How Much Income DO You Need In Retirement?

How Much Income DO You Need In Retirement?

You hear all the time you need 70-80% of your pre-retirement income when you retire.

The doomsayers at the National Institute for Retirement Research claim that Americans need even more than 80% of pre-retirement income and thus don’t have enough assets to retire. In an article titled “New Report Finds Nation’s Retirement Crisis Persists Despite Economic Recovery” these folks claim:

To maintain their standard of living in retirement, the typical working American needs to replace roughly 85 percent of pre-retirement income. “

Here’s another example of their fair-minded approach to analyzing the retirement situation to warn us of impending DOOM! “Retirement in America | Out of Reach for Most Americans?”


Then we have Aon Hewitt claiming:

Aon Hewitt’s Real Deal project reduces expected consumption for work-related expenditures, savings and taxes, and increases health care expenditures to arrive at their estimate that retirees will need to replace about 85% of average pre-retirement income (Aon Hewitt 2015).


Hmmmm…so both Aon Hewitt and the National Institute for Retirement Security are arguing in favor of not a 70% replacement of income ratio…not an 80% even, but rather an 85% replacement rate?!?!?  Weird no? Until I came across these fine groups, not one time in my nearly 25 years as a professional have I heard anyone use the 85% number. Again, weird….


Retirement Propaganda


So, before we absolutely DESTROY their claims, let’s take a look at what incentives these groups have to spread the fear.  Just a quick tour of the front page of their website and we can see that the NIRS is paid for hook, line and sinker by pension providers throughout the U.S. 

Oh wait lookie here, Aon Hewitt is also a sponsor

Remember, 401k plans essentially replaced pensions. As such, it’s a huge incentive for pension providers to advocate that pensions work better in retirement security whereas 401k plans are fraught with risk and could lead retirees to poverty, well so they say.

Neat how this works, no?

But let’s not let Aon Hewitt off so easily.  Let’s dive a bit into their business model. When we go to for our research (because remember Google manipulates its Search Engine Results Page) we find:

Hmmm…human resources consulting; no big deal there, one might suspect.  But one need to read that Aon Hewitt is a Subsidiary of Aon Corp to see where the dots connect.  What is Aon Corp’s line of work you may ask? 

Aha!  Now it makes sense.  AON, a global company, gets profits from being knee-deep in the retirement industry.  What better way to increase profits than by funding groups of scare-mongers to perpetuate this “retirement crisis” myth so that politicians act by providing more taxpayer money. 


Retirement Crisis Is A Wall Street Invention


Don’t take my word for it, here is Kevin Drum of the far-left Mother Jones stating the exact same thing… 

The “crisis,” as near as I can tell, is mostly an invention of Wall Street firms, which churn out an endless supply of “studies” with scary headlines but not much in the way of facts on the inside.(emphasis mine)

I couldn’t agree more. And the proof is right in front of you.  Aon is a Wall Street firm. A three letter ticker symbol means it trades on the New York Stock Exchange, the bluest of the blue-chips. They have a subsidiary, Aon Hewitt, which, along with many other self-interested businesses, fund academically-sounding and supposed non-partisan think tanks such as the National Institute for Retirement Security to promote propaganda to scare people. 

Scared voters look to politicians to solve the ‘crisis’ that’s making them scared and the politicians then provide resources to the exact fear-mongering groups to fix things. Crazy how this works.  But think about it, why else would a group such as the National Institute for Retirement Security have their headquarters here:


DC Lobbyists On The Prowl


That ain’t cheap land, my friends.  K Street in DC is notorious as lobbyist row. 

In fact, lo and behold, these people magically find themselves literally a block from the White House. 

Ironic isn’t it?

Certainly the good folks at the National Institute for Retirement Security, headquartered in DC, first priority is the financial health of Americans living in places like Topeka, Kansas, right?

If you believe that, my friends, PLEASE talk to me..I’d like to introduce you to my friend, George Strait.  He sells ocean front property in Arizona at deep, deep discounts. 


A Real-Life Retirement Income Replacement Rate


Allright, so we can safely discard anything the doomsayers claim. But what is an actual income replace rate you might want to use for retirement?

I have an answer, provided to you from Ron, who follows my Youtube channel

Ron writes in with his own spreadsheet about the income he had before retirement and the income he needs once he retired. Let’s take a look at his numbers as it’s incredibly informative. 


Income While Working

As you can see, quite clearly, while working ole Ron is living on around $42k a year, or $3,500 a month, after 401k contributions, health care costs, taxes and debt payments. 

Fast forward once he retires and what do you find?


Income When Retired

Whoa!  With debts paid, which SHOULD be paid off because that is priority #1, ole Ron is STILL living on $3500 a month, even though his gross income dropped from $122k to $51k! 

Of course, I’d argue that $3500 a month will also drop as he ages too; The evidence is OVERWHELMING in that regard.  But either way, $3500 is what he was netting while working and $3500 a month is what he is netting once retired.  

Yet, the good folks in the financial, academic and media industries would have us believe Ron needs 85% of his $122k salary while working to ‘successfully” retire.  That would be $103k a year gross income Ron would need. 

If we subtract Ron’s Social Security of $29k from the $103k the doomsayers say he needs that leaves us with $74k a year his $550,000 portfolio would have to support. That is a 13.5% distribution rate, which of course, would exhaust the portfolio in less than a decade. 

No wonder there is a retirement crisis with that kind of thinking. No wonder people need millions, MILLIONS, I tell ya!, in order to retire.  But ole Ron, just a regular, American Joe, who even tithes still. (how quaint right? I bet Ron drives a beat up F-150 too. And thinks there are only two genders.  He’s a relic of a past generation, isn’t he?) But Ron, caveman though he is, has PROVED what all the academics and lobbyists on K street deny, that you don’t need 85% of your pre-retirement income.  In this case Ron needs all of 42%.  

Hmmmm…now that number seems to remind me of something.  What could it be? Hmmm…

Oh, it’s exactly what Frederick Vettese says in his book “The Essential Retirement Guide – A Contrarian’s Perspective” which I talked about here.


Spread the Good News!


So now you know the truth folks, I appoint you sheriff’s deputies, like Ron here.  Spread the word, the good cheer actually, to all who will listen. Remember though many people do not want to hear good news.  They want to wallow in fear. Weird how a Great Man knew that would happen and warned us all about it. 

Let me repeat the glorious words of that Son of a Jewish carpenter from a little town called Nazareth:

14And if anyone will not welcome you or heed your words, shake the dust off your feet when you leave that home or town.”

Remember you can only bring the truth, you can not enforce people hear it never mind believe it.  But as that same Great Man also said, 

32And ye shall know the truth, and the truth shall make you free.(2 John 1:4-6))

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