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What percent of your current income do you need to retire?

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The answer to this question depends on your personal situation. One way to determine this is to look at your personal spending budget and then remove any items that do not occur during retirement. For example, most people want to pay off the mortgage before they retire. In that situation they can subtract their mortgage payment from the current spending to determine their retirement spending. Also you need to add back anything that you would spend in retirement but not before. For example, long-term care insurance might be an item you pay for only during your retirement years.

Another way to calculate this is to use the rule of thumb that most people spend 75% of their pre-retirement expenditures during retirement.

Once you have the retirement spending amount you can calculate the amount of retirement income you need by dividing your retirement spending by (1 + your average tax rate). You can then compare this number to your current income to get the percentage of your current income you need during retire.

One last thing, you need to be aware that your retirement income needs to go up each year by inflation to cover the increases in your retirement spending.
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