wouldn't take much of a budget adjustment to afford the same lifestyle at 88%. I still carry debt in the form of mortgage and HELOC and that's ok. I had a choice to work 7-10 more years to eliminate the debt OR go now and find a way to service the debt - that was an easy choice.
When I was considering leaving work I was shocked to discover that CPP, EI, Taxes, Union Dues and Pension contributions were 30%+ of my gross pay. Pension splitting and strategic with draw of assets also helps.
My goal was always to try and replace as much of my working income with passive income over time. Glad I did as my income is now more secure then when I was working.


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## Spudd (Oct 11, 2011)

.


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## mmlucki99 (Aug 25, 2020)

I think compare pre-retirement income is different than compare pre-retirement expenses, are we compare retired expenses vs pre-retirement expenses or income vs income (of retirement) ? like Kcoman pointed out, someone could have the expenses of pre-retirement is way less than 75% of the pre-retirement income, so they can save a lot for the retirement, and when they retired, the expenses could be more than 75% of the pre-retirement expenses, but their retirement income might be less than 75% when they were working, as long as they can afford it from the reserved retirement funds, then it is OK.


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## Gator13 (Jan 5, 2020)

I am not a believer in using a percentage of income to forecast retirement spending requirements. There are way too many variables for it to be meaningful.

You will be much further ahead recording actual current expenses over a year and adjusting to reflect retirement plans. More work, but definitely more accurate.

Just my 2 cents.


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## OptsyEagle (Nov 29, 2009)

The rule was not even a rule and most times it was 70%. It was developed to determine how much pension income a person should create for their retirement. Obviously the more the better, but as we know, the more also equals a higher cost. So the give and take of having more pension, compared to paying less in contributions, was said to be 70%. They simply assumed your kids would be gone and your mortgage would be paid.

It really relates to pensions. Has much less to do with retirement. As stated by others, the retirement need will vary considerably from person to person.

I will add, that even if you do fix a percentage of income, unless you have guaranteed pension income to pay that, you can never be sure you will have that number by saving personally, unless you over save by a multiple amount. With that said, most people will learn to live within their means, so I would suggest, unless you want to work until you are 80, is to focus mostly on the fixed expenses only and add a little savings for enjoyment and then hope for the best.

There will be exceptions to this but for most people they will never really be sure they have enough for the retirement they dream about so don't bother trying. Create enough to live on and a little more and that will retire you as quickly as you can do. If you are short of income for all your desires, you will just zig or zag, like you have done for your entire life. This may not be optimum but it is quicker then the optimum by many, many working years.

To have enough will equal "x" years of work/saving. To be sure you have enough will equal "x" years of work/saving PLUS 10 more.


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## ian (Jun 18, 2016)

For two years prior to early retirement we simply did a tape from our bank account on all after tax spending, including cash withdrawals. Everything goes through there either as a direct pay or a credit card pay. It took all of five minutes a month to complete and keep a record of the totals. We adjusted for anticipated post retirement spending, inflation, added a fudge factor, and then a provision for tax installments.

It worked. We have been doing this for the past nine years of retirement. Nothing fancy other than an annual after tax burn rate calculation. It worked for us.

Everyone's pre retirement income and post retirement spend will be different. Our number proved accurate despite some significant lifestyle changes.


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## OptsyEagle (Nov 29, 2009)

To not know fairly accurately what you are spending, on average, every month is simply a recipe to be poorer then you should be. It is a game plan for exactly that.

I always assumed my close attention to this was due to not having much money during my younger years but later I realized, that it would not have mattered much. In my opinion, it is pretty dumb not know how much money is being spent. A few very wealthy and/or high income people may get away with that, for quite a while, but for most of us, it is a very costly behavior.


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