How Can I Estimate the Income I'll Need in Retirement?

It's an important question, and the answer starts with a simple rule of thumb. With a little personalization, this income replacement metric can be a useful tool.

A woman holds $2,000 in a stack of $20s and ponders.
(Image credit: Getty Images)

How much money do you make? That’s a fairly easy question.

OK, now how much money do you spend? That one’s a little tougher. What exactly counts as spending? Are we including taxes? If you’re paying down a mortgage, is the principal portion considered spending? What about your kid’s tuition payment from the 529 account?

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Assumptions: The household’s income and spending keep pace with inflation until retirement, and then spending is reduced by 5%. Spouses are the same age, and “dual income” means that the one spouse generates 75% of the income that the other spouse earns. Federal taxes are based on rates as of January 1, 2022. While rates are scheduled to revert to pre-2018 levels after 2025, those rates are not reflected in these calculations. The household uses the standard deduction, files jointly (if married), and is not affected by alternative minimum tax or any tax credits. The household saves 8% of its gross income, all pretax. Federal income tax in retirement assumes all income is taxed at ordinary rates and reflects the phase-in of Social Security benefit taxation. State taxes are a flat 4% of income after pretax savings and are not assessed on Social Security income. Social Security benefits are based on the Quick Calculator (claiming at full retirement age), which includes an assumed earnings history pattern.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Roger A. Young, CFP®
Senior Financial Planner, T. Rowe Price

Roger Young is Vice President and senior financial planner with T. Rowe Price Associates in Owings Mills, Md. Roger draws upon his previous experience as a financial adviser to share practical insights on retirement and personal finance topics of interest to individuals and advisers. He has master's degrees from Carnegie Mellon University and the University of Maryland, as well as a BBA in accounting from Loyola College (Md.).