The standard advice is that in retirement you need only 70-80% of your pre-retirement income (on the theory your expenses will decline). That’s balderdash🤨
Not only will most of your expenses remain the same, (🤑) those that do decline or disappear will be replaced by other different expenses; some for fun others you can’t control.
Not only do you need to plan for 100% income replacement, you need to plan how to periodically replace some savings and keep up with inflation.
Let’s say you started retirement with $1,000,000 invested. Assume that was in 2000. To maintain the value of that money to cope with inflation to 2018 you must grow it to $1,439,413.47 while you are withdrawing the money you are using to live on. In this example period of low inflation, you lost nearly half the value of your savings.
Unless you have a plan to increase your income during retirement, your initial spending needs to be substantially less than your income to leave room for inflation to close the gap … or be prepared to lower your standard of living during your retirement years.
If you are like most Americans, you will rely on Social Security and your own savings during retirement. However, some Americans are still fortunate to have a pension (especially government employees) and at least in the private sector, few include a COLA. Keeping up with inflation is still an issue to consider.
SUGGESTION FOR MILLENNIALS AND YOUNGER
Forget about Social Security‼🤓 Plan your retirement saving and investing to replace your income in retirement. Use Social Security as a backup to cope with inflation and emergency spending. Yes you can‼‼ But you must adjust your current lifestyle and spending accordingly.
(🤑) a possible exception would be a person who pays off large debt just before retirement and thus frees up cash previously used for monthly payments