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Target Spending, Not Income, In Assessing Your Retirement Needs

“It’s the economy, stupid” is a phrase widely used during Bill Clinton’s 1992 presidential campaign. Generally attributed to Clinton political strategist James Carville, the phrase is often repeated in American political culture, with commentators sometimes using a different word in place of “economy”. But whether it’s the deficitthe voters, or the environment(stupid!) you substitute for economy, the phrase is meant to focus attention upon what matters most in the world of politics.

Retirement needs are so often expressed in terms of income (with many experts recommending replacing 70-80% of ones pre-retirement income), you might think income is what matters most in the world of retirement planning.

Unfortunately, this can lead people to conflate income with spending, and the mistaken belief that 70-80% of pre-retirement income is recommended because a 20-30% decline in post-retirement spending is the norm.

What the rule of thumb is actually attempting to convey is the average amount of pre-retirement income not being used to fund pre-retirement spending.

While some pre-retirement income is spent on things like clothing, dry cleaning or commuting expenses – post paycheck spending that will be reduced, or even vanish in retirement – these kinds of expenses tend to be minor compared to payroll deductions like 401(k) contributions, pension obligations, and Social Security taxes.

All of this is to say that the recommendation to replace 70-80% of pre-retirement income is not meant to suggest your post-retirement spending will be any less than it is today.

In fact, hopefully your post-retirement spending on things like food, utilities, entertainment, etc., is every bit as much as it was before you retired!

Who wants to limit their consumption of food, utilities or entertainment to 70-80% of what it was before retirement? In assessing your retirement needs it’s best to target (100% of) your spending rather than (70-80% of) your income. Because when it comes to retirement planning – it’s the spending, stupid!

Written By

Don St. Clair, CFP®, AIF®, ChSNC®, CCFC

Don has spent his entire career helping clients turn Debt & Taxes into Savings & Investment™. His primary aim is to help clients discover new opportunities and create possibilities not previously imagined.

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Our unique approach emphasizes the integral role taxes play in personal finance, and leverages the value of tax planning by incorporating tax considerations into the entire financial planning process.

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While many of our clients are already retired, our pre-tirement planning services are specifically designed for self-employed professionals. If you’re self-employed, pay too much tax, and are looking to make work optional – we can help.




1. The time of transition from “working too much” to “making work optional.”