A Realistic Retirement Income Target

In The Essential Retirement Guide, author Fred 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 Mr. 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.

Mr. 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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  1. L. Hoyt on October 25, 2018 at 5:43 am

    I haven’t read this book (but plan to), but one thing I find many of these types of scenarios assume is that retirement will be as part of a couple, I assume because they believe that is the situation for the majority of their readers. However, the 2016 census finds that “For the first time in the country’s history, the number of one-person households has surpassed all other types of living situations. They accounted for 28.2 per cent of all households last year, more than the percentage of couples with children, couples without children, single-parent families, multiple family households and all other combinations of people living together.” (Globe and Mail) As a single person myself, I would love to see more emphasis in the financial press on the unique issues facing single people trying to save for retirement on one income and how much that retirement will cost.

    • May on October 25, 2018 at 9:56 am

      I second that! I get very tired of all the retirement tips and advice focused exclusively on the assumption that everyone is part of a couple. Saving for retirement as a single is not only harder because we have access to only one income, but we are penalized by the tax system because we cannot split our income to reduce taxes.

      • Jan on October 25, 2018 at 3:38 pm

        I also agree with this comment. It seems we are a forgotten demographic. We are definitely in need of advice.

    • Cheryl on October 27, 2018 at 9:44 am

      I’m with you. I’d like to see more articles on challenges faced by singles and financial advice when you live frugally and just can’t get ahead. There’s a huge disparity in financial advice for singles. Singles have one income, and if you’re a woman it’s probably not a very high income. I went through a divorce later in life which was an expensive process and a deadbeat ex not paying support. I no longer own a house. My rent is over half my monthly take home pay. I live frugally and manage to save money for retirement each month. As a single I can’t wait until all the government benefits kick in at 65 and my life will be a little easier.

    • L. Hoyt on October 27, 2018 at 10:18 am

      Further to comments above, I suspect some of the reason the singles segment of the market has been almost ignored in the financial industry is simply because singles, for the most part, have less money available to be invested, so less revenue is up for grabs by those offering financial advice and management. I am considering setting up a Facebook group for singles trying to plan for retirement just to share ideas about financial planning, experiences with financial institutions, good sources of information, cost-cutting solutions for expenses etc. Maybe call it Solo Retirement to start?

      • Grant on October 28, 2018 at 12:39 pm

        What a great idea! I’m not single, but many of my friends are, and I’m sure would interested in such a group. I look forward to your Facebook Group.

      • Beth on November 4, 2018 at 9:57 am

        I’d sign up for that! I’ve always saved 10% of my income (more like 20%) but I feel like I could be making better investing decisions. I feel like other singles would understand my worries and challenges better than married folks.

  2. Jeff on October 25, 2018 at 6:28 am

    I read this some time ago and it is excellent. There are a lot of authors and bloggers writing on this subject but Fred Vettese has devoted his working life to it. My wife hates dealing with financial planning but she loved his book, which shows that he’s a good writer as well as knowing his stuff cold. His new book, Retirement Income for Life: Getting More Without Saving More, would be the one I’d recommend if you were only going to read one of his books. He presents five strategies for making the most of your savings and turning them into reliable retirement income that will be there for you until the end. Take a break from the blogosphere and read this man’s book(s) and you’ll be much wiser and have a better picture of what your retirement will look like.

  3. Steveark on October 25, 2018 at 7:51 am

    I have not read the book but I have been retired for three years and have found that my spending in retirement is almost exactly the same as when I was working. And it never correlated at all with my income. I was getting big raises right up to my final year but I never increased my lifestyle costs so my savings rate was as high as 75% that last year. The idea that it makes sense to spend more because you have more seems pretty hedonistic to me. My wife and I could easily afford to spend more than three times as much as we do now but we have everything we want and do everything we want so why would we force ourselves to spend on things we neither need nor want?

    • SScott on October 27, 2018 at 2:30 pm

      Obvious here that Steveark and his partner are very wealthy. Anyone who at any time can save 75% of their income in this day and age, and then admit they could easily spend 3 times what they currently do, have obviously traveled to all parts of the world they desired, earned huge incomes, perhaps gold plated pensions or stock options, etc. Again, as many financial / retirement examples often do, we’re clearly not talking averages here. But congratulations on your accomplishments!

  4. Robert on October 25, 2018 at 8:51 am

    For many Canadians – regardless of 40%, 50%, 60% or 70% targets – they simply aren’t saving enough and too many are hoping that, a) their houses will save their retirement, or b) Mom and Dad will leave them enough to make up the difference. I’d like to think that my wife and I will be in the 50-55% area – but we’re trying to save to cover 60-65%. Pretty sure there isn’t anyone out there saying to themselves – “Damn, I saved too much money for retirement…”

    • Beth on November 4, 2018 at 9:59 am

      Unless you’re part of the generation that can’t afford to buy a house to begin with.

  5. Carol on October 25, 2018 at 10:04 am

    I agree with Steveark. We find that our expenses amount to the same, just different categories. Cars still have to be replaced, bathrooms renovated to make access easier. We now have lawn cutting and leaf raking services. Plus house cleaners and increased parking expenses for hospital visits. We travel but pay more because we need extra comfort. I see from friends that gym, alcohol, childcare expenses etc., just get with replaced with personal care workers, grocery delivery, taxi fares, Trillium drug deductible etc. The other side of this is that we saved enough to give us the retirement we hoped for only to received a terminal illness diagnosis. Now it looks like 50-60 percent of our money saved in RIFF accounts and small business investments will go to the government in taxes. LOL

  6. Claire on October 25, 2018 at 12:28 pm

    These rules of thumb are so general as to be useless. As noted by two commenters (so far), the single person is ill-served by this kind of advice. So are many others.

    One-third of Canadians are renters and may never have a mortgage, paid off or otherwise. I fall into this group, and take it from me, my rent will only go up and up every year. I have never owned a car and used to bicycle or walk to work, or take public transit. My office was business casual and so my wardrobe costs are basically unchanged now that I’m retired.

    And OK, I’m not paying CPP, UI and union dues, but then again I’m now paying most of our dental and medical expenses out of pocket now that I no longer have my former group coverage.

    In short, my costs (and those of my husband) have changed very little in retirement. Fortunately, our financial advisor understands this. I wish more book and blog authors did, because I’m certain we’re not that unusual.

    As your other commenters have observed, it’s depressing to be “erased” as a group every time this question comes up.

  7. Elaine Gyoerick on October 25, 2018 at 4:03 pm

    Re: Advice for singles – Ditto. It’s almost as though it’s been forgotten, or unnoticed, that such a large percentage of us are single in our senior years. God knows I grew up in a home where my parents were in persistent debt with the power turned off occasionally. Any windfall was spent immediately. I was in my 40’s by the time I figured out it made no sense to utilize a line of credit to the tune of $12,000 or so. So I worked hard, paid that off and began to save for an emergency fund and never looked back. I’ve paid off my condo, but after focusing on my mortgage, this place is in dire need of replacement in some areas. Considering I swore I’d never take out another loan in my life, I’m going to have to figure out how to make some money working from home (any suggestions? I’m a good typist and love to do research).

    I never really gave retirement finances a second thought until my 50’s. I began reading up on RRSP’s, TFSAs, ETFs and such. Disability occurred at age 57 and I find I have to retire now at 62. As has been said so often, I wish to God I knew then what I’m finding out now. Deciding how to much to take out monthly is giving me a headache, as well as finding a new health plan (I have a number of medical conditions so I know I’m going to have to pay to get decent coverage, if given coverage at all).

    Man, do I need to find a hobby or what? HA!

    In closing, may you all reach your retirement goals.


  8. Robb Engen on October 25, 2018 at 9:59 pm

    So I hear you all loud and clear about retirement advice for singles and the lack of coverage. You need to read this book.

    Up at the top of the post I wrote about how the author, “looks at a number of personal consumption scenarios for singles, couples, couples with children, high-income earners, and low-income earners.”

    And also how, “couples that never raised children or paid a mortgage tend to spend more on themselves during their working lives and naturally want to continue doing so after retirement.”

    Mr. Vettese delves into all of these different scenarios, not just the standard home-owning, child-raising, retired couple.

    So for L. Hoyt and everyone who jumped in asking for retirement advice for singles, I’ll reiterate to please read the book and you’ll find some of the answers you’re looking for.

    And I promise to write a follow-up article to address singles. In the meantime, here’s one from the archives: https://boomerandecho.com/retirement-planning-singles/

    • David Lau on November 11, 2018 at 2:47 pm


      I’m beginning to read Fred Vetesses’ book, and it does talk about renters and singles, so I agree it does provide good insight there.

      However, I have some questions on the assumed taxation. I’ve tried emailing and sent a tweet to Fred, but no reply yet…

      Can you give any insight? The examples in Chapter 3 seem to assume about 10% tax, which seems maybe ok, if you’re in the lowest tax bracket, but for the top 50% of the population, the tax rate is likely closer to 20%… Anyways, any insight would be appreciated…

      David L.

  9. Teresa on October 26, 2018 at 8:33 am

    I have a daughter who was looking at doing transcription work online.
    It appears to be a thing at universities?

  10. Steve Bridge on October 26, 2018 at 12:46 pm

    Good article Robb and good comments, too!

    Taking away what I am saving for retirement, business expenses (I’m self-employed) and higher taxes that I’m paying now (vs. in retirement), I will probably be spending almost the same as I am now. I live alone and am a renter, for context.


  11. Lori on October 28, 2018 at 12:58 am

    Single female, retired at 58. Now 65. I’ve been spending about 120% of my final income as I travel extensively (much more travel than when I was working). However, excluding the travel, 60-70% would be quite adequate to comfortably cover all expenses… I guess it all depends on what you want to do in your retirement. I’ll probably slow down a bit after 72 and spend less on travel and more on hobbies, etc.

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