In The Essential Retirement Guide, author Frederick Vettese argues that the widely accepted retirement income target of 70 percent of final pay is too high. A more realistic retirement income target, according to Vettese, may be closer to 50 percent and in some cases could be as low as 35-40 percent (i.e. for couples who spent a considerable amount on housing and child-raising throughout their working years).

The book offers a contrarian’s perspective on retirement. It looks at a number of personal consumption scenarios for singles, couples, couples with children, high-income earners, and low-income earners. Personal consumption is what’s leftover after retirement savings, employment costs, income tax, mortgage payments, and child-raising costs.

Retirement Income Target

Couples that never raised children or paid a mortgage, for example, tend to spend more on themselves during their working lives and naturally want to continue doing so after retirement. This group is more likely to have a retirement income target of 70 percent.

Conversely, couples with above-average income that have paid a mortgage and raised children will have spent less on themselves. Their retirement income target will be closer to 50 percent.

Vettese goes on to define personal consumption in greater detail. It includes:

  • Food
  • Rent (if one does not own)
  • Home maintenance costs including insurance and property taxes
  • Household furnishing and equipment
  • Clothing
  • Transportation costs, including insurance
  • Health care and personal grooming
  • Travel
  • Recreation, hobbies, and entertainment
  • Education
  • Alcohol and tobacco
  • Gambling
  • Insurance (but not whole life)

Not included are expenses related to one’s children, retirement saving, mortgage payments, employment expenses, gifts of money, and income tax.

Curious, I looked at our own personal consumption this year and found that we spent about 44 percent on those items. Meanwhile, mortgage payments made up 10.5 percent, retirement savings 24.5 percent, taxes and other employment costs were 14.5 percent, and the remaining 6.5 percent was spent on kids’ activities and RESP contributions.

With our car completely paid-off next year our personal consumption will dip to 39 percent and our savings rate will rise to 30 percent.

Vettese preaches moderation in both one’s saving and spending habits so as to avoid periods of unnecessary financial deprivation either before or after retirement. That means finding something in-between the early retirement extreme saving ant and the YOLO live-in-the-moment grasshopper.

“Ideally, you want to save in such a way that you avoid extreme highs and lows in your personal consumption.”

Final thoughts

We’re told we need to save 10-20 percent of our income each year over our working life to be able to retire with a 70 percent pension. The financial industry – bloggers included – fixates on the need to amass a huge retirement nest egg at any cost.

Vettese argues that saving for retirement is a two-dimensional problem. The forgotten second dimension is the pre-retirement period where disposable income has to be sacrificed to feed the post-retirement income monster. The more you save in a given year, the less you have left over to spend, and vice-versa.

Related: What is a safe withdrawal rate in retirement?

The Essential Retirement Guide takes a deep look into the pre-and-post-retirement spending patterns of a wide-range of people. It presents a convincing argument that the standard 70 percent retirement income target is too high for many of us and that an appropriate target should be more in-line with our own personal consumption patterns – which happens to be around the 50 percent mark.

This type of approach strikes a nice balance between your present and future self. Smoothing out consumption throughout your pre-and-post-retirement years makes for more enjoyable living.

What’s your retirement income target? For those of you already retired, what percentage of your final pay are you living on?


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