Think of this as a tale of two households. They live side by side. Their houses are equal in value. They have the same income, but from different sources. They drive nearly identical cars. We could write quirky folk songs about this.

But there is one big difference. One family is retired, in their late sixties. The younger family is middle aged— new empty nesters.

Another difference is less obvious. But eventually you get to understand that the retired couple has more money to spend. A lot more, actually.

How can this be? Let us count the ways. The older couple pays less in taxes. They no longer save. They have no loans with monthly payments. The differences can mean the younger couple is pinched and having a night out at What-a-Burger while the older couple hangs out at a restaurant that uses tablecloths.

Skeptical? Then consider this list of differences. It is based on household incomes of $70,000. The working couple has income from a paycheck. The retired couple has income from Social Security and 401(k) withdrawals.


The employment tax, 7.65 percent, comes straight out of the workers’ paychecks, $5,355 a year. The retirees also enjoy lower income taxes because part of their Social Security income won’t be taxable. If the retired couple get half of their income from Social Security and half from retirement accounts, about 60 percent of their benefits won’t be subject to tax. That’s about $21,000 of income.

So the income tax difference is about $3,000 a year.


The working couple saves 6 percent of income, enough to capture the employer 50 percent match on the 401(k) plan. So another $4,200 a year is committed. The retirees are spending from their savings.

Shelter Costs

Lenders would happily lend the working couple the $200,000 they might owe on their newly purchased $250,000 house. The monthly payment on that loan would be $1,013 a month, assuming a 30-year mortgage at 4.5 percent. That’s another $12,156 the working couple can’t use for something else. The retired couple, meanwhile, has no mortgage.

Transportation Costs

The working couple is prudent. So even though they need two cars, they make sure they only have one car loan. It’s for $25,000 at 2 percent for 60 payments. That’s another $438 a month. Their other car is now 6 years old.

The retired couple also has two cars, but they are driving less. So they let the cars age out and have no car payments. The cars have plenty of miles left.

The total of these differences in committed spending is $29,967. That’s 42.8 percent of gross income. It means the working couple has only 57.2 percent of their $70,000 left to spend on everything else.

It also means that changing from worker to retiree can release a great deal of discretionary spending— provided income remains the same. But let’s turn that around. It could also mean that retirees need far less income to sustain the living standard of those still working.

Note that this comparison is not exaggerated. The debt levels are prudent. The loan amounts are easily obtained. No credit card, home equity, or other debt is assumed. There has been no allowance for work-related expenses. Nor have we compared costs of medical insurance and medical spending, even though evidence suggests that total out-of-pocket medical spending for the working couple will be higher than for the retired couple.

The point here isn’t that retirees are the new 1 percent. What’s important is that most financial planning says that you need to replace 70 to 85 percent of your pre-retirement income to have the same living standard when you retire.

The figures in this column, casual as they are, tell us something else. If a retired couple can enjoy the same living standard as a working couple with less than 60 percent of the working couples’ income, maybe a lot more people are on track for retirement than the unending “retirement savings crisis” stories would have us believe.

Just saying. It might be that the financial planning community needs more simple arithmetic and less computer work.