Conventional wisdom says you need 70 percent of preretirement income to keep the same lifestyle after you stop working. That makes sense if you've been putting away more than 20 percent of your income in your final working years. With those savings, and no more work-related expenses for commuting and dry cleaning, you'd probably get away with a lower income.
But if you weren't saving heavily to the end, it's hard to see how you'll reduce expenses 30 percent instantly at retirement unless you've paid off the mortgage.
In 2010, the most recent data available from the Federal Reserve Survey of Consumer Finances, 40.5 percent of households nationwide where the head was between 65 and 74 years old were paying a mortgage. That's down slightly from 2007 (42.9 percent) but up from 2004 (32.1 percent) and substantially higher than a generation ago.
"It really started to uptick around '95, and it's gone pretty much consistently upward since then," says Craig Copeland, an economist at Employee Benefit Research Institute in Washington, D.C.
Why? Copeland says housing values went up and credit loosened at a time when many baby boomers were in their 50s. Many families did cash-out refinancings to help pay for kids' college tuitions, or renovations.
"You see a lot of people in their 50s buying bigger houses, new houses, as their incomes went up," he says.
Guy Cecala, publisher of Inside Mortgage Financing, says many people in his parents' generation paid off houses before retiring, sold them, bought smaller houses with cash and lived off the proceeds.