How much money do I need in retirement?

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verakot
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Re: How much money do I need in retirement?

Post by verakot »

rrosenkoetter wrote:
verakot wrote:
GRT2BOUTDOORS wrote: What expenses do you have today that you will eliminate by age of retirement?
If you make $100K gross today, how much do you come home with - I would estimate about 25-30% less or roughly 60-70K. 44K divided by 65K is about 68% of total after-tax income today. That is reasonably close to the 80% figure.
I will not have the following expenses:
- no mortgage expense - should be paid off completely
- no car/other loans

Basically it will only be necessities - food/clothing etc. So yes, $100K gross gives about $70K after taxes. So 44K will be about 63% of current income.
$44k will probably be enough if you have the house paid off.

Do the math. How much do you spend a month, not counting your mortage? Less than $3700 a month? Not what you make, what you SPEND each month, not counting mortgage.

$3700 a month is a solid chunk of money if all you need is food, utilities, property taxes, some insurance (car and house) and a little fun.

How much do you spend NOW each month? Until you answer this question, you'll have no idea if you're on-track to retire.
Just checked my credit card statements, so currently I spend $3,500 per month.
You are right, it will be a little fun then.
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by Grt2bOutdoors »

verakot wrote:
rrosenkoetter wrote:
verakot wrote:
GRT2BOUTDOORS wrote: What expenses do you have today that you will eliminate by age of retirement?
If you make $100K gross today, how much do you come home with - I would estimate about 25-30% less or roughly 60-70K. 44K divided by 65K is about 68% of total after-tax income today. That is reasonably close to the 80% figure.
I will not have the following expenses:
- no mortgage expense - should be paid off completely
- no car/other loans

Basically it will only be necessities - food/clothing etc. So yes, $100K gross gives about $70K after taxes. So 44K will be about 63% of current income.
$44k will probably be enough if you have the house paid off.

Do the math. How much do you spend a month, not counting your mortage? Less than $3700 a month? Not what you make, what you SPEND each month, not counting mortgage.

$3700 a month is a solid chunk of money if all you need is food, utilities, property taxes, some insurance (car and house) and a little fun.

How much do you spend NOW each month? Until you answer this question, you'll have no idea if you're on-track to retire.
Just checked my credit card statements, so currently I spend $3,500 per month.
You are right, it will be a little fun then.
Also, assuming you save in taxable accounts now - you won't have to save when you are in retirement.
Just keep in mind, that homes require maintainance and real estate property taxes have a propensity to increase over time. :(
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: How much money do I need in retirement?

Post by HomerJ »

verakot wrote:
rrosenkoetter wrote:
verakot wrote:
GRT2BOUTDOORS wrote: What expenses do you have today that you will eliminate by age of retirement?
If you make $100K gross today, how much do you come home with - I would estimate about 25-30% less or roughly 60-70K. 44K divided by 65K is about 68% of total after-tax income today. That is reasonably close to the 80% figure.
I will not have the following expenses:
- no mortgage expense - should be paid off completely
- no car/other loans

Basically it will only be necessities - food/clothing etc. So yes, $100K gross gives about $70K after taxes. So 44K will be about 63% of current income.
$44k will probably be enough if you have the house paid off.

Do the math. How much do you spend a month, not counting your mortage? Less than $3700 a month? Not what you make, what you SPEND each month, not counting mortgage.

$3700 a month is a solid chunk of money if all you need is food, utilities, property taxes, some insurance (car and house) and a little fun.

How much do you spend NOW each month? Until you answer this question, you'll have no idea if you're on-track to retire.
Just checked my credit card statements, so currently I spend $3,500 per month.
You are right, it will be a little fun then.
You may have to work an extra year or two. No one owes you a retirement at your current level of spending.

You could also downsize to a smaller house and put that extra money in accounts earning you more income.... Also utilities and property taxes would be cheaper in a smaller house.

And if you're not worried about leaving money to your kids, you could look into a SPIA (single premium immediate annuity) where you give them $100k and they give you like $5000-$6000 a year for life (based on your current age). That's a way to increase your income. But the money is gone if you do it that way. When you die, they keep it.
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Re: How much money do I need in retirement?

Post by Zephyr120 »

The 4%/25 rule are actually the same rule, since 25* 4% = 100%. The origin for the 4% rule is a historical search for a Sustainable Withdrawal Rate (SWR) that works over 30 years. The basis of the "multiply by 25" is that, while it looks that your nest egg will only last for 25 years, there's (hopefully) enough growth during those years to stretch it out for 30 years.

You can calculate the "25" factors yourself. Project income and expenses in 2012 $ and then apply COLA's/inflation to each category. Do this for each retirement year to find the withdrawal $ you'll need to make up the difference. Apply investment returns and asset allocation (AA) to find out how much you need today in 2012$ to have enough in each future year. Add those numbers up for your expected lifespan and that's how much you'll need to retire.

If you then divide future retirement assets by the withdrawal for each future year you get a series of decreasing numbers, much like the RMD's. They start at roughly 25 and decrease to 1 over a 30 year (or your expected lifetime). The nice part about this spreadsheet is that it accommodates different lifespans, flexible income and spending. Each year in your retirement you can track your assets against the plan and adjust for lower (or higher) withdrawals. You can just withdraw (assets/factor for that year). On the downside, you have a date certain when you go bankrupt :-(.

If you are early in your career you could extend the above to show your expected salary and savings rate during your career. Apply investment returns and you could really be counting your eggs before they hatch ;-). With another calculation in your early years you could take your actual savings and divide by a factor. This would give you a picture of your potential withdrawal in current $.
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verakot
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Re: How much money do I need in retirement?

Post by verakot »

rrosenkoetter wrote:
verakot wrote:
rrosenkoetter wrote:
verakot wrote:
GRT2BOUTDOORS wrote: What expenses do you have today that you will eliminate by age of retirement?
If you make $100K gross today, how much do you come home with - I would estimate about 25-30% less or roughly 60-70K. 44K divided by 65K is about 68% of total after-tax income today. That is reasonably close to the 80% figure.
I will not have the following expenses:
- no mortgage expense - should be paid off completely
- no car/other loans

Basically it will only be necessities - food/clothing etc. So yes, $100K gross gives about $70K after taxes. So 44K will be about 63% of current income.
$44k will probably be enough if you have the house paid off.

Do the math. How much do you spend a month, not counting your mortage? Less than $3700 a month? Not what you make, what you SPEND each month, not counting mortgage.

$3700 a month is a solid chunk of money if all you need is food, utilities, property taxes, some insurance (car and house) and a little fun.

How much do you spend NOW each month? Until you answer this question, you'll have no idea if you're on-track to retire.
Just checked my credit card statements, so currently I spend $3,500 per month.
You are right, it will be a little fun then.
You may have to work an extra year or two. No one owes you a retirement at your current level of spending.

You could also downsize to a smaller house and put that extra money in accounts earning you more income.... Also utilities and property taxes would be cheaper in a smaller house.

And if you're not worried about leaving money to your kids, you could look into a SPIA (single premium immediate annuity) where you give them $100k and they give you like $5000-$6000 a year for life (based on your current age). That's a way to increase your income. But the money is gone if you do it that way. When you die, they keep it.
Well, I forgot to mention one thing. I paid about $150K for my older son (who is in medical school now) for his pre-med school. I expect him to chip in when I retire, and he agrees. So I hope at least to get the money I paid for his education later on...

:sharebeer
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Re: How much money do I need in retirement?

Post by wilked »

Just a small note...a lot of people are ignoring the time value of money in here, figuring they need $50K (or whatever) in income when they retire, ignoring that $50K then is not the same as $50K now
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Re: How much money do I need in retirement?

Post by verakot »

wilked wrote:Just a small note...a lot of people are ignoring the time value of money in here, figuring they need $50K (or whatever) in income when they retire, ignoring that $50K then is not the same as $50K now
Good point. Assuming the average inflation rate is 3%, the equivalent of $500,000 today in say 12 years: $500,000 * 1.03^12 = $713,000.
That's a lot of money to be saved!
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by Grt2bOutdoors »

verakot wrote:
wilked wrote:Just a small note...a lot of people are ignoring the time value of money in here, figuring they need $50K (or whatever) in income when they retire, ignoring that $50K then is not the same as $50K now
Good point. Assuming the average inflation rate is 3%, the equivalent of $500,000 today in say 12 years: $500,000 * 1.03^12 = $713,000.
That's a lot of money to be saved!
Here is the rub: unless you can look into a crystal ball and predict with 90 or 95% accuracy what inflation will be in the next 15 years, you can not calculate future prices. Oh sure, you can use historical figures, but if you look at current 15 or 30 year rates the market is saying there is and will continue to be low inflation.
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Re: How much money do I need in retirement?

Post by YDNAL »

verakot wrote:
wilked wrote:Just a small note...a lot of people are ignoring the time value of money in here, figuring they need $50K (or whatever) in income when they retire, ignoring that $50K then is not the same as $50K now
Good point. Assuming the average inflation rate is 3%, the equivalent of $500,000 today in say 12 years: $500,000 * 1.03^12 = $713,000.
That's a lot of money to be saved!
That's how it works, verakot.
  • IF you know that to help pay your bills in retirement you need $X annually from the portfolio, then you need minimally 25X.
  • Now, first you must determine the real value of $X and it's ALL based on making assumptions. For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.
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Re: How much money do I need in retirement?

Post by hsv_climber »

YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
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Re: How much money do I need in retirement?

Post by The Wizard »

rrosenkoetter wrote: Exactly... I truly think SPIAs are a good solution for many people who didn't save enough....
Yes and no.
Even for someone with a few million, SPIAs can be a good idea. (Unless you're one of those Rugged Individualists, of course.)

Example: assume you have $2M at age 65. Annuitize $1M and leave $1M in your standard investment allocation. What happens now is: the enhanced monthly cash flow from the annuitized million aids in preserving the other million for later on...
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Re: How much money do I need in retirement?

Post by The Wizard »

hsv_climber wrote:
YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
So, umm, how's the weather in Honolulu today?
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verakot
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Re: How much money do I need in retirement?

Post by verakot »

GRT2BOUTDOORS wrote:
verakot wrote:
wilked wrote:Just a small note...a lot of people are ignoring the time value of money in here, figuring they need $50K (or whatever) in income when they retire, ignoring that $50K then is not the same as $50K now
Good point. Assuming the average inflation rate is 3%, the equivalent of $500,000 today in say 12 years: $500,000 * 1.03^12 = $713,000.
That's a lot of money to be saved!
Here is the rub: unless you can look into a crystal ball and predict with 90 or 95% accuracy what inflation will be in the next 15 years, you can not calculate future prices. Oh sure, you can use historical figures, but if you look at current 15 or 30 year rates the market is saying there is and will continue to be low inflation.
I looked here: http://www.usinflationcalculator.com/in ... ion-rates/
I assume the average inflation rate is 3%. Am I incorrect?
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by verakot »

The Wizard wrote:
rrosenkoetter wrote: Exactly... I truly think SPIAs are a good solution for many people who didn't save enough....
Yes and no.
Even for someone with a few million, SPIAs can be a good idea. (Unless you're one of those Rugged Individualists, of course.)

Example: assume you have $2M at age 65. Annuitize $1M and leave $1M in your standard investment allocation. What happens now is: the enhanced monthly cash flow from the annuitized million aids in preserving the other million for later on...
How about this novel idea:

- Spend money (on yourself or your loved ones) while you're alive. Every penny left after you die is a failing.

http://www.amazon.com/Die-Broke-Radical ... roduct_top
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by The Wizard »

verakot wrote: How about this novel idea:

- Spend money (on yourself or your loved ones) while you're alive. Every penny left after you die is a failing.
There seems to be quite a bit of variation in Bequest Motives from person to person.
But assuming no such motive, all one needs to know is their exact date of death and your idea is a slam dunk...
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Re: How much money do I need in retirement?

Post by YDNAL »

hsv_climber wrote:
YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
So you could pay $7.98 in 12 years if paying premiums is part of your consumption strategy!
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Re: How much money do I need in retirement?

Post by Hector »

verakot wrote: how much money do I need in retirement??
As much as possible..
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Re: How much money do I need in retirement?

Post by hicabob »

Hector wrote:
verakot wrote: how much money do I need in retirement??
As much as possible..
.... without delaying retirement too long - therein is the puzzle
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Re: How much money do I need in retirement?

Post by hsv_climber »

YDNAL wrote:
hsv_climber wrote:
YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
So you could pay $7.98 in 12 years if paying premiums is part of your consumption strategy!
Nope. In 12+ years we will be paying $0 for milk, since we don't drink milk and kids will be out of the house and we won't need to buy organic milk for them.
That is a good example of non-linear expenses.
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Re: How much money do I need in retirement?

Post by tuckeverlasting »

Hector wrote:
verakot wrote: how much money do I need in retirement??
As much as possible..
Brings to mind the apocryphal anecdote told of an esteemed gentleman of great wealth, just deceased. Next morning: "How much did he leave?" was the breathless question. "He left it all," came the reply. :P
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Re: How much money do I need in retirement?

Post by wander »

verakot wrote:This question is bugging me. I tried different retirement calculators and they all showed me (of course) different results. Is there a simple rule for how much money do I need in retirement??
You can use the largest amount that these calculators give, then never stop working. I do my own calculator base on what I need, when I need, and how to get there.
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Re: How much money do I need in retirement?

Post by YDNAL »

hsv_climber wrote:
YDNAL wrote:
hsv_climber wrote:
YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
So you could pay $7.98 in 12 years if paying premiums is part of your consumption strategy!
Nope. In 12+ years we will be paying $0 for milk, since we don't drink milk and kids will be out of the house and we won't need to buy organic milk for them.
That is a good example of non-linear expenses.
But then come those fitted pampers!

Look, you used my quote to get cute without a point. This pointless conversation is stopping as I type.
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Re: How much money do I need in retirement?

Post by HomerJ »

The Wizard wrote:
rrosenkoetter wrote: Exactly... I truly think SPIAs are a good solution for many people who didn't save enough....
Yes and no.
Even for someone with a few million, SPIAs can be a good idea. (Unless you're one of those Rugged Individualists, of course.)

Example: assume you have $2M at age 65. Annuitize $1M and leave $1M in your standard investment allocation. What happens now is: the enhanced monthly cash flow from the annuitized million aids in preserving the other million for later on...
Yes I agree with that... My statement didn't preclude "rich" people from using SPIA's too..

I plan to annuitize 25%-50% of our assets during retirement.
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Re: How much money do I need in retirement?

Post by HomerJ »

verakot wrote:
The Wizard wrote:
rrosenkoetter wrote: Exactly... I truly think SPIAs are a good solution for many people who didn't save enough....
Yes and no.
Even for someone with a few million, SPIAs can be a good idea. (Unless you're one of those Rugged Individualists, of course.)

Example: assume you have $2M at age 65. Annuitize $1M and leave $1M in your standard investment allocation. What happens now is: the enhanced monthly cash flow from the annuitized million aids in preserving the other million for later on...
How about this novel idea:

- Spend money (on yourself or your loved ones) while you're alive. Every penny left after you die is a failing.

http://www.amazon.com/Die-Broke-Radical ... roduct_top
You going to save 50 cents for a bullet to the brain if you run out of money before you die?

Using an annuity can actually let you spend MORE money on yourself and loved ones...

My father-in-law is 80. We keep telling him, "Time to spend the money! Enjoy yourself".

I said, "Hey at least, spend 5% a year for the next 20 years."

And he said "What if I live past 100?" (He's in great health)

Now I'm trying to get him to annuitize 50% of his money, which will cover his needs (and then some) to take the fear of out-living his money off-table. That will let him spend more freely.
Last edited by HomerJ on Fri Feb 17, 2012 1:58 pm, edited 1 time in total.
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Re: How much money do I need in retirement?

Post by HomerJ »

hsv_climber wrote:
YDNAL wrote:
hsv_climber wrote:
YDNAL wrote: For instance, a $3.79 gallon of milk can possibly cost $5.40 (or not) in 12 years.[/list]
We are already paying $5.60 for a gallon to milk. Back to the Future.
So you could pay $7.98 in 12 years if paying premiums is part of your consumption strategy!
Nope. In 12+ years we will be paying $0 for milk, since we don't drink milk and kids will be out of the house and we won't need to buy organic milk for them.
That is a good example of non-linear expenses.
What do you drink when you eat chocolate chip cookies???!

(And don't say you don't eat cookies!) :shock:
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Re: How much money do I need in retirement?

Post by hsv_climber »

rrosenkoetter wrote: What do you drink when you eat chocolate chip cookies???!
(And don't say you don't eat cookies!) :shock:
Wine.
You?
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Re: How much money do I need in retirement?

Post by Atilla »

Seems to me the rules of thumb that say retirement income needs will be 80% of final working salary assume folks who spend most of what they earn while they're working.

When I retire I won't need the 25% of gross income I'm saving for retirement.
Won't have a mortgage.
Won't be giving nearly as much to charity, because my income will be lower.
No child support payments.
MUCH (hopefully) lower tax burden due to lower income and money coming from cap gains & dividends vs. earned income. No more FICA taxes.

The only wild card is health care/insurance costs - and who knows where that will end up. But if all goes well we will have options to seek expensive care outside the US at a much lower overall cost.

Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.
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Re: How much money do I need in retirement?

Post by Honobob »

Atilla wrote:
The only wild card is health care/insurance costs - and who knows where that will end up.
Can you really discount inflation? When I conservatively project out my income 30 years from now (mostly from rentals) I'm looking at over $300,000 a year. My expenses will roughly stay the same as I'll have fixed mortgages paid off at different intervals over those years even though I'm predicting expenses increasing at 3%. Will I really be that rich 30 years from now?
It's slowly dawned on me that we won the real estate lottery!
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Re: How much money do I need in retirement?

Post by verakot »

Atilla wrote: Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.
I don't think it would work if somebody's income now is $60K so they could live well under $15K in the future?
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by RadAudit »

verakot wrote:Atilla wrote:
Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.

I don't think it would work if somebody's income now is $60K so they could live well under $15K in the future?
Probably not. But if you could, it would probably take a major change in lifestyle and a redefinition of the term "living well."
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Re: How much money do I need in retirement?

Post by HomerJ »

verakot wrote:
Atilla wrote: Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.
I don't think it would work if somebody's income now is $60K so they could live well under $15K in the future?
Oh, I don't know... My parents live in the Ozark foothills in Southern Missouri. Paid for house. Health-care covered by Medicare. They could technically live on $15,000 a year right now if they had to. Just need food, and utilities, really. Small house, easy to heat and cool. They have 110 acres of woods they own, and a fire-burining stove with a blower if they wanted to save money on heat.

Lots of people live on just Social Security.
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Re: How much money do I need in retirement?

Post by tphp99 »

rrosenkoetter wrote:
My father-in-law is 80. We keep telling him, "Time to spend the money! Enjoy yourself".
There's an elderly gentleman I frequently see walking around in his walker admiring in his brand new red Ferrari in his garage. I never see him drive it, his mode of transport is a van. I don't think he can get in the Ferrari.
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Re: How much money do I need in retirement?

Post by Grt2bOutdoors »

Atilla wrote:Seems to me the rules of thumb that say retirement income needs will be 80% of final working salary assume folks who spend most of what they earn while they're working.

When I retire I won't need the 25% of gross income I'm saving for retirement.
Won't have a mortgage.
Won't be giving nearly as much to charity, because my income will be lower.
No child support payments.
MUCH (hopefully) lower tax burden due to lower income and money coming from cap gains & dividends vs. earned income. No more FICA taxes.

The only wild card is health care/insurance costs - and who knows where that will end up. But if all goes well we will have options to seek expensive care outside the US at a much lower overall cost.

Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.
Do you pay property taxes? Do they stay static over time? Right now, the locale I live in has been raising property taxes at a rate far in excess of stated inflation. Given that scenario, if I want to remain in my current home and the mortgage is paid off, my taxes will be double. Somehow, my cost of living has not decreased especially when wage gains are hard to come by. To me, it seems the wild card is taxes and insurance, period.
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HomerJ
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Re: How much money do I need in retirement?

Post by HomerJ »

GRT2BOUTDOORS wrote:
Atilla wrote:Seems to me the rules of thumb that say retirement income needs will be 80% of final working salary assume folks who spend most of what they earn while they're working.

When I retire I won't need the 25% of gross income I'm saving for retirement.
Won't have a mortgage.
Won't be giving nearly as much to charity, because my income will be lower.
No child support payments.
MUCH (hopefully) lower tax burden due to lower income and money coming from cap gains & dividends vs. earned income. No more FICA taxes.

The only wild card is health care/insurance costs - and who knows where that will end up. But if all goes well we will have options to seek expensive care outside the US at a much lower overall cost.

Right now our gross income is north of $200K; but if retired we could live very well on under 50K a year without breaking a sweat.
Do you pay property taxes? Do they stay static over time? Right now, the locale I live in has been raising property taxes at a rate far in excess of stated inflation. Given that scenario, if I want to remain in my current home and the mortgage is paid off, my taxes will be double. Somehow, my cost of living has not decreased especially when wage gains are hard to come by. To me, it seems the wild card is taxes and insurance, period.
Well, you might have to move to a lower-cost area I guess. Less taxes, and your housing dollar will go a lot farther.
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FabLab
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Re: How much money do I need in retirement?

Post by FabLab »

Atilla wrote:Seems to me the rules of thumb that say retirement income needs will be 80% of final working salary assume folks who spend most of what they earn while they're working.
To my way of thinking, I have always believed that anything south of 100% replacement would be less than satisfactory.

Cheers.
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HomerJ
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Re: How much money do I need in retirement?

Post by HomerJ »

never mind
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verakot
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Re: How much money do I need in retirement?

Post by verakot »

Update: Only 1 in 10 people make such a calculation, according to the Transamerica Center for Retirement Studies. That might explain why, on average, Americans are on track to replace 60 percent or less of their income during retirement. Financial advisers generally agree that retirees need to replace 80 percent or more.

That means someone who brings home an $80,000 salary at the peak of his working years should save enough before retirement to generate at least $64,000 a year post-retirement. An investment, such as an annuity, that generates a 3 percent annual return would require savings of at least $2.1 million to throw off that sum annually. (Retirees can also supplement their income by continuing to work, as well as with Social Security payments and pensions.)

Source: US News and World Report on Yahoo News: http://finance.yahoo.com/news/5-ways-pe ... 34028.html
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Prudence
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Re: How much money do I need in retirement?

Post by Prudence »

For those posters citing the 25 to 30X annual expenditures and 4% withdrawal rate rules of thumb, what is the required/assumed AA? Thanks.
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HomerJ
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Re: How much money do I need in retirement?

Post by HomerJ »

verakot wrote:Update: Only 1 in 10 people make such a calculation, according to the Transamerica Center for Retirement Studies. That might explain why, on average, Americans are on track to replace 60 percent or less of their income during retirement. Financial advisers generally agree that retirees need to replace 80 percent or more.

That means someone who brings home an $80,000 salary at the peak of his working years should save enough before retirement to generate at least $64,000 a year post-retirement. An investment, such as an annuity, that generates a 3 percent annual return would require savings of at least $2.1 million to throw off that sum annually. (Retirees can also supplement their income by continuing to work, as well as with Social Security payments and pensions.)

Source: US News and World Report on Yahoo News: http://finance.yahoo.com/news/5-ways-pe ... 34028.html
I hate to repeat myself, but those studies are complete and utter B.S. It doesn't matter what your peak income is... Only your expenses... Pay off your house before you retire and you don't need to replace 80% of your income. A person making $80k a year is actually living on $49k when you discount the mortgage...

$4,800 to payroll taxes
$18,000 to mortgage (assuming $1,500 mortgage)
$8,000 to savings

= about $31,000

That $31,000 of spending goes away in retirement... You don't have to save anymore, you don't pay payroll taxes, and your house is paid off.

So all you need is $49,000 a year income to live at 100% of your lifestyle before retirement... And then you get $1500 a month from Social Security... which is $18,000 a year... So now you only need to generate $31,000 a year from your investments, and have 100% of your lifestyle before retirement.

That is less than half of the $64,000 figure thrown out by that "study". So instead of needing $2.1 million throwing 3% in an annuity (Yuck), you really only need $775,000 in a 30/70 TSM/TBM where you pull out 4% every year.

That's a huge difference.
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Re: How much money do I need in retirement?

Post by scrabbler1 »

And remember to exclude commutation expenses which can be anything from transit fares to gasoline and additional car insurance premiums for being in a higher use class (i.e. drive to work instead of pleasure use).
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Re: How much money do I need in retirement?

Post by scone »

BolderBoy wrote:But the single most important website that helped me make the decision that it would probably all work out okay is firecalc.com. Highly recommend that you spend some time assembling the input info that it wants and watch the output. Twiddle the input over a wide range of "what ifs" and look at the result. Good luck!
I've used Firecalc too, and I love it. It requires more inputs, but the results are worth it, because it tests against every economic scenario the US has experienced since 1871. So you get a sense of how your plan would work under inflation or deflation, for example.
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mptfan
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Re: How much money do I need in retirement?

Post by mptfan »

First, you need to understand the difference between income and expenses. The best way to estimate how much you will spend in retirement is to track your spending (not income) before retirement, then make any adjustments. For example, if you pay off your mortgage, you can plan for less spending, or, you may expect to travel more and do more entertainment activities, so you would project an increase in those categories.

Any "rule of thumb" based on income is useless, in my opinion.
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Re: How much money do I need in retirement?

Post by mptfan »

FabLab wrote:
Atilla wrote:Seems to me the rules of thumb that say retirement income needs will be 80% of final working salary assume folks who spend most of what they earn while they're working.
To my way of thinking, I have always believed that anything south of 100% replacement would be less than satisfactory.
This is foolish thinking. There are a number of expenses that will go away when you retire, and there are others that should go away with proper planning, and there are still others that will be much lower. Some expenses that will go away are .... social security taxes, medicare taxes, retirement savings, work related expenses. Some expenses that should go away with proper planning are .... mortgage payments and car payments. Also, you may still have to pay income taxes, but with proper planning, it will be greatly reduced.
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Zander
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Re: How much money do I need in retirement?

Post by Zander »

Here is my 'back of the envelope' answer.

Take your total annual income today. Let's use $100,000 for our example because it's a nice round number.
Subtract the amount you are currently saving and investing on an annual basis from total income. ($25,000)
Subtract work related expenses , commuting costs, dry cleaning, etc..($2,000)
Subtract cost of SS and Medicare contributions ($8,000) since you won't be paying them anymore
Take the remaining number ($65,000) and multiply by 25 ($1,625,000) and you'll have a fairly good idea.

The key is to track your spending. Break it down by the day.
Example: If you pay $3,000 per month for a mortgage, that works out to $98.63/day.
$500/month for food= $16.43/day
$300/month for your car = $9.86.
$200/ month for gas = $6.57/day
etc......When you do this you'll realize how little you actually spend on yourself, most of your outflow goes to taxes, housing, transportation and insurance.

Obviously you will need to make your own adjustments....
mptfan
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Re: How much money do I need in retirement?

Post by mptfan »

Zander wrote:Here is my 'back of the envelope' answer.

Take your total annual income today. Let's use $100,000 for our example because it's a nice round number.
Subtract the amount you are currently saving and investing on an annual basis from total income. ($25,000)
Subtract work related expenses , commuting costs, dry cleaning, etc..($2,000)
Subtract cost of SS and Medicare contributions ($8,000) since you won't be paying them anymore
Take the remaining number ($65,000) and multiply by 25 ($1,625,000) and you'll have a fairly good idea.
Don't forget to subtract other expense items that may go away when you retire, like a mortgage payment, or child support, or other debt payments, depending on your situation.
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Re: How much money do I need in retirement?

Post by verakot »

Zander wrote: Take the remaining number ($65,000) and multiply by 25 ($1,625,000) and you'll have a fairly good idea.
You do not have to have $1.6 mil in your bank account to retire at 62, right? What's your number that you need in your retirement account by the retirement age for this example?
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HomerJ
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Re: How much money do I need in retirement?

Post by HomerJ »

verakot wrote:
Zander wrote: Take the remaining number ($65,000) and multiply by 25 ($1,625,000) and you'll have a fairly good idea.
You do not have to have $1.6 mil in your bank account to retire at 62, right? What's your number that you need in your retirement account by the retirement age for this example?
What do you mean? If you need $65,000 a year coming in for 30 years, inflation adjusted, you should have about $1.6 million in investments. Doesn't matter if it's in the bank or in a retirement account.
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Re: How much money do I need in retirement?

Post by verakot »

rrosenkoetter wrote:
verakot wrote:
Zander wrote: Take the remaining number ($65,000) and multiply by 25 ($1,625,000) and you'll have a fairly good idea.
You do not have to have $1.6 mil in your bank account to retire at 62, right? What's your number that you need in your retirement account by the retirement age for this example?
What do you mean? If you need $65,000 a year coming in for 30 years, inflation adjusted, you should have about $1.6 million in investments. Doesn't matter if it's in the bank or in a retirement account.
So the assumption is that you'd need $1.6 mil for 30 years of retirement, but since you will not withdraw $1.6 mil by age 62, you need less by that age.
...But there are also unknown unknowns – there are things we do not know, we don't know. - Donald Rumsfeld | 401(k) Day Trading: https://sites.google.com/site/401kdaytrading/
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Re: How much money do I need in retirement?

Post by Toons »

I think you will be fine given what you have.You will be amazed at how spending changes in retirementI( for me it is less) and the ways you find yourself economizing. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: How much money do I need in retirement?

Post by Default User BR »

mptfan wrote:Don't forget to subtract other expense items that may go away when you retire, like a mortgage payment, or child support, or other debt payments, depending on your situation.
By the same token, don't forget to add in expenses like health insurance. This is particularly true for earlier retirees that don't yet qualify for Medicare.


Brian
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