What’s a Good (Very Comfortable) Retirement Income?


Whether mandatory, early, or simply desired, the idea of retirement is a reality for every working person. For the majority of society, retirement is a blissful reward on the horizon motivating them to work hard from their 20s to their 60s. 

Recent data shows that the average age of retirement is 62. However, younger generations express a desire to retire at 59. The majority of persons studied expressed concerns regarding the amount of money needed to retire.  

To have a very comfortable retirement, prospective retirees should attempt to save enough to sustain 85-90% of their annual income at the time of their retirement. The vast majority of experts have pegged 80% of a retiree’s pre-retirement income as the number needed to sustain a pre-retirement lifestyle.

But inflation will impact a retiree’s savings, and a person’s life expectancy is important as well, as longer life calls for a stronger portfolio. 

This article won’t focus on the minimums of retirement or whether retirement is possible for a certain demographic. The idea here is to put the magnifying glass on how much money it takes to enjoy a very comfortable retirement.

What is the minimum amount required for retirees now and in the future to maintain their desired lifestyle? 

What is Very Comfortable for Retirement?

The answer to this question is relative. One person’s idea of “very comfortable” may be another person’s idea of traveling coach. For the purposes of this post, “very comfortable” means that the retiree is not struggling to pay basic bills or living expenses.

In fact, a very comfortable retirement means that the retiree is thriving in a post-work lifestyle. 

Another consideration is geography. Certain locales have a much higher cost of living than others. What a dollar buys in one city or state may have more or less buying power in another. Over a 30-year projected retirement, a retiree in California will certainly need a stronger portfolio than a retiree in Alabama to be very considered “very comfortable”. 

Lifestyle choices and health care needs must also be accounted for in this analysis. A retired couple wishing to look down on Paris from a balloon will clearly need to plan for travel costs, while a retired couple with the dream of taking up the rocker every night will not. 

Recommended Financial Geek Article: Is $1.5 Million Enough To Comfortably Retire Off? (Analysis)

Eighty Percent is a Minimum

Any person considering retirement can do some simple calculations to see where they stand. While it’s best to take this look and start investing while a person is in their 20s, it’s never too late to begin investing for retirement. But take heed – the older the investor, the higher annual investment required to meet their retirement goals. 

Whatever their age, a person should consider 80% of their current income to be the minimum for a very comfortable retirement. A $100,000 annual salary easily reflects that an $80,000 post-retirement annual income is necessary to retire and maintain the same lifestyle as before retirement. For those living in lower or higher income brackets, the number will either decrease or increase based on a desired standard of living.   

By starting a savings while young and saving at least 10% of their income, a person may easily sustain their standard of living, but they might not realize a very comfortable retirement.

Wise financial decisions are necessary to increase their standard of living after retirement to that preferred level. It is also prudent to plan for inflated medicals costs at retirement age. 

A Look at Inflation

Financial planners tell investors that inflation will affect their financial situation at retirement. While it’s true that wise investments will increase principal over decades, it’s also true that just as inflation exists now, it will exist in a higher form by the time a person retires. 

Planners tell retirees not to panic and alter course in the face of inflation. Instead, they advise staying the course and to choose options such as a target date plan. Funds with a target date may have reduced fees and less risk, although that usually also means decreased potential gains, which may not be enough for a very comfortable retirement. 

Social security is adjusted for inflation, but this type of retirement outlook alone is not viewed as “very comfortable.” While inflation is subject to increases and decreases in rate, it will certainly have an impact on a retirement fund’s ability to provide the retiree with comfort.

Thus, an investor looking to retire between 59 and 60 years of age needs to maximize their investments and control their expenses enough to offset whatever the inflation rate will be at their retirement date. 

Life Expectancy

Although a grim subject, the reality of retirement is that the longer you live after you stop working, the more money you will need.

For a healthy person to have a very comfortable retirement, they need to invest and save more than a person who may be terminally ill or overall have a lower life expectancy due to health complications. Nutrition, exercise, and genetics can certainly skew the numbers, but overall, the Social Security Administration asserts that a 65-year-old can expect to live about another 20 years after retirement. 

Looking at this number, a person earning $100,000 per year pre-retirement would need to save at least $1.6 million to pay themselves $80,000 per year for 20 years. However, inflation and a person’s increased medical care costs will cut the buying power of that $1.6 million toward the end of that 20 years. A person planning for retirement should ask their financial planner about working growth components into their portfolio.

Thus, for a person retiring at a $100,000 annual salary, it follows that a very comfortable retirement would probably require closer to $2 million in savings to maintain an $80,000 or more standard of living when offset by inflation and rising medical costs. 

Finding Flexibility Within the 4% Rule

The 4% Rule is a relatively straightforward concept that retirement planners use to determine how much retirees should spend annually to maintain the longevity of their portfolio over a 30-year term.

A retiree simply adds all their investments and determines 4% of that sum. This is the amount a retiree should spend annually in order to preserve their fund as long as possible. 

Within the construct of inflation, the idea is to adjust the 4% by another 2% each year in order to meet rising costs of living and health care. However, this model may not be the right fit for every retiree. More recently, financial experts are advising their clients to find a flexible approach to managing their fund and spending. 

Rather than simply focusing on inanimate numbers, modern financial planners are encouraging prospective retirees to focus on their time horizon, investment strategy, and level of confidence in their portfolio’s size and plan to withdraw from it. Simply put, use available data such as family history and overall health to determine your life expectancy, decide how aggressive you want to be with your investments, and set your target goal of salary percentage at retirement for something you can realistically attain. 

A Very Comfortable Retirement Calls for More

This post provides clear examples that for retirees, a minimum of 80% of their pre-retirement income is necessary to sustain their lifestyle prior to retirement. However, in order to be very comfortable in retirement, more savings and more intense planning will be necessary to offset the effects of inflation and increased health care costs for individuals over 59-60 years of age. 

To sustain a very comfortable post-retirement lifestyle, prospective retirees should consider a flexible-minded portfolio with a more aggressive investment strategy seeking a balance of 85-90% of their pre-retirement annual income. 

Geek, out.

Noel Moffatt

Noel Moffatt is the founder and main contributor for his blog - The Financial Geek. Based in Canada, Noel's passion for personal finance has helped him amass over 300k readers to his Financial Geek blog.

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