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Rekenthaler Report

3 Approaches to Income-Replacement Ratios in Retirement

Individual circumstances vary broadly, but one can seek a reasonable starting point.

A Clear Target
Yesterday's column suggested--courtesy of a paper entitled "American Workers' Retirement Income Security Prospects: A Critique of Recent Assessments (AWR)"--that retirees need less income than is generally believed. Typical advice is to plan for replacing 80% to 85% of preretirement income during the retirement period. That may be too much. In saving for such an amount, investors may be accepting an unnecessarily low lifestyle during their working years.

The key word being "unnecessarily." There's nothing wrong with living better during retirement than while working. That is a personal choice; there's no preferred path for consumption spending. However, the decision should be consciously made, rather than accidentally and, later, with regret.