A lot of people assume that they'll need an income equal to what they were earning the day before they retired in order to maintain their lifestyle in retirement. In most cases, that's not true. As a general rule, you should be able to live very comfortably on 60 to 80 percent of what you were earning annually. Let's review how this percentage is derived.

Let's assume that 100 percent represents your gross income, then begin subtracting the items you won't be paying or saving for in retirement.

Item	Currently paying/saving	Details
Social Security	7.65 percent	Taken from the first $87,900 of annual earnings. Includes 1.45% for Medicare on unlimited earnings.
Job-related expenses	6 percent	Lunches, transportation, dry cleaning, etc.
State income tax*	5 percent	If your state doesn't tax pensions
Retirement plan savings	10 percent	After you stop working, you won't be contributing
Mortgage costs	10 percent	Assumes house is paid off by retirement
Total of possible reductions to necessary income level	38.65 percent	Meaning you might be able to live on 61.35 percent of your income in retirement.

* This is a hypothetical example. Your state income tax may be more or less than the amount shown.

To get more specific with respect to your personal after-tax need, you should create an expense statement based on your current living costs and then make the appropriate changes for retirement. For example, if it costs you $4,000 per month to maintain your lifestyle today after taxes and you won't have a $500 monthly house payment in retirement, your costs are now 87.5 percent of your original monthly expenses ($4,000 - $500 = $3,500/$4,000 = 87.5 percent). On the other hand, you may have new expenses in retirement that will replace that house payment, such as extensive travel or additional health costs.