The Heller School for Social Policy and Management, Brandeis UniversityNational Program on Women & Aging
Women & Aging Letter
Excerpt - May 1996Planning for Retirement Security: It's Never Too Early and It's Never Too Late
Volume 1, Number 4Retirement Planning: Maintaining Living Standards
An older couple today needs about $10,000 and a single person needs about $8,000 in yearly income to escape poverty as defined by the federal poverty index. But this is a minimal objective.
Many financial advisors suggest that a better objective is to "maintain living standards in retirement." That is, one's living standard in retirement should not be extremely different from what one has enjoyed in the not too distant past.
The big challenge then becomes one of replacing the income (mostly earnings) that ends when one stops working. Of course, a number of expenditures -- for commuting, work clothing, restaurant meals -- are likely to diminish when we retire. The same may be true of income taxes, savings, and expenditures on children. On the other hand, certain expenses, such as medical costs, may rise.
Adjusting for these changes, what replacement rate do we need to maintain our living standard in retirement? A good rule of thumb used by many financial planners is between 65 and 80 percent of preretirement income (before taxes).
This is an excerpt only
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