Marlena Lee, a Vice President at Dimensional Fund Advisors, recently performed a study assessing how much of their current income people would need to live on in retirement. Here is what she found:
- The bottom quartile of earners (those who make less than $26,000), will need as much as 82% of their current working income to live comfortably in retirement. Social Security will replace the majority of that income, leaving this group to replace approximately 23% of their final salaries.
- For those earning $50,000 to $87,000, they will need to replace approximately 62% of their last salary to live comfortably in retirement. Social Security will replace approximately 31% of that income, leaving the retiree to replace the remaining 31%.
- For those earning over $87,000, they will need approximately 58% of their current working income and Social Security will replace as much s 21% of that figure. This leaves the retiree to replace the remaining 37% with their portfolio.
All of the above means you may need much less than you might expect to live comfortably in retirement. A bit of counsel we provide clients is to begin living as if you are retired (before you actually retire) so you can get a good feel for what you can expect your annual lifestyle needs to be before you actually call it quits.