Most people start with a single question: “How much do I need to retire?” The right answer depends on your lifestyle, debt, health, and how long you’ll live. Rules of thumb help, but cashflow modelling (with inflation and risk built in) gives a truer picture.
The Replacement Rate Rule (and why it’s only a start)
A quick estimate says you’ll need 50–70% of your pre-retirement income to maintain your lifestyle.
- Higher earners often need closer to 50–60% (mortgage usually gone, work costs disappear).
- Lower/mid earners often need 60–70% (essentials take a larger share of spend).
Worked example (the “Keoghs”)
- Combined income (pre-retirement): €100,000
- Current spend: €65,000 (includes €20,000 mortgage + children’s costs)
- In retirement: those costs stop; leisure rises a bit → €45,000 realistic baseline
- Replacement rule says €65,000, but a budget shows €45,000 works.
- The Keoghs target €55,000 for more travel/flexibility.
Takeaway: use the rule to start, then validate with a line-by-line budget.
Build a retirement budget (essentials vs discretionary)
Map spending into two buckets:
- Essentials: housing, utilities, food, insurance, basic transport, healthcare.
- Discretionary: travel, dining, hobbies, gifts, home upgrades.
Sample essentials (mortgage-free couple):
Groceries €7,800 | Utilities €2,200 | Transport €3,000 | Insurance/medical €2,500 | Property tax/maintenance €2,500 | Comms €1,200 | Misc €3,800 → €23,000
Add discretionary (say €12,000–€20,000) → €35,000–€43,000 total.
Inflation and Longevity: the two silent risks
- Inflation: At 2% per year, prices rise ~64% over 25 years.
- Formula: Future Cost = Today’s Cost × (1.02)^Years
- €25,000 essentials today ≈ €41,000 in 25 years.
- Longevity: A 65-year-old couple must plan for one partner living past 90. Your plan needs late-life firepower.
Converting spending into a target pot
The quick shortcut: the Rule of 25 (≈ 4% starting withdrawal).
- Target pot = Annual spending × 25
- €40,000 need → €1,000,000
- €55,000 need → €1,375,000
Important caveats: 4% is a starting point, not a promise. Market sequencing, fees, and taxes matter. For Ireland, many planners prefer 3.5–4.0% with guardrails.
Three personas (to pressure-test your number)
A) Mortgage-free couple, moderate lifestyle
- Essentials €25k + Discretionary €15k = €40k
- Secure income (State + DB) €25k → Gap €15k
- Pot needed for gap: €15k × 25 = €375k
B) Single renter, city living
- Rent €18k + Other essentials €14k + Discretionary €8k = €40k
- Secure income €15k → Gap €25k
- Pot target: €625k (plus a rental-increase contingency)
C) Late starter, higher desired lifestyle
- Target spend €60k; Secure income €20k → Gap €40k
- Pot target: €1.0m. Maximise AVCs and work longer/phase into retirement.
Stress-test the plan (simple but robust)
- Inflation: 2–3% scenarios.
- Markets: bad first 5 years vs average vs strong.
- Longevity: plan to age 95 for at least one partner.
Healthcare spike: include a 2–3 year period of €20–€30k extra costs.
Quick Checklist
- Build a 12-month, line-item budget (now).
- Separate essentials vs discretionary.
- Model 2–3 inflation and market paths.
- Set a cash buffer (12–24 months of essential spend).
- Re-run annually and after life events.
Key Takeaway
There’s no universal number. The winning approach is budget first, then model inflation, markets, and longevity to choose a prudent withdrawal rate and target pot.
