Retirement can be a fulfilling stage of life for many people. Whether you’re walking barefoot on a beach or traveling the world, most couples have a secret fantasy for their post-work life. However, a tough question underlies those visions: how much will you actually need to realize those dreams?
Nearly one-quarter (24%) of couples have not agreed on how much they need to save for retirement, while 39% don’t know how they will recreate their paycheck in retirement.
This article explores what current research suggests about couples’ retirement incomes—and offers a three-step process to identify how much you will personally require to meet your retirement goals.
The “Rule of Thumb”: What Most Advisors Say
Financial planners often suggest that individuals need a retirement income that is at least 70% of their pre-retirement income to maintain their lifestyle. If your annual salary is $100,000 before retirement, you’ll need $70,000 each year to avoid reducing consumption and feel financially secure*.
This might strike you as strange; how can retirees get by on a significantly reduced income? Well, the number comes from the Social Security Administration. It’s built around the assumption that retirement unlocks:
- Lower Living Costs: Retirees can cross several common costs off their monthly budget, including work clothes, commute expenditure, and retirement savings. Retired couples also often have fewer child care costs, as their children have often completed college.
- Lower Tax Burden: Retirees tend to pay less tax due to the advantageous tax treatment of Social Security benefits.
- Social Security Benefits: Research suggests Social Security covers around 40% of the average worker’s pre-retirement earnings.
Even with the new financial pressures that retirement usually brings—such as rising Medicare premiums, inflation, and extra spending on your hobbies—the average person can maintain their current lifestyle with just 70% of their previous income.
We know that sounds steep; your retirement income will most likely come from savings and investments. A $70,000 annual retirement income adds up to $1,400,000 across two decades—all of which will be subject to inflation.
However, this is just a “rule of thumb,” and the exact number is still disputed. Recent research from Boston University argues the replacement is closer to 50% for most retirees; it claims that retirees spend less on consumer goods than previous research claimed, eat out less often, and may be privy to State-dependent income tax benefits.
Equally, that 70% target is based on your income immediately before retirement. Some studies suggest Americans’ incomes peak between 45-54 and dip before leaving the workforce; this might change your target retirement income.
More importantly, every person and couple has their own unique retirement income needs. Your saving strategies, retirement goals, emotional relationship to money, and financial obligations will significantly alter how much is required to fund a “comfortable” retirement—and this is especially true for couples.
Are Retirement Income Needs Different for Couples?
On the surface, couples are at a clear advantage when saving for retirement. Dual-income households are likely to have more income for saving and investing; individuals within a couple might also be more likely to take career risks due to the security a second income provides.
And yet, the Center for Retirement Research reports that married couples are actually at higher risk of having insufficient retirement income. The researchers point out that being part of a couple leads to more complex financial decision-making. If your spouse has an income but does not pay into a 401(k), the income you’re replacing will increase—without a commensurate increase in secure retirement income.
That’s just the tip of the iceberg, though. A more immediate challenge is that couples often have misaligned “visions” for their retirement income. One-quarter of married couples have different expectations about how much they will spend on hobbies and travel in retirement, while 22% anticipate different levels of lifestyle spending in general.
Add to this difficult conversations around how much to support your children, when each of you will retire, and the exact amounts each of you has saved, and it becomes easy to see why 39% of American couples aged between 45-70 haven’t yet figured out exactly how they will generate a sufficient retirement income.
The takeaway is simple: your retirement income needs as a couple may not differ greatly from those of an individual, but your planning requirements are likely to be more complicated.
How to Calculate What You Need for Retirement
While the 70% rule gives you a reasonable estimate, couples will benefit from a three-step process to calculate their personal retirement income goal:
1. Establish Your Lifestyle Goals
The truth about retirement income is that it all depends on your lifestyle goals. If you want to downsize your house, cut down on consumption, and see your friends once per month, you might be able to feasibly retire several years earlier.
But is that really how you want to spend your final years? Retirement should be the reward for a lifetime of hard work; the first step for your retirement plan is figuring out what that actually means for you.
Your goal should be to have a clear vision for the future you want to share together. While many people choose to maintain a similar lifestyle to their pre-retirement days, it’s important to be intentional. You have an opportunity to really think about what will fulfil you: are there passions, goals, or desires that you’ve been waiting to finally realize?
This can be more complicated for couples, as your lifestyle goals must align. You don’t have to follow the exact same daily routines, but you probably do need to agree on several essential factors, such as:
- Where do you want to live?
- How much space do you need to live in?
- What kind of activities do you want to do?
- How often do you want to travel?
- What kind of community do you want to exist within?
These questions might lead to tough conversations that require compromise. It is important not to avoid them, though, as they will directly influence how much retirement income you need, as well as help you to adjust your overarching retirement plan.
2. Build a Retirement Lifestyle Budget
Once you have a shared vision for retirement, you can start calculating how much it will cost. Consider your entire lifestyle—from basic living costs to holidays or hobby-related spending—to ensure everything is covered.
Our advisors encourage couples to factor a few “easily overlooked” costs into their budget:
- Healthcare Costs: Consider how your ongoing care and support costs might evolve over time. Your current Health Plan spend is unlikely to carry over your multi-decade retirement; not only will the costs of care change, but the level of support you need is likely to increase with age.
- Home Maintenance: Even if you’ve paid off your mortgage, ongoing home-related costs are almost inevitable. Boilers break; walls need structural adjustments. These costs can be hard to quantify or anticipate, but it’s important to have a reasonable buffer so that they don’t blindside you.
- Support for Children: Roughly 50% of parents give their adult financial support, with an average providing nearly $1,500 each month. While most don’t plan these costs to continue indefinitely, many retirees will feel more confident if they have savings set aside in the event their children require extra financial relief.
Ultimately, you should end up with a ballpark figure for your annual retirement costs, though this doesn’t necessarily have to be your retirement income goal.
3. Address Psychological Factors
Your target lifestyle costs will determine what income is “needed” for retirement, but it rarely captures the true number most retirees need to feel secure. Do you really want to retire without any financial wiggle room—or will that leave you feeling insecure and unable to enjoy your newfound freedom?
This might sound like a loaded question; the reality is, some people really can thrive during retirement without a significant “sinking fund”. Individuals vary greatly in their emotional relationship with money and what they need to feel comfortable.
That said, couples may have an extra need for retirement income buffers. You must plan for the possibility that one spouse significantly outlives the other; this can put a heavy strain on their savings.
The question really is how much extra retirement income can you feasibly secure—and how much extra work time or risk would it require?
Don’t Keep Pushing Your Retirement Date Back
Putting a number on your retirement income goal can feel stressful: how will we ever save enough to hit this target?
For many couples, working with an advisor can help reduce this stress. With a clear view of your finances and retirement goals, you can build a plan designed to help you meet your goal—and potentially avoid saving or investment oversights that could negatively impact your retirement income.
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Disclosure: This material is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice. All examples are hypothetical and for illustrative purposes only. Actual results will vary based on individual circumstances. Investing involves risk, including the potential loss of principal. Any references to research, statistics, or third-party sources are believed to be reliable but are not guaranteed as to accuracy or completeness. Actual retirement income needs vary significantly based on lifestyle, health, longevity, market conditions, tax law changes, and personal circumstances.
*This is known as the “retirement replacement rate”; it is a common tool used by both planners and policy analysts to measure retirement income requirements.
