Retiring Comfortably: The Conversation with Your Clients

Colleen Kelleher Sorrentino and Stacey MankoffAdvisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Planning for retirement is a journey that requires careful consideration and strategic decision-making. As your client prepares to retire, one of the first questions to ask is, "How much income do you need to retire comfortably?" This question is critical in setting the foundation for their retirement planning. Having a comprehensive retirement income plan that is regularly updated, accommodates changes in spending needs, inflation, market fluctuations and taxes is crucial for peace of mind in retirement.

When determining their retirement-income needs, understand that clients don't necessarily need to replace 100% of their pre-retirement income. According to the most recent report by the Bureau of Labor Statistics, on average, people ages 65 and older spent $57,818 in 2022 – about $15,000 less than the $72,967 spending average of the general population. This suggests that one year of retirement spending amounts to 80% of annual pre-retirement income.

Several factors can reduce post-retirement expenses, such as no longer needing to save for retirement, lower commuting costs, paying off a mortgage and the need for life insurance if the client no longer has dependents. Based on these factors, aiming for about 80% of pre-retirement income as mentioned above is a common goal. But this percentage can vary based on their retirement lifestyle and anticipated expenses.

For example, if the client plans to travel frequently or maintain a high-cost lifestyle in retirement, aim for 90% to 100% of their pre-retirement income. Conversely, if they plan to downsize their living situation or have already paid off their mortgage, they may be able to live comfortably on less than 80%. To illustrate, let's consider a hypothetical scenario: A couple currently has a combined annual income of $120,000. Based on the 80% principle, they can expect to need about $96,000 in annual income after retirement, which equates to $8,000 per month.