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You may have seen this rule of retirement planning in numerous articles: “Save enough to live on 70% of your income.” A significant number of financial planners and respected retirement experts use this benchmark, too, but is it accurate? After you retire, can you really live on 70% of what you’re making now?

“I have yet to see someone retire on 70% of their income unless they are required to cut back on expenses because they don’t have adequate savings,” says Mark Rylance, CFP®, RS Crum, Inc., Newport Beach, Calif. “Our real life experience shows that retirees usually spend more their first few years of retirement as they increase travel, remodel homes, increase gifts to children or grandchildren or help with loans to assist kids in buying houses or businesses.”

If you’ve lived as an adult for at least 20 years, you’ve seen drastic changes in how Americans save for retirement. A shift from a well-funded pension to a 401(k) model that requires more work and investment by the employee is just one of the major changes underway. (See What’s the Difference Between a 401(k) and a Pension Plan?) What will it look like in another 20 years? The trend certainly isn’t for employers to fund more of an employee’s retirement.

Here are some things to consider as you start doing the math of your retirement.

Don’t Count on Social Security Alone

The Social Security Old-Age and Survivors Insurance (OASI) Trust Fund will keep increasing until the beginning of 2020. But by 2035 (in 20 years) it is projected to be depleted – though still able to pay 79% of benefits based on "pay as you go" income from employment taxes. A variety of fixes have been proposed (see Will Baby Boomers Bankrupt Social Security?).

Even if you do get some kind of Social Security payment at retirement, it may well go less far than you imagine. The average monthly benefit for a retired worker in April, 2017 was $1,366.46. Start paying attention to those estimated projections you sometimes receive from the Social Security Administration.

“Social Security, by itself, can fully fund only the very bottom of income earners in the U.S.,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.” “Anyone making money above the poverty level will need some sort of personal savings in order to maintain their current standard of living in retirement.”

However, statistics show that the average working household has next to no money saved for retirement. The median retirement savings for working age households is only $3,000 and for households close to entering retirement, it’s $12,000. Americans are collectively between $7 and $14 trillion behind in retirement savings.

Look at How You Live Now

One study found that three out of four Americans are living paycheck to paycheck. Even one out of three people in households earning $75,000 per year report living paycheck to paycheck at least some of the time.

As you do the math, realize that you're probably already living on around 70% of your official income – income and payroll taxes take a hefty bite out of your paycheck. The average U.S. worker has a 31.5% tax burden, according to the Tax Foundation, a Washington, D.C.-based research organization.

The question is, what will the financial picture look like when you retire? You can expect that you will spend more on some things and less on others.

Medical Expenses

For most people, the cost of healthcare rises as they get older. So could the cost of insurance. Traditional Medicare won't cover enough of your health costs; you will need to pay for either a Medigap policy, plus Part D drug coverage – or choose a Medicare Advantage Plan. These could cost more than employer-based healthcare, if you currently have a plan at work. The ongoing repeal of the Affordable Care Act may also cause health related costs to increase. In addition, you will likely get sick more as you get older.

It makes sense to budget for increased healthcare costs and hope you won't end up needing all you’ve slotted for them. A Fidelity study found that couples retiring at age 65 will need about $220,000 (in 2014 dollars) to cover their medical expenses. To learn more about these issues, read  Medicare 101: Do You Need All 4 Parts? and How to Pick the Best Medicare Part D Plan for You.

“Medical expenses have proved to run between $7,500 and $9,500 per year for each retiree in retirement. This includes premiums (Medicare and supplements), deductibles, co-pays, hearing aids, eyewear and long-term care expenses,” says Wes Shannon, CFP®, SJK Financial Planning, L.L.C., Hurst, Texas. “I advise pre-retirees in their 50s to start building up a large balance in health savings accounts (HSAs) so upon retirement they will have funds to supplement their income for these expenses. Currently, at age 65 a person cannot add money to an HSA, but they can continue to hold money in an HSA and withdraw it (tax-free) after age 65 for medical, dental and long-term care insurance.”

Taxes

Those could well go down. Depending on your state, pension and Social Security income may or may not be taxed at the state level.

If your "combined income" is more than $25,000 as an individual, or more than $32,000 filing a joint return, you will begin having to pay federal taxes on a portion of your Social Security retirement benefits. At higher levels you will owe tax on up to 85% of your benefits. (Avoid the Social Security Tax Trap has details.) On the other hand, you won't be paying payroll taxes if you're no longer employed.

Will You Really Spend Less?

Medical costs aside, the conventional wisdom is that you will spend less once you retire, but that may not be true. Look at your life today. Do you spend more money when you’re working or when you have free time? For nearly everybody, the answer is the latter.

Your bucket list likely includes a number of high-dollar activities. You may need to budget more, especially for the first years of retirement. “The time freed up by no longer working needs to be filled somehow.  And that somehow usually costs money,” says Kristi Sullivan, CFP®, Sullivan Financial Planning, LLC, Denver, Colo. “As my grandmother used to say, ‘If you aren’t making money, you are spending it.’ This is especially true in the earlier years [after you retire] when you want to use your newfound freedom for travel, hobbies and other fun stuff you’ve been putting off.” (Check out The 4 Phases of Retirement and How to Budget for Them.)

On the other hand, if you manage to pay off your mortgage by retirement – or chose to downsize – some of your living costs will decrease. Another option is to relocate abroad, at least for the first part of your retirement, as a growing number of Americans are doing.

Factor in Market Volatility

Remember the financial crisis of 2008? Remember what happened to retirees’ investment accounts? Remember the people who couldn’t retire when they wanted to – and still can’t? The financial crisis taught everybody that relying on the world’s investment markets is necessary, but far from a sealed deal. Many of those accounts have since recovered if the account holders were able to sit out the storm. But timing is everything and older people have less time to earn back losses.

Don’t cut it close. Save more than you think you'll need so you can weather the ups and downs of the market. “You should always save more than you need because there will always be unexpected expenses that you cannot foresee. While it is nice to think that you will have enough for retirement, it is hard to predict what will happen 20 years from now,” says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass. (See Retirement Savings: How Much Is Enough? and Retirement Planning: How Much Will I Need? for more.)

The Bottom Line

As with anything, the more people you ask, the more opinions you’ll receive. Instead of listening to the voices, try this experiment: If you’re currently living paycheck to paycheck, try living on 30% less for the next six months.

If, on the other hand, you have money left over each month, figure out how much more you would need to save (if anything) to bring your living expenses down to 70% of what you spend now – minus any costs associated with children.

Crunch the numbers and use that information to start figuring out what your target income needs to be in retirement. Add up what assets you have now and check with Social Security to get an estimate of your retirement income. Then talk with a financial planner about how you can start working to accumulate what you need in time for when you need it.

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