Life After Full-time Work Blog

Learn about preparing for life after full-time work through posts from Don's upcoming book.

#10: How Much Income Do You Need, To Support Your Current Lifestyle?

Sometimes we think that making a budget is a long, complicated process. But for the purpose of setting a financial target, it doesn’t have to be. It’s surprising how simple it can be, while still being useful.


When I was young a particular passage in Lewis Carroll’s “Alice’s Adventures in Wonderland” appealed to my juvenile sense of logic.

“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where – ” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.

That came back to me in connection with measuring your progress towards your retirement financial goals. If you don’t have a goal, it isn’t possible to measure your progress. True, in addition to numbers there are also guidelines in terms of activities and mindset, and that’s quite useful – certainly better than nothing. But if you have a financial goal, then it’s even more informative to be able to measure where you are in relation to the goal.

(Sidebar: OK, that’s a reminder to me that at some stage I need to tell you about those guidelines. Forthcoming.)

The passage from Alice is often misquoted as: “If you don’t know where you’re going, any road will get you there.” Yes, but if you don’t know where you’re going, you probably won’t bother to take the first step.

So I think it’s useful to have some notion of a spending budget for your entry into the land of life after full-time work. And if you aren’t used to budgeting and the thought scares you, you’ll be glad that my point is that a budget doesn’t have to be detailed to be useful.

In fact, any number at all is useful for this stage, even if it’s just one overall number, simply because it’s a number! If all you say is: “I’d like to be able to spend $X a year when my work income stops,” that’s enough to start calculating how much progress you’ve made.

Would it make a difference to your mindset if you discovered that you were only halfway to your goal? Or alternatively all the way there? Or alternatively that you have twice as much as the goal requires? Yes, of course you would think differently about your progress, depending on which of those turned out to be the measure. And so you ought to know which one you’re closest to. And, in turn, that’s why any starting point at all is useful.

You can refine the target in many ways and at many levels of detail, if you want to plan better. But somehow life never quite seems to work out as you’ve planned. So it’s the planning process itself that’s the real value, even more than the resulting numbers.

How might you choose that first number, $X? And how might you refine it later?

In my case (meaning for my wife and me together, of course), when I first thought about it, the $X I started with was my current salary. It was the gross amount, before taxes and other deductions.

I was still only in my 30s at the time, but I was developing the analysis I called Saving to Afford Retirement (or STAR, since I wanted a cute acronym), which I hoped (ha ha) would earn me money as I applied it to an older clientele. Oh well, that never succeeded, because I had no idea how to reach my prospects. But the thought process helped me personally.

I could equally well have started with my take-home pay, the net amount after taxes and deductions.

Would taxation change after retirement? I hadn’t a clue. So my first assumption was “no change in taxation,” and that solved that problem for the time being.

The more important adjustment was to allow for all the deductions and other spending that (I hoped) would stop some time before retirement. Of these three were obvious. One was mortgage payments. A second was regular retirement savings. The third was expenditures on children. Assuming all of these would stop at some (unspecified) time and not be necessary to continue after retirement, I deducted them and discovered that my actual ongoing lifestyle required much less than my current income.

Common sense, isn’t it? My current lifestyle is measured by what I’m spending on current stuff, not by my total pay packet.

That idea alone tends to make a huge difference, both psychologically and numerically. And the few clients I used it for got hooked at that point. They had just never thought about it.

Wait, won’t all these numbers change, every year? Of course. But the process was helpful – and what’s more, when a number changed, it was then possible to measure how much the change affected the target. Even a change in the rate of income tax, or in the Pillar 1 benefit (see Post #9), could be interpreted as: “Now I know how I’m affected by that change.” (It made the outrage much more specific, to know the impact.)

All sorts of other refinements are possible, such as allowing for an increase in credit card debt or alternatively its elimination. Or expenditures that aren’t regular, but you want to budget for them as an average annual amount. And so on.

How much detail you’ll want to get into will vary with whether you’re already running an analysis of your spending or not, what app you’re using if that is indeed what you’re doing, and so on. Apparently roughly one-third of Americans do so, according to a 2013 Gallup poll. That implies that most don’t. And my message to those who don’t is just that a tiny start is the most important step of all. The rest is detail.

(Oh, I should remember to add that, when you do your personal funded ratio calculations, you’ll allow for inflation, because what costs $100 today will cost more after inflation takes its toll. But don’t worry about that right now.)


You’ll notice that I didn’t use rules of thumb like “everyone needs 70% of their pre-retirement income to retire on.” For one thing, 40 years ago those rules of thumb didn’t exist. But it was also obvious to me that what mattered was my own spending, which might be very different from someone else’s, even if we both had the same total pay. And I got at my personal spending, not by creating a detailed budget, but simply by saying “it’s whatever is left after all the stuff that will stop, stops.”

I was delighted to discover, decades later, that Bonnie-Jeanne MacDonald independently discovered the idea for herself, backed it up with extensive analysis of data from Statistics Canada, and deservedly won global accolades in 2014 for identifying the “living standards replacement rate (LSRR)” as a better measure for evaluating retirement income adequacy than any rules of thumb.

By the way, respected Canadian researchers Malcolm Hamilton and Fred Vettese have also done extensive analysis, and have concluded that most Canadians will live just fine after retirement on something like 50-55% of pre-retirement income – and still save money out of that. So much for traditional rules of thumb.


OK, tell me: do you budget? If so, is your budget simple or is it multi-layered? Did it evolve over time? Do you create mental accounts for each category, so that over-spending in one category can’t be compensated by underspending in another? Was it a struggle to create your first budget? I’d love to know.



Having even a single aggregate number as a spending target is very useful. You can change it and refine it over time, but without it there’s no financial goal to measure progress towards.


I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

8 Responses to “#10: How Much Income Do You Need, To Support Your Current Lifestyle?”

  1. Richard Austin says:

    You asked about budgeting. Let me tell you our story. We track our expenses, and have throughout our more than thirty-five years of married life.

    Very early in our marriage, when money was exceptionally tight and we were uncertain whether we were going to be able to pay all of the bills, we budgeted for everything (including for “Entertainment” which we used to determine if we could afford to go to McDonald’s for coffee or lunch). We had a budgeting book, there was an separate account for every category of expenditure, and we managed our lives by the balances in the various accounts. It was not a struggle to create these initial budgets: we were aware of the categories of expenses we had to meet, and we set up an account for each.

    We continued to track our spending as we had children and they grew. There were accounts for day to day needs (Food, Rent, Hydro, Car Maintenance, Car Insurance, Children’s Clothing, a clothing account for each of me and my wife, Entertainment, etc.) but also for the longer term (e.g. Vacation, Saving for a New Car, Saving for a House and Children’s Education). And there was a “Miscellaneous” account to set aside funds to cover unanticipated expenses. From each pay cheque, we allocated money to the various accounts and we kept track of our expenses, deducting expenditures from the right account. What the budgeting process made us realize was that it was never enough just to look at our aggregate bank balance to understand whether we were ahead, or behind, whether we could afford a spontaneous trip to Florida, etc. We needed to look at the expenses that were forthcoming to get an understanding of what our actual financial position was, and what we could afford.

    The accounts themselves fluctuated. For example, when we did buy a new car, we would close the “Saving for a New Car” account for a few years and allocate the money elsewhere.

    At the present time, what we do is best described as a combination of budgeting and tracking our expenditures. Because we know we will have major purchases coming up in the next few years such as a new car, for each of these major expenditures, we have established an account and we deposit a certain amount into the account with each pay cheque. For day to day expenses however, we keep track of our expenditures but I don’t think we really “budget” them in any real sense. Of course, this may well change when we stop working.

    You asked whether we allowed over-spending in one category to be compensated by underspending in another. I would easily have done so, but fortunately my profligate tendencies were constrained and controlled by my wife. In our budgeting process, it was legitimate to transfer funds from one account, say “Vacation”, to another, say “Car Maintenance” to cover over-spending in the latter. And, on occasion, we would allow an account to go into the red because of unanticipated expenses. But what we never said was that it didn’t matter – it did, and it would have been foolish to think we were better off than we actually were.

    There are a couple of questions you did not ask and that I think are important. The first is “Who in your relationship is responsible for the budgeting?”. In our case, it is my wife. My use of “we” above was the royal we but really means my wife. She was responsible for managing our money, for monitoring the accounts, for allocating the expenditures. She would consult with me, but I think that was principally to assuage the male ego. She really knew, and controlled, what was going on. And I did not object because this was a time consuming process. It needed to be done, but it took time.

    The other question you might have asked but perhaps were too discreet to bring up, was “Was the budgeting a source of conflict in your relationship?” or, expressed in a slightly different manner, “Did you fight over money?”. The answer, for us, was that we did not. Money has never been an issue in our relationship. And I attribute that to the budgeting process we used and the fact that we both believed in it. I have often said to customers, in my business life, that “The numbers don’t lie.” This is equally true in personal relationships. We do not fight, and have not fought, about money — because our numbers do not lie. Whenever it became a question of whether we could afford something, we could harrumpf and hurrah all we wanted, but at the end of the day, the answer was there in black and red, in our budgeting book. We might not like the answer, but we could not dispute that it was the answer.

    I raise this because, for us, the fact that we budget has allowed our relationship to grow and prevent money issues from undermining it. It is something we plan on continuing into our retirement.

    • Don Ezra says:

      Thanks, Richard. You have illuminated not just the process of budgeting but also many aspects of the relationship on which it is built. I set out a few principles and you have brought them to life. And I congratulate both of you for the fact of budgeting and for the length of time for which you have made it a part of your lives. I’ll bet that your retirement finances will be planned and executed, with lessons learned, in similar fashion.

  2. YE says:

    We fortunately both earn professional wages, and have always managed to live well within our means (we have never been into buying stuff, preferring experiences). So budgeting was never something we did – rather we managed by setting a savings target such as “pay off the mortgage by X date”.

    And then retirement (our next exciting future life) appeared on the horizon. We acquired a sudden interest in budgeting for the first time, to better understand our expenses and if we could afford to fulfill our wild next-life dreams. Fortunately, there’s an app for that. No time consuming process anymore. Good apps not only shine the light on what you have spent over the last 12+ months, but also help you easily build a budget.

    A skip and a jump and a hop to the next app that tells you how long you might live, if you have enough money yet, and what’s the risk of running out.

    What did we do before apps?

    • Don Ezra says:

      Thanks for the tip — get an app! It’s the first step that makes all the difference, doesn’t it? It sounds like the thought of retirement created a teachable moment for you. All the best for your next exciting future life!

  3. K.C. says:

    We have been dedicated to the budget process for 40 years, and just as Richard says in his comment to this blog post, we have never argued over our finances. We both know how much there is, and how it is allotted. We hold a “budget meeting” every year, on New Year’s Day and as well as reviewing our annual budget, we set our annual goal for the year. That goal has run the gamut from saving a specific amount by year’s end, buying a rental property, paying off debt/mortgage, starting a family, starting our own business, etc. Most years, goals were met, but sometimes they were not. The budget was refined at the “annual meeting” and achieving the goal remained the target for the coming year. As the years have progressed, and goals have been met, the financial target has been consistent for the past few years – retire in comfort. While that comfort level is different for each of us, there is no question in my mind that a consistent budget process is the only way to achieve that goal – and to maintain that appropriate level of “comfort” once retired!

    • Don Ezra says:

      Thanks for the personal insights. I imagine that once it became your routine New Year’s Day procedure, there must have been excitement and satisfaction at deciding what would be chosen as the annual goal. With your discipline, I’m guessing that there wasn’t a lot of disappointment when a goal was occasionally incomplete, since it would clearly be just a matter of time before you achieved it the following year. Congratulations — and I’m sure that enjoying your comfortable retirement will prove to be the most satisfying goal of all!

  4. J. J. Woolverton says:

    Don, another good message. Over the years, talking and advising to private wealth individuals I have found that, in the vast majority of cases, when I ask if they have put together a budget/plan/goal, they say “yes”. When I ask to see it, they bring me out a history of their expenses for the past three years. Tracking their expenses is a good start, however, does, generally, not cover things that might happen. As well, most people start putting a budget/plan/goal together when they are retired. It is difficult to get the Xers or Millenials to create a plan when they are living from pay cheque to pay cheque.

    • Don Ezra says:

      Thanks, JJ. All true! I confess to being guilty of these practices myself. The purpose of my post was simply to encourage, to make a start, no matter how simple. And if, for example, spending in retrospect has been relatively consistent over time, then converting spending into that elusive forward-looking budget becomes easier. Taking that first step is so important.

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