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There’s A Tough Retirement Choice Facing Baby Boomers

Could you reduce your spending as an acceptable price to pay for your retirement freedom? That might be necessary, since most boomers haven’t saved enough money to retire full time at age 65 under their pre-retirement standard of living. The most common-sense response to this situation is to either to work longer or reduce your spending, or do some combination of the two.


While more than half of older workers report they want to work beyond age 65, the reality is that many of them will be forced to retire sooner than they’d planned. The deal-breakers are usually health issues or the inability or unwillingness to continue working. This leaves “reducing their spending” as the most viable remaining solution.

When determining how much income people will need in retirement, many financial planners cite this common retirement planning goal: To have a financially comfortable retirement, you need a retirement income that equals 70% to 80% of your pre-retirement pay. Let’s see how realistic this goal might be.

In my last post, I estimated the retirement income for a hypothetical married couple named Jack and Teresa under five different retirement scenarios, ranging from retiring full time at age 62 to retiring full time at age 70. That post illustrated a significant increase in the dollar amount of Jack and Teresa’s retirement income if they chose to delay their retirement date.

Can you retire on one-third or one-half of your pay?

The graph below visually expresses Jack and Teresa’s estimated retirement income as a percent of their pre-retirement pay.

This graph shows that most boomers will need to reduce their spending in retirement.Steve Vernon

This graph shows the high price people pay for retiring early — at age 62 — when their retirement income would be a little less than one-third of their pre-retirement pay. Even at age 65, they still haven’t reached a retirement income that equals half of their pay, a goal they don’t reach until they work in some manner up to age 70.


The dollar amount of Jack and Teresa’s estimated annual retirement income ranges from $62,312 for retiring at age 62 to $119,081 for retiring at age 70. One might argue that they could somehow manage to live on either of these amounts of retirement income, but doing so will require some careful planning.

If retirees need to reduce their spending, the biggest target to consider is housing, because it’s usually the largest source of living expenses for most retirees. But this can present an opportunity for a win-win solution, with the potential to both reduce spending while better meeting the needs of an empty-nest couple. That house in the suburbs that worked well for raising families might not be the best place to retire for a couple who no longer have children living with them. Instead, they might want to consider downsizing to a smaller place that would cost less and also help them save on utilities.

No matter what housing choices lie ahead for you, it‘s almost always better to face these choices while you still have the energy and ability to make a move, instead of waiting until you’re forced to move much later in life when you’re running out of money.

Admittedly making choices about retirement savings and living expenses can be tough for many people. But nobody said that living a long time in retirement would be easy. The best you can do is explore all your options, make informed decisions, and move on with your life.


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