Common retirement planning advice tells you to plan on replacing 70-80% of your pre-retirement income. However, this Financial Post article argues that number may be closer to 35%. Article found via k66 of Bogleheads.
Essentially, the author segregates your income to “regular” spending and temporary “investment” spending that won’t continue into retirement. Regular consumption includes food, transportation, home and car maintenance, and insurance. Temporary spending include a mortgage, child-related costs, work-related costs, and retirement savings. The idea is that in retirement your house will be paid off and your kids will be financially self-sufficient, so those “investment” expenses will go away and you’ll need less money than you may think.
Here’s an illustration of how this would break down for a theoretical couple that bought a house at 30, had kids at 35, and retires at 65.
Now, it’s easy to get hung up on how this chart doesn’t accurately reflect your life. It’s not supposed to! Instead, imagine for yourself what this chart might look like for your situation. For example, my parents definitely kicked up their savings rate post-kids and pre-retirement. For us, we had our highest savings rate pre-kids. You may need 20% of your current income, or you may need 80%. This is one place where a rule-of-thumb just isn’t useful.
I would note that the article doesn’t really mention health insurance or other health-related costs, possibly because it is a Canadian newspaper. Also, young people in the US probably spend at least a few years paying down college loans. Finally, some folks will need to account for new post-retirement spending that might pop up like travel and other costly recreational activities.