How much do we need for retirement?

[goodoboy]

Hello,

I am trying to determine how much we will need for monthly expense after retirement. I need to know to determine if I am saving enough in 401k for retirement needs. I am using a 401k retirement calculator in my 401K account.

I have calculated in today's money, we will need $4500.00 per month to retire.

Retirement Monthly Expense:
Metlife 22.05
xboxlive 11
cell phone 200
House warranty 42
car gas 150
monthly expense 600
a/c warranty 17.98
health care after retire ??? 700
dog stuff 100
yearly vaction save per month 650
lights water gas 290
house alarm 60
comcast 165
car insurance 200
car note 400
house taxes 316.73
house insurance 150.75
lawn service 60
Yearly car and house repairs per month 200


This comes out $4348.78 per month.

Am I missing something? What is rule of thumb?

Thanks for any help or comments.

[Sidney]

income taxes
amortization of major ("capital") items like a car replacement, new roof, replace the furnace .......

I assume food is in the "monthly expenses"

[goodoboy]

income taxes
amortization of major ("capital") items like a car replacement, new roof, replace the furnace .......

I assume food is in the "monthly expenses"

Thanks for response,

How much should I include for year income tax payments, if I plan to retire with zero income (no job)? Yes monthly expenses is food, eating out, movie, etc.

[Bacchus01]

Food?

Gas?

Utilities?

I'd be amazed if you can find decent healthcare insurance for 2 people for $700/month that is not a medicare supplement. Is this pre or post medicare?

[The Wizard]

Aim for $5K/month, hence $60K per year.
30 x that and yer good to go.
So $2M is your goal...

[livesoft]

^ But SS should pay $3K per month of that $5K, so aim for your portfolio providing only $2K per month in retirement.

[Peter Foley]

One rule of thumb often used is to calculate a 4% withdrawal rate. So if you need to withdraw $4500/m, that's $54,000 per year. $54,000/.04 (withdrawal rate) = $1,350,000. Now if you have a pension that will provide $1000 per month, you only need to withdraw $42,000/year. $42,000/.04 = $1,050,000.

There are many who believe that a 4% withdrawal is too much because they expect long term gains from stocks and bonds to be below historical averages. They might make a recommendation of 3% withdrawal. So $54,000/.03 = $1,800,000.

The examples above ignore Social Security. Your starting point should be the number you need to withdraw from saving each year, so reduce your total annual spending by the amount of your SS benefits and any pensions for which you might qualify.

A shameless plug - This is covered in the Bogleheads Guide to Retirement Planning, chapter 1.

[Watty]

I just happened to post a message this afternoon about how I am trying to figure this out.

viewtopic.php?f=2&t=108407&newpost=1575355

If you do it this way then you would need to add or subtract money if your lifestyle will change much in retirment. If you do the calculation of how much you will need several ways and they come up with similar numbers then that would be good.

You can do a dummy tax return using tax software or use taxcaster to get an idea of what your tax situation will be under the CURRENT tax laws. The taxation of social security is something that you need to understand for your planning.

http://www.bogleheads.org/wiki/Taxation ... y_benefits

[goodoboy]

Food?

Gas?

Utilities?

I'd be amazed if you can find decent healthcare insurance for 2 people for $700/month that is not a medicare supplement. Is this pre or post medicare?

Thanks,

I am 34 now, and I have no idea how much healthcare will cost us 26 years from now. Does anyone know a rule of thumb number.

[goodoboy]

Aim for $5K/month, hence $60K per year.
30 x that and yer good to go.
So $2M is your goal...

Thank you The Wizard,

Should I include extra cash to cover the taxes that will occur when I redraw from 401k?

For instance, lets say my income bracket is 25% and my goal is $2M for comfortable retirement, does this mean I need to save an additional ($2M x 25%) $500k to make up for the taxes I will pay on the $2M? So, ideally my goal should be $2.5M.

What if I retire and my income $0 for that year? Will my income tax bracket change to less than 25%.

Thanks,

[Ed 2]

Hello,

I am trying to determine how much we will need for monthly expense after retirement. I need to know to determine if I am saving enough in 401k for retirement needs. I am using a 401k retirement calculator in my 401K account.

I have calculated in today's money, we will need $4500.00 per month to retire.

Retirement Monthly Expense:
Metlife 22.05
xboxlive 11
cell phone 200
House warranty 42
car gas 150
monthly expense 600
a/c warranty 17.98
health care after retire ??? 700
dog stuff 100
yearly vaction save per month 650
lights water gas 290
house alarm 60
comcast 165
car insurance 200
car note 400
house taxes 316.73
house insurance 150.75
lawn service 60
Yearly car and house repairs per month 200


This comes out $4348.78 per month.

Am I missing something? What is rule of thumb?

Thanks for any help or comments.

On tap of every item you have to put extra 20% a list, inflation, yearly rate increases and usually a lot of more unexpected expenses.

[More Please]

Christmas, Birthday, Anniversaries
Donations
Personal Allowances: haircuts, clothing, walk around money
Annual license fees: professional or car tags
Home Maintenance/repairs

[Boglenaut]

I am 34 now.

It's way way too soon to even start thinking about doing this analysis at any reasonable level of detail. So much can change... markets, inflation, your health, job, wife's job, tax laws, SS laws, kids, where you live, family expenses, windfalls, goals, interests, changes in lifestyle or tastes...... How can you even start to plan a budget for a vacation in the year 2043?

Rule of thumb I use: Save as much as you can while still taking car of true "needs" and selected "wants". Live below your means. If you accidentally save too big of a pile of money, I am sure you'll be able to console yourselves somehow. If you save too small of a pile, you get no do-overs.

So for now just save as much as you can. In 15 years revisit it and see if you can slow down then.

[dianna]

As was suggested to me when I had a similar question a year or so ago, consider using www.firecalc.com to aid with retirement estimations. I strongly encourage you to add data in all of the tabs so that you are truly presenting your situation - - your current age, when you want to retire, how much you think you will need, what your inflation projections are, whether/not you will receive a pension, whether/not you believe you will receive SS benefits, etc. Through Firecalc, I have found the estimations to be very interesting and helpful in understanding what likelihood we have to make our targets.

Good luck!
~dianna

[TSR]

If Xbox Live ultimately ends up on your list of fixed expenses in retirement, you are DEFINITELY doing it right. Play on, good sir.

[goodoboy]

On tap of every item you have to put extra 20% a list, inflation, yearly rate increases and usually a lot of more unexpected expenses.

Thanks,

The fidelty tool in my 401K accounts for inflation towards the monthly income needed for retirement. It also calculates the social security income from me and wife at age 67.

I am just wondering if I am missing anything on the expense list. For instance, is 700 enough for healthcare.

[goodoboy]

If Xbox Live ultimately ends up on your list of fixed expenses in retirement, you are DEFINITELY doing it right. Play on, good sir.

I will be playing Call of Duty and Madden until my last breath. LOL!!

[Peter Foley]

Healthcare - my wife and I currently pay about $700/mo each for healthcare. That will drop by about $300/mo when I qualify for Medicare in 3 years.

[goodoboy]

I am 34 now.

It's way way too soon to even start thinking about doing this analysis at any reasonable level of detail. So much can change... markets, inflation, your health, job, wife's job, tax laws, SS laws, kids, where you live, family expenses, windfalls, goals, interests, changes in lifestyle or tastes...... How can you even start to plan a budget for a vacation in the year 2043?

Rule of thumb I use: Save as much as you can while still taking car of true "needs" and selected "wants". Live below your means. If you accidentally save too big of a pile of money, I am sure you'll be able to console yourselves somehow. If you save too small of a pile, you get no do-overs.

So for now just save as much as you can. In 15 years revisit it and see if you can slow down then.

Thank you and makes sense. Its best I try to save much as I can

I think I was trying to convince myself that I didn't need to try and max out 401k per year. This year I want to start the year off right. Already, I have emergency fund for 6 months. My next goal is to determine to max out 401k and still continue to contribute to savings.

Thank you,

[22twain]

What if I retire and my income $0 for that year? Will my income tax bracket change to less than 25%.

Possibly. You'll have to pay income tax on withdrawals from your 401k and traditional IRA if you have one, and on current investment income in taxable accounts, and probably on part of your Social Security when you start collecting it. At age 70 you have to start taking Required Minimum Distributions (RMD's) from your 401k and IRA (and pay tax on those distributions).

My wife and I have been in the 25% bracket during our last working years. When we're retired but not yet collecting SS or taking RMD's from our 403b's, and living off our taxable investments, we'll be in the 15% bracket. When we do start SS and RMD's, we'll go back into the 25% bracket.

[BHCadet]

Don't forget long term care insurance.
If you plan to self-funded, set aside $250,000 today for two.
Or $4,000 to $5,000 per year for a couple in their 60 to buy LTC insurance.

[BHCadet]

When we had our free financial planning with Fidelity a while ago, one of the things he did was to take $250,000 off from our assets for Long Term Care.
Then, the rest was used to calculate our retirement budget.

[Valuethinker]

One rule of thumb often used is to calculate a 4% withdrawal rate. So if you need to withdraw $4500/m, that's $54,000 per year. $54,000/.04 (withdrawal rate) = $1,350,000. Now if you have a pension that will provide $1000 per month, you only need to withdraw $42,000/year. $42,000/.04 = $1,050,000.

There are many who believe that a 4% withdrawal is too much because they expect long term gains from stocks and bonds to be below historical averages. They might make a recommendation of 3% withdrawal. So $54,000/.03 = $1,800,000.

The examples above ignore Social Security. Your starting point should be the number you need to withdraw from saving each year, so reduce your total annual spending by the amount of your SS benefits and any pensions for which you might qualify.

A shameless plug - This is covered in the Bogleheads Guide to Retirement Planning, chapter 1.

4% is wildly dangerous unless you have the ability to 'flex' your spending downwards or raise new capital (eg sell your house).

If long term US bond rates are c. 2% then that's giving you a feel for SWR. 2.5% at a stretch.

A better way to calculate SWR is to work out what annuity rate you would get-- ie income from SPIA. *that* is the only truly safe way of doing it. The alternative is to bank on the CPI indexation in US SS-- ie as you get older, SS becomes more important as a source of retirement income relative to fixed SPIAs which are falling in value.

It's not really safe, either, unless it is a CPI indexed annuity. And then, CPI probably lags retiree inflation by at least 0.5% pa (maybe 1% to be safe).

The alternative is to assume 100% in I bonds and TIPS and work out SWR from there.

[john94549]

Health care is the absolute wild card for retirees these days. Even today, Medicare-eligible (as I am), it's hard to predict. I have Kaiser Senior Advantage (Kaiser's Medicare Advantage program). I pay $84/mo above and beyond Part B. I joined Kaiser because I am reasonably confident Kaiser will be around a whole lot longer than I am and Kaiser has reasonable co-pays and annual maximum aggregates. But I have no clue what I will be paying to Kaiser per month five years from now.

Other Medicare Advantage programs cost less. But will they be around?

Then there's traditional Medicare with MediGap. Will Medigap premiums go up more or less than your S/S COLA?

Oh, then there's the issue of Medicare Part A deductibles. For separate "incidents" in any calendar year. Will those deductibles increase?

Don't even get me started on in-home care for seniors who need it. Private providers currently charge anywhere from $15 - $30/hour. My Mom's hourly rate for her helpers has gone up almost 50% in a little over two years (!).

You get the drift.

[englishgirl]

As you can see from the different answers, nobody knows.

Various things will change in your spending patterns between now and retirement. Yes, healthcare will probably be more. Some things may be less. So, starting from your current spending level is a great idea. Aim to replace 100% of that, and that's (in my opinion) a good start.

Yes, you should account for inflation if you were going to do this properly, but that hurts my head, so I like to do everything in today's dollars. I mean, it's all just guessing, really. If you do account for inflation, you have to guess the inflation rate, and a slight change in that makes the final numbers swing wildly. What you should know when you calculate in today's dollars is that the final "number" that you are aiming for is going to have to be higher due to inflation. So think about doing a rough recalculation every few years, and make sure you are on track.

OK, so you've figured out $4500. Now sign on to the social security website, and get an estimate of how much social security you are going to get. Say that comes out to $2000 per month. For safety's sake, I've seen a lot of recommendations to assume you'll only get 75% of this, so let's say we're talking $1500. Now you need your retirement portfolio to generate $3000 per month. Now, as another exercise, you could go to immediateannuities.com and see how much you'll have to save to replace all or half of this. Doing a quick estimate for a male aged 66 in my state, I get $517k if you were retiring today and bought an annuity today to replace $3000 per month, or $259k to replace $1500 (single life, no inflation adjustment - you would want some sort of inflation adjustment, which will cost extra, and a joint annuity will cost extra too). The annuity number is your minimum - it leaves you no extra for fun stuff, no inflation adjustment, and no control over your money. But, it's an option. It gives you some income flexibility. I would think about replacing your income like this:

$1500 = social security
$1500 = annuity, costs $250k-$300k ish
$1500 = portfolio, assuming a 3% withdrawal rate, costs $600k (or $450k if we assume a 4% withdrawal rate).

There you go. $600k - $900k is your minimum. And somewhere around $2M seems to be a reasonable upper limit, based on other suggestions on this thread. See, even when I tried to ignore inflation to stop my calculations swinging wildly, I still end up with a $1.4M spread. I have similar monthly spending to you, and decided I'd aim for $1.5M as it is somewhere in the middle. In today's dollars, of course - this'll need to be adjusted upwards due to inflation, but if you focus on saving a percentage of your income, hopefully the income will keep pace with inflation and so your amount that you save will also keep pace with inflation.

[reggiesimpson]

As a wise old business man told me decades ago.........."Make so much money it doesnt matter"

[wjwhitney]

Just a comment... I want to commend the OP for at least making the attempt to do this right: Estimate your actual expenses in retirement. So many "retirement calculators" have you input your current income and assume you will need "x" percent (typically 75 or 80) in retirement. This is just crazy. In my final years of employment we were living on about 40% of income, so why would we need 80% after retirement?

At age 34, retirement is quite a few years down the road. (or maybe not? ). This makes the estimation process more difficult but it's still the right thing to do.

To get a feel for what health care costs will be, I suggest http://www.ehealthinsurance.com.

[Watty]

Don't forget long term care insurance.
If you plan to self-funded, set aside $250,000 today for two.
Or $4,000 to $5,000 per year for a couple in their 60 to buy LTC insurance.

If you will have a paid off house when you retire then one way to handle this is to consider your home equity as what you will use for long term care if it is needed.

[Peter Foley]

Valuethinker wrote:

4% is wildly dangerous unless you have the ability to 'flex' your spending downwards or raise new capital (eg sell your house).

If long term US bond rates are c. 2% then that's giving you a feel for SWR. 2.5% at a stretch.

A better way to calculate SWR is to work out what annuity rate you would get-- ie income from SPIA. *that* is the only truly safe way of doing it. The alternative is to bank on the CPI indexation in US SS-- ie as you get older, SS becomes more important as a source of retirement income relative to fixed SPIAs which are falling in value.

It's not really safe, either, unless it is a CPI indexed annuity. And then, CPI probably lags retiree inflation by at least 0.5% pa (maybe 1% to be safe).

The alternative is to assume 100% in I bonds and TIPS and work out SWR from there.

While I agree 4% is on the high side, that 4% does come from the Trinity Study of 30 year periods. A number of subsequent studies have shown that even 4.5% is safe if you do not take the full inflationary increase each year, or reset every 5-7 years (your flex spending suggestion). I'm not recommending 4%, but I do think the Trinity Study remains a good starting point. IMHO it is a better starting point than looking at annuities, I bond and TIPs in a historically low interest rate period. Again, I say starting point - which is why I offered a more conservative 3% suggestion. I would feel better about other approaches if there were a body of research to support such estimates.

[Watty]

As you can see from the different answers, nobody knows.

Various things will change in your spending patterns between now and retirement. Yes, healthcare will probably be more. Some things may be less. So, starting from your current spending level is a great idea. Aim to replace 100% of that, and that's (in my opinion) a good start.

Yes, you should account for inflation if you were going to do this properly, but that hurts my head, so I like to do everything in today's dollars. I mean, it's all just guessing, really. If you do account for inflation, you have to guess the inflation rate, and a slight change in that makes the final numbers swing wildly. What you should know when you calculate in today's dollars is that the final "number" that you are aiming for is going to have to be higher due to inflation. So think about doing a rough recalculation every few years, and make sure you are on track.

OK, so you've figured out $4500. Now sign on to the social security website, and get an estimate of how much social security you are going to get. Say that comes out to $2000 per month. For safety's sake, I've seen a lot of recommendations to assume you'll only get 75% of this, so let's say we're talking $1500. Now you need your retirement portfolio to generate $3000 per month. Now, as another exercise, you could go to immediateannuities.com and see how much you'll have to save to replace all or half of this. Doing a quick estimate for a male aged 66 in my state, I get $517k if you were retiring today and bought an annuity today to replace $3000 per month, or $259k to replace $1500 (single life, no inflation adjustment - you would want some sort of inflation adjustment, which will cost extra, and a joint annuity will cost extra too). The annuity number is your minimum - it leaves you no extra for fun stuff, no inflation adjustment, and no control over your money. But, it's an option. It gives you some income flexibility. I would think about replacing your income like this:

$1500 = social security
$1500 = annuity, costs $250k-$300k ish
$1500 = portfolio, assuming a 3% withdrawal rate, costs $600k (or $450k if we assume a 4% withdrawal rate).

There you go. $600k - $900k is your minimum. And somewhere around $2M seems to be a reasonable upper limit, based on other suggestions on this thread. See, even when I tried to ignore inflation to stop my calculations swinging wildly, I still end up with a $1.4M spread. I have similar monthly spending to you, and decided I'd aim for $1.5M as it is somewhere in the middle. In today's dollars, of course - this'll need to be adjusted upwards due to inflation, but if you focus on saving a percentage of your income, hopefully the income will keep pace with inflation and so your amount that you save will also keep pace with inflation.

+1 , that was a very good post.


One of the problems not mentioned with trying to come up with one number for what you will need each year when you are retired is that if you have a long retirement then you will have different needs at different ages.

Some people are very active when they first retire but I have also seen relatives that naturally slowed down a lot once they got to be in their 70's. When they slowed down but were still in relatively good health then in many months they didn't even spend their entire social security check. They had a paid off house and lived in an area with moderate, but not super low, costs which helped. Their major costs were just food , utilities, a few prescriptions, and eventually having a housekeeper come in several days a week.

You also need to watch out about the bias that people giving advice give, and this board tends to have a pessimistic bias. A series of negative assumptions combined can excessively increase your retirement goal. If you assume that;
1) You will not get any social security
2) You need a 3% save withdrawal rate instead of 4% to likely have your funds last 30 years.
Then you could easily double or triple what you think you need which could greatly impact your current quality of life or cause you to decide that it is undoable.

[Watty]

Valuethinker wrote:

4% is wildly dangerous unless you have the ability to 'flex' your spending downwards or raise new capital (eg sell your house).

If long term US bond rates are c. 2% then that's giving you a feel for SWR. 2.5% at a stretch.

A better way to calculate SWR is to work out what annuity rate you would get-- ie income from SPIA. *that* is the only truly safe way of doing it. The alternative is to bank on the CPI indexation in US SS-- ie as you get older, SS becomes more important as a source of retirement income relative to fixed SPIAs which are falling in value.

It's not really safe, either, unless it is a CPI indexed annuity. And then, CPI probably lags retiree inflation by at least 0.5% pa (maybe 1% to be safe).

The alternative is to assume 100% in I bonds and TIPS and work out SWR from there.

While I agree 4% is on the high side, that 4% does come from the Trinity Study of 30 year periods. A number of subsequent studies have shown that even 4.5% is safe if you do not take the full inflationary increase each year, or reset every 5-7 years (your flex spending suggestion). I'm not recommending 4%, but I do think the Trinity Study remains a good starting point. IMHO it is a better starting point than looking at annuities, I bond and TIPs in a historically low interest rate period. Again, I say starting point - which is why I offered a more conservative 3% suggestion. I would feel better about other approaches if there were a body of research to support such estimates.

The OP is also looking at retiring in about 30 years so the current low real interest rates may be long gone by then. Planning on using the higher number then may make more sense than for someone retiring today.