What percentage of pre-retirement income do consumers want to spend in retirement?

The so-called income replacement rate concept is often the first step in estimating a retirement savings plan. A 2012 Aon Hewett study suggested that retirees should try to replace 85% of their income during the first year of retirement. Many advisors take an 80% or 85% number for granted. If you earned $100,000 right before retirement, you'll need an income of $85,000 to avoid cutting back during your golden years. But can one number really be right for all retirees? And does an 80% rule of thumb even make sense?

Let's review the first assumption of the 80% replacement rate. People generally want to spend the same amount after retirement as they did before retirement. They don't want to experience what economists call a "consumption discontinuity" after they retire, which is a fancy way of saying that they spend less.