How Much Income Do You Really Need in Retirement?
The 80% rule is outdated. Our updated framework adjusts for healthcare, housing, and the new tax brackets.
The old rule and why it's broken
The classic "you'll need 80% of pre-retirement income" rule was built when defined-benefit pensions were common and healthcare was cheap. Today neither is true.
A better framework: bucket the expenses
Calculate retirement spending in three buckets:
- Essentials — housing, food, utilities, insurance, transportation, healthcare. Must cover with guaranteed income (Social Security, pension, annuities).
- Lifestyle — travel, hobbies, gifts, dining. Cover with portfolio withdrawals.
- Buffer — long-term care, major home repairs, family help. Cover with home equity, insurance, or a dedicated investment bucket.
Healthcare reality check
Medicare doesn't cover everything. A typical 65-year-old couple should budget:
- Part B + D premiums: ~$5,000/year combined.
- Medigap or Advantage premiums: $3,000–$6,000/year.
- Out-of-pocket: $2,000–$5,000/year.
- Total: $10,000–$16,000/year for the couple.
The 4% rule and its successor
A $1M portfolio safely supports about $40,000/year under the traditional 4% rule. Modern research suggests 3.5–4.5% with annual adjustments based on portfolio performance.
Bottom line
Forget percentages. Add up your planned monthly expenses (be honest), multiply by 12, then add the healthcare buffer. That's your number. Most retirees need $60k–$120k/year household, depending on lifestyle and location.