My previous article looks into the retirement income replacement, and from various sources, I get the idea that 80% of the income replacement seems to be the rule of thumb. I still have a question unanswered: should I use my starting salary or my ending salary for this income replacement?
Here is my situation.
My current salary is around $70,000, and if I still stay in academia in the next 30 years, I predict my ending salary will be around $120,000. This makes a huge difference in retirement income replacement. If I use $70,000, then my goal is to live with my annual expense of $56,000. If I use $120,000, then the number changes to $96,000. Which one should I pick?
I am a faculty member. From my teaching and research experience, if I want to do something significant, the first thing I want to know is the goal and expectation. I usually ask my first-year doctoral students to find a dissertation in their field, so they know what it takes to graduate. Similarly, as I plan and prepare for my retirement, I want to know the amount of money needed for retirement.
It turns out that this is not an easy question to answer. To determine the amount of money needed for retirement, a more fundamental question to ask myself is: what income will I need for retirement?