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Home / Plan your retirement / How much will I spend in retirement? / Target retirement income: An explanation of the 66-80% rule of thumb

Target retirement income: An explanation of the 66-80% rule of thumb

February 8, 2019 by Barbara Drury Leave a Comment

Reading time: 2 minutes

When you start planning for retirement, one of the first steps is to estimate how much income you will need to live on.

Our SuperGuide retirement planning articles often refer to a ‘rule of thumb’ that suggests you will need somewhere between two thirds (66%) and 80% of pre-retirement income to continue to enjoy your current standard of living.

This 66-80% rule is often quoted by financial advisers and in financial publications. Sometimes it is simplified even further to the 70% rule. Like most financial ‘rules’, it’s difficult to trace its origin but the rule endures because it does have a certain logic.

What is a ‘rule of thumb’?

A rule of thumb refers to an estimation based on practical experience or, in this case, population averages. It is not intended to be strictly accurate or reliable for every situation. But it is a good starting point to get you thinking about where you should set your target retirement income.

All things being equal, it’s generally cheaper to live in retirement than it is in mid-life with kids to care for and a mortgage to pay. Pre-retirees may also be making voluntary super contributions which will cease when they retire or building wealth with the help of investment loans which will hopefully be paid off in due course.

Most retirees can look forward to paying little or no tax, so the starting point for your target retirement income is pre-retirement household income after tax.


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Assuming you have a home that’s fully paid for and are debt-free when you retire – which is a big assumption in these days of high housing debt but worth aiming for – you can deduct these costs from your target retirement income.

According to the Reserve Bank, in 2016 the median ratio of mortgage payments to household disposable income was 20% and this figure has been relatively stable over time. So simply deducting mortgage payments leaves you with target income equal to 80% of pre-retirement income (100 – 20).

The actual mortgage-to-income ratio tends to be higher in places like Sydney and Melbourne. However, the Reserve Bank says 75% of households have mortgage payments 30% or less of household disposable income. So households with a big mortgage may only need 70% or so (100 – 30) of pre-retirement income to enjoy the same standard of living.

Couples or singles who have paid off an expensive home with kids at expensive schools, and all the additional costs that come with having a large family, may need less than 70% in retirement when the kids are fully independent adults. Those who paid off a less expensive home or had fewer kids may need a little more. If you rent your home or expect to retire with a mortgage or other debts, you may need closer to 80%. You get the picture.

When you are ready to prepare a detailed retirement plan, with a realistic retirement income target, you can deduct actual costs that you will no longer have to budget for rather than rely on a simple rule of thumb.

Learn more about retirement income in the following SuperGuide articles:

10 common ‘myth-conceptions’ about retirement income

February 10, 2021

Reverse mortgages: What are they and how do they work?

December 2, 2020

How to maximise your Age Pension

September 17, 2020

What is the Pension Loans Scheme, and how does it work?

September 2, 2020

Rules of Thumb: Do these popular retirement planning hacks measure up?

May 7, 2020

How can you plan your income needs in retirement?

April 1, 2020

Worried about your post-virus finances? 10 tips to help stretch your retirement dollars

April 1, 2020

Is a bucket strategy the solution for your retirement income plan?

March 23, 2020

How much super do I need to retire?

February 11, 2020

How inflation affects your retirement income forecast

August 10, 2019

‘Today’s Dollars’: The impact of inflation on retirement income

April 8, 2019

Retirement income in Australia: An overview

February 18, 2019

Related topics

How much will I spend in retirement? Plan your retirement

IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

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All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs.

You should consider whether any information on SuperGuide is appropriate to you before acting on it.

If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions.

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