John Caspar

You've probably heard the standard estimate that you should figure on needing about 70 percent of your working income as a retirement income. Recently, a well-known money management firm has stated that its research indicates that the old rule-of-thumb is outdated, and that 80 percent is more like it. So, how much income do you really need in retirement?

Beats me.

The idea that "people" need 70 percent – or 80 percent – of their income in retirement is clearly a sweeping generalization. And, also clearly, your personal situation deserves more than a broad guess. It requires a plan specific to your income, your requirements, your goals. A rule of thumb may be adequate for the brochures of financial services companies, but it's hardly rigorous enough for you to plan the last third of your life on.

Take, for instance, high income households with great savings rates. If you have a high income, and you've been disciplined enough to be paying down your home mortgage quickly, maximizing your RRSP, saving for your children's education, and socking away yet more money in a taxable account toward your early retirement, you likely don't need anything close to 70-80 percent of your income when you stop working. Why not? Because a great deal of your income before retirement went into debt reduction and saving for retirement – things that won't continue when you finally quit your day job.

Or take, for example, a household with a lower income and no practical savings discipline. If you're renting your home and have no savings, then all your income is going into consumption. (When you pay rent, you simply consume a service. When you pay down a mortgage, you're purchasing a property.) That may well imply that you'll need 100 percent of your working income to continue – and retirement may not actually be an option.

The issue here is that your situation is specific to you, and it is known to you. A brochure, an ad, or a rule of thumb has to talk to a vast audience in the most general of terms because it cannot know the details of any one story. But you have the details of your personal circumstance, so it would be silly for you to reply on a broad and inaccurate shortcut. How much do "people" need for retirement? Generally speaking, 70 percent of their working income may be a good guess. How much do you need for retirement? Specifically speaking, figure it out.

Don't let the "figure" part scare you. This is actually way more fun than chanting "I need 70% percent of my income!" as a liturgy of retirement planning faith. Grab a pencil and paper, refresh your beverage, and snuggle up with your partner. Sketch out what you want the future to look like. Go there in your mind, and think about what it would cost to live that life today. Build a budget for the future you, using your existing budget as a template (you have one of those, right?). What items will stay? What items will disappear? What items would you like to add? This shouldn't feel like work, because you'll literally be designing your future. And how great is that?!

While you're at it, consider that the idea that designing your future doesn't have to include the cessation of working for profit at any special age. Oh, sure, you'll likely want to build financial independence into the mix at your earliest opportunity. It's good to have options, after all. But many people in their sixties and seventies feel more engaged by staying active in the work force, and that's an idea worth considering as you cast your vision forward into your future. Last Sunday I met a 78-year-old gentleman who plans on easing out of his law practice by the time he turns 80, so he can turn his full-time attention to a social activism cause that he's excited about. For him, heading to work is still exciting. His older brother, on the other hand, is already retired and stays busy with hobbies – like the 80 km bike ride he did with his extended family to celebrate his 80th birthday.

All of the elements of your future – how you define it, what you do with it, who you include in it, how much money you'll need, the state of your health – contain a unique blend of considerations, opportunities and challenges. Do all that potential justice and pass on using some handy general guideline of how things should look. It's your story to write – and you should.

© 2007 John Caspar