Betterment’s retirement calculator helps you determine what your desired spending will be in retirement.

To provide you with information about your potential replacement spending in retirement, our calculator does the hard work of calculating factors like changes in taxes, income, Social Security benefits, interest rates, the mix of account types in which you are invested, and more.

In this article, we examine one variable in this complex calculation, which is how your current income impacts your desired spending in retirement.

How Your Current Income Influences Retirement Spending

Your current income is not only linked to your savings rate, but it is also linked to your propensity to consume, or the percentage of your income that you’re actually spending to support your lifestyle.

Research published by the American Economic Association and National Bureau of Economic Research has shown that lower-income households tend to spend close to 100% of their income. Households with high incomes tend to spend closer to half of their net income with the rest going to taxes and savings.

Our retirement advice takes your current income and then estimates how much you are likely to earn in the future, given the remaining time until your retirement. We then estimate how your income is divided among spending, taxes, and annual savings, and that the ratio between these categories varies with your income.

As you provide us with more information (e.g., how much you plan to save annually, where you live currently, where you may live in retirement, when you plan to claim Social Security benefits, etc.), we improve the projected divisions among spending, savings, and taxes. Our baseline assumptions are shown in the chart below (note: the chart doesn’t show any of your personal factors that we would take into account, such as your savings rate and the cost of living for your location).

Assumed Spending, Taxes, and Savings Before Retirement

Shown as percentage of income by annual household income level


As far we we know, Betterment has built the only widely available and free retirement planning calculator that takes your propensity to consume into consideration when providing retirement planning advice.

Retirement Advice for Everyone

The above calculator provides a simplified preview of Betterment’s RetireGuide, a service available to all Betterment customers for free that creates personalized retirement plans. Learn more about RetireGuide here.

Financial advisory services are only provided to investors who become Betterment clients pursuant to a written account agreement, which investors are urged to read and carefully consider in determining whether such agreement is suitable for their individual facts and circumstances. To learn more, please search for Retirement Plan Advice Methodology on Betterment’s site. For further disclosures, please read or