How much money is really needed in retirement?

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justsomeguy2018
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How much money is really needed in retirement?

Post by justsomeguy2018 » Sun Nov 03, 2019 9:03 pm

I get the feeling retirement advice from the "pros" is too simplistic. E.g. "by age 40, you should have 3x your income in retirement savings".

Isn't the bigger issue your expected expenses in retirement? And can't you manage your expenses by moving to a low-cost area?

If your annual income is $1M a year, do you really need $20M in retirement? Worst case scenario, couldn't you just sell your house and move to Alabama or something?

I am 38 and my wife is my 34 and we have like $338k in retirement but are now at a point where we can put away at least $60k a year going forward.

I feel like we are behind the curve, but at the same time feel like the general guidelines are too simplistic. IN 30 years our house (biggest monthly expense) would be paid off, combined with SS (assuming it's there) I feel like $2M-$3M (in today's dollars) should be plenty, no?

KlangFool
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Re: How much money is really needed in retirement?

Post by KlangFool » Sun Nov 03, 2019 9:09 pm

OP,

Don't listen to any "pro" that claimed it is based on income. It is all about expenses.

KlangFool

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RickBoglehead
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Re: How much money is really needed in retirement?

Post by RickBoglehead » Sun Nov 03, 2019 9:10 pm

Yes to all of the above, but no - won't move to Alabama... :twisted:

All comes down to what standard of living one wants in retirement. Most don't want to cut back on things they've gotten used to. More travel, more toys, maybe smaller house.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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fortfun
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Re: How much money is really needed in retirement?

Post by fortfun » Sun Nov 03, 2019 9:11 pm

Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
Last edited by fortfun on Sun Nov 03, 2019 9:12 pm, edited 1 time in total.

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Re: How much money is really needed in retirement?

Post by Jack FFR1846 » Sun Nov 03, 2019 9:11 pm

Using income IS too simplistic. Spending is what matters. At retirement, one person might have kids out on their own with a paid off house. Another might have 2 kids at Boston University with zero scholarships and a $3000 a month mortgage payment for another 20 years. Big difference in what each needs at "retirement age", whatever that might be.
Bogle: Smart Beta is stupid

KlangFool
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Re: How much money is really needed in retirement?

Post by KlangFool » Sun Nov 03, 2019 9:14 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:03 pm

IN 30 years our house (biggest monthly expense) would be paid off,
justsomeguy2018,

How do you know that you would not be permanently unemployed or under-employed over the next 30 years?

KlangFool

Rus In Urbe
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Re: How much money is really needed in retirement?

Post by Rus In Urbe » Sun Nov 03, 2019 9:14 pm

So what's your question again?....
Isn't the bigger issue your expected expenses in retirement?
Yes. So much depends on spending...
And can't you manage your expenses by moving to a low-cost area?
Yes. One could.
If your annual income is $1M a year, do you really need $20M in retirement?
I have found that "Need" is a completely personal opinion.
Worst case scenario, couldn't you just sell your house and move to Alabama or something?
If you wanted to live in Alabama, you could.
I am 38 and my wife is my 34 and we have like $338k in retirement but are now at a point where we can put away at least $60k a year going forward.
I feel like we are behind the curve, but at the same time feel like the general guidelines are too simplistic. IN 30 years our house (biggest monthly expense) would be paid off, combined with SS (assuming it's there) I feel like $2M-$3M (in today's dollars) should be plenty, no?
If you feel like it would be plenty, then, yes. It would.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

Topic Author
justsomeguy2018
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Re: How much money is really needed in retirement?

Post by justsomeguy2018 » Sun Nov 03, 2019 9:18 pm

KlangFool wrote:
Sun Nov 03, 2019 9:14 pm
justsomeguy2018 wrote:
Sun Nov 03, 2019 9:03 pm

IN 30 years our house (biggest monthly expense) would be paid off,
justsomeguy2018,

How do you know that you would not be permanently unemployed or under-employed over the next 30 years?

KlangFool
I don't know that. Does anyone know that? I can only make estimations based on current situation. How do I know that in 15 years me or my wife are not company VPs making $300k a year? Who knows. Regardless, I try to keep my expenses low and my savings high.

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justsomeguy2018
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Re: How much money is really needed in retirement?

Post by justsomeguy2018 » Sun Nov 03, 2019 9:21 pm

fortfun wrote:
Sun Nov 03, 2019 9:11 pm
Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
That seems reasonable but how does a paid-off house factor into that? 20% of our annual expenses are mortgage payments (P + I).

HomeStretch
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Re: How much money is really needed in retirement?

Post by HomeStretch » Sun Nov 03, 2019 9:23 pm

Yes, how much money you need for retirement depends on your expenses in retirement (including taxes, healthcare and lumpy expenses like new cars), net of retirement income (like a pension or SS). It also depends on how long your retirement will be. Assuming same net expenses/mortality, someone retiring at age 50 will need higher savings than someone retiring at age 65.

I think many advisors talk about retirement savings as a % of income (rather than a multiple of net retirement expenses) as it’s easier for most people to understand. Most people know their salary off the top of their heads but fewer know their expense run rates.

KlangFool
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Re: How much money is really needed in retirement?

Post by KlangFool » Sun Nov 03, 2019 9:26 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:18 pm
KlangFool wrote:
Sun Nov 03, 2019 9:14 pm
justsomeguy2018 wrote:
Sun Nov 03, 2019 9:03 pm

IN 30 years our house (biggest monthly expense) would be paid off,
justsomeguy2018,

How do you know that you would not be permanently unemployed or under-employed over the next 30 years?

KlangFool
I don't know that. Does anyone know that? I can only make estimations based on current situation. How do I know that in 15 years me or my wife are not company VPs making $300k a year? Who knows. Regardless, I try to keep my expenses low and my savings high.
justsomeguy2018,

You missed my point.

1) If your financial goal is retirement, you have to assume that you would be fully-employed until retirement age (62/67/70). And, you use retirement expense to set the target.

2) However, if your financial goal is Financial Independence, you could stop working at any age as long as you meet your number. In that case, you use your current annual expense to set your target.

<<I can only make estimations based on current situation.>>

If you believe that you should use your current annual expense to set your target. Then, it should include your mortgage as an expense.

KlangFool

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justsomeguy2018
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Re: How much money is really needed in retirement?

Post by justsomeguy2018 » Sun Nov 03, 2019 9:28 pm

HomeStretch wrote:
Sun Nov 03, 2019 9:23 pm
Yes, how much money you need for retirement depends on your expenses in retirement (including taxes, healthcare and lumpy expenses like new cars), net of retirement income (like a pension or SS). It also depends on how long your retirement will be. Assuming same net expenses/mortality, someone retiring at age 50 will need higher savings than someone retiring at age 65.

I think many advisors talk about retirement savings as a % of income (rather than a multiple of net retirement expenses) as it’s easier for most people to understand. Most people know their salary off the top of their heads but fewer know their expense run rates.
So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).

rich126
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Re: How much money is really needed in retirement?

Post by rich126 » Sun Nov 03, 2019 9:36 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:21 pm
fortfun wrote:
Sun Nov 03, 2019 9:11 pm
Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
That seems reasonable but how does a paid-off house factor into that? 20% of our annual expenses are mortgage payments (P + I).
If paid off then it isn’t an expense. And don’t forget to account for taxes.

KlangFool
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Re: How much money is really needed in retirement?

Post by KlangFool » Sun Nov 03, 2019 9:37 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:28 pm
HomeStretch wrote:
Sun Nov 03, 2019 9:23 pm
Yes, how much money you need for retirement depends on your expenses in retirement (including taxes, healthcare and lumpy expenses like new cars), net of retirement income (like a pension or SS). It also depends on how long your retirement will be. Assuming same net expenses/mortality, someone retiring at age 50 will need higher savings than someone retiring at age 65.

I think many advisors talk about retirement savings as a % of income (rather than a multiple of net retirement expenses) as it’s easier for most people to understand. Most people know their salary off the top of their heads but fewer know their expense run rates.
So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).
justsomeguy2018,

<<So how should a financially savvy Boglehead look at it? >>

It should be based on expenses. Not on income.

<<every article referenced a multiple of your income (which by the way can change drastically over any given time period).>>

Common sense is highly uncommon. Those articles could only fool people that choose not to use their common sense.

KlangFool

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fortfun
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Re: How much money is really needed in retirement?

Post by fortfun » Sun Nov 03, 2019 9:39 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:21 pm
fortfun wrote:
Sun Nov 03, 2019 9:11 pm
Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
That seems reasonable but how does a paid-off house factor into that? 20% of our annual expenses are mortgage payments (P + I).
If your house will be paid off, you don't have to include that amount in your annual spending, which will bring the amount needed for retirement down. However, property taxes and insurance may increase as the house appreciates.

Also, if you sell your house, and move to a LCOL state/city, you can subtract the amount of money you make, from the home sale, from the total amount needed in retirement. Of course you would need to adjust that number for the amount you'll spend on rent, or the amount you'd put toward a new but less expensive home.

HomeStretch
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Re: How much money is really needed in retirement?

Post by HomeStretch » Sun Nov 03, 2019 9:50 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:28 pm
So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).
I found it hard in my 30s to figure out how much spouse/I would be spending in retirement, how much our SS would be, what market returns would be and whether we would remain steadily employed until retirement.

So we focused on what we could control - doing well at work/staying marketable, living below our means, saving at a high rate, avoided debt, and used low-cost diversified investing. We also paid off our mortgage as quickly as possible.

Figure out your current annual expenses excluding your mortgage. See how many years of expenses your $338k portfolio represents and what $60k/year savings represents as a % of expenses. For example, if your expenses excluding mortgage are $60k/year, you have ~6x saved and will be saving 1x each year. In 14 years (age 52) you should have 20x saved before accounting for earnings and any retirement income. Hopefully your mortgage is paid off by then. At age 52, you will be in a better position to calculate your retirement net expenses and evaluate your portfolio.

averagedude
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Re: How much money is really needed in retirement?

Post by averagedude » Sun Nov 03, 2019 9:55 pm

Many people in the financial industry say you need more than you really do. When they charge an AUM of 1% or more, it is in their best interest to tell you this. Ric Elderman tells his clients to financial plan well past the age of 100. If you have your home paid off at retirement and social security takes care of over 50% of your expenses like alot of retirees, you will need much less than what financial advisors say. I know many 80 year olds that have never touched their nest eggs, as their social security and pension takes care of everything.

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Re: How much money is really needed in retirement?

Post by goodenyou » Sun Nov 03, 2019 10:04 pm

Most people have a very hard time trying to winnow down expenses to what is essential and what is discretionary. What to one person is discretionary to another is essential. Using a percentage of pre-retirement income is a lazy person's approach to estimating retirement needs. People who live below there means are able to accelerate their retirement horizon and live off a fraction of their income. People who live large have a hard time cutting back and often times, cutting back will reduce their perceived net worth (house is upside down and has to be sold at a loss). They are betting on the come, and have to keep on betting.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

bampf
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Re: How much money is really needed in retirement?

Post by bampf » Sun Nov 03, 2019 10:07 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:28 pm

So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).
Maybe look at it this way:

You are trying to replace your current income when you save for retirement. At 20x, with no saving for retirement, you can replace your current income by drawing down your portfolio and looking for portfolio growth.

If you don't need your current income (shout out to Klangfool) then you are looking to cover your current expenses on an annualized basis. Since you can't know, really, what your future expenses are, you take a stab. 20x is a decent stab.

You know you can quit working when the amount of money you have coming in from investments exceeds your current income minus savings. For example, if you make 100K and you save 50K, then you need ~$1.25MM to cover those expense and have a reasonable chance of surviving (Trinity study etc ). That being said, lumpy expenses and sequence of returns add risk to your goals. So, its all about deciding if the amount of life you are trading for the $$ they pay you for is worth it.

Regards,

--Bampf

MJS
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Re: How much money is really needed in retirement?

Post by MJS » Sun Nov 03, 2019 10:11 pm

From another angle: You can use the MIT Living Wage Calculator to determine both basic expenses & poverty level in your region for your family size. That gives you the Needs.

Your Wants will vary. You'll need to look through your budget & spending habits to determine which Wants are essential for your comfort.

mikeyzito22
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Re: How much money is really needed in retirement?

Post by mikeyzito22 » Sun Nov 03, 2019 10:18 pm

averagedude wrote:
Sun Nov 03, 2019 9:55 pm
Many people in the financial industry say you need more than you really do. When they charge an AUM of 1% or more, it is in their best interest to tell you this. Ric Elderman tells his clients to financial plan well past the age of 100. If you have your home paid off at retirement and social security takes care of over 50% of your expenses like alot of retirees, you will need much less than what financial advisors say. I know many 80 year olds that have never touched their nest eggs, as their social security and pension takes care of everything.
I agree with this. I think a pension, social security, and a small portfolio could probably be just fine for most folks, maybe not Bogleheads. Currently, my parents don't spend anything from their portfolios, and they were a one-income family. There has been some talk about how boomers really did hit the 'sweet spot' in the market because of their demographic and the incredible post-war boom that expanded the country economically. I hope that can be true for Gen Y and for later generations. I often think of the lack of safety cushion I had, maybe when I was 22 years old. I didn't think I was poor or even really care about it.

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Wiggums
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Re: How much money is really needed in retirement?

Post by Wiggums » Sun Nov 03, 2019 10:24 pm

There are many reasonable methods for coming up with a retirement savings goal and then assessing your progress.

I have tracked my expenses in quicken for the past twenty years. If you want the same lifestyle in retirement, you need to replace your working income with retirement savings, minus any income you will have, such pension, SS, rental income, etc.

Whereas you don’t have some expenses in retirement (for example: 401k contribution), many people spend more on medical costs over time. I have retiree medical, but it doesn’t not include dental and Vision. Dental and vision is an example of a new retirement expenses. It’s better to consistently save for retirement over a very long time. I’d rather “over save”, than determine later that I “under saved”. Accurately projecting your retirement expenses is key.

Yes, you can identify ways to cut expenses in retirement. Nothing wrong with spending money wisely. If, however, you are being forced to cut expenses to make ends meet, that sounds painful to and unpleasant to me. Moving to a LCOL area is not for everyone.

I hope this perspective helps.

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Re: How much money is really needed in retirement?

Post by Tracker968 » Sun Nov 03, 2019 10:36 pm

Regarding moving to Alabama; I retired 6 months ago. My family is here in MN, my friends are here, the clubs I'm in are here. It's a higher cost of living state and cold in the winter but what would I do in Alabama?
My learnings from the first 6 months; I realized that I have been neglecting home repairs for the past few years, I have more time to pursue hobbies which cost money, wife wants to redecorate, in short it is very easy to spend much more than planned. Therefore, I'm going back to work part time to help pay for these extras and not get stressed out about spending so much.

TN_Boy
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Re: How much money is really needed in retirement?

Post by TN_Boy » Sun Nov 03, 2019 10:42 pm

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:03 pm
I get the feeling retirement advice from the "pros" is too simplistic. E.g. "by age 40, you should have 3x your income in retirement savings".

Isn't the bigger issue your expected expenses in retirement? And can't you manage your expenses by moving to a low-cost area?

If your annual income is $1M a year, do you really need $20M in retirement? Worst case scenario, couldn't you just sell your house and move to Alabama or something?

I am 38 and my wife is my 34 and we have like $338k in retirement but are now at a point where we can put away at least $60k a year going forward.

I feel like we are behind the curve, but at the same time feel like the general guidelines are too simplistic. IN 30 years our house (biggest monthly expense) would be paid off, combined with SS (assuming it's there) I feel like $2M-$3M (in today's dollars) should be plenty, no?
Yes, you have to figure out your expenses *in retirement* and then work backward from that to determine how much money you need saved to retire, including SS income, etc.

At your age, mid-30s, I had done no retirement planning and would frankly have found it almost impossible to accurately compute my retirement expenses. A lot of stuff happens between 30s and 50s. If you are in your mid 50s and plan on retiring at say 60, it is a lot easier to compute estimated retirement expenses (including taxes).

Not only is it hard to figure out what your expenses will be 25 or 30 years in the future, you don't know what your investment returns will be over that period. At your age I would simply start setting aside that 60k a year, then reassess every five years or so. You will not regret saving that money, no matter what happens.

peddler12
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Re: How much money is really needed in retirement?

Post by peddler12 » Sun Nov 03, 2019 10:52 pm

fortfun wrote:
Sun Nov 03, 2019 9:11 pm
Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
Not all of your expenses need to come from savings. Don't forget Social Security from you and your spouse and a pension if you have one. I don't believe 1.25M savings is a correct number.

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Watty
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Re: How much money is really needed in retirement?

Post by Watty » Sun Nov 03, 2019 11:00 pm

How much money is really needed in retirement?
A lot really depends on your definition of "need".

When I was planning for retirement looked at several level like

1) Most basic core expenses, enough that my kid will not need to support me.
2) Below expected, but some extras
3) Planned
4) A bit above planned
5) wowzer!

In addition the value of your nest egg on the day you retire your investing returns during retirement may cause you to end up in a different level.

I retired a few years ago in a medium to low cost of living area and I have a paid off house with low property taxes.

I figure that as a couple with a paid off house we could live a comfortable, but frugal, middle class lifestyle for around $48K a year until something like assisted living was needed but our home equity could be used for that. That is sort of my worst case plan.

Something to keep in mind is that you expenses will be different at different ages. For example;

1) In early retirement you may be very active and spending on things like travel

2) By you mid 70s you may be naturally slowing down even if you health is relatively good for your age. I have seen relatives that reached that stage and even though they could have afforded to they did not want to do things like travel much and even an expensive evening out was a rare event. They were more interested down sizing then buying more stuff.

3) For a couple it is likely that one spouse will outlive the other and the expenses will change.

4) Late retirement and various levels of assisted living can greatly increase expenses.
Last edited by Watty on Sun Nov 03, 2019 11:14 pm, edited 1 time in total.

mptfan
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Re: How much money is really needed in retirement?

Post by mptfan » Sun Nov 03, 2019 11:02 pm

KlangFool wrote:
Sun Nov 03, 2019 9:37 pm
<<So how should a financially savvy Boglehead look at it? >>

It should be based on expenses. Not on income.

<<every article referenced a multiple of your income (which by the way can change drastically over any given time period).>>

Common sense is highly uncommon. Those articles could only fool people that choose not to use their common sense.

KlangFool
I agree with KlangFool. You can choose to follow the mass media who ignore common sense and dumb down their advice for the average person who is clueless about money, or you can think for yourself and follow the advice of the very bright people on this forum. By the way, you can go to the early-retirement.org forum and they will tell you the same thing...it is your expenses in retirement that matter.
Last edited by mptfan on Sun Nov 03, 2019 11:03 pm, edited 1 time in total.

CurlyDave
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Re: How much money is really needed in retirement?

Post by CurlyDave » Sun Nov 03, 2019 11:03 pm

While some people have data on expenses for decades, I did not have that.

What I did have was I knew our salaries, and I knew our savings rate. As a very good estimate of expenses, the difference between salaries and savings rate is current expenses.

Sure, there are going to be adjustments for taxes, etc. but in our case these were second-order effects and almost always erred on the side of more expenses, not less.

So, when SS + pensions + SWR = estimated expenses we were almost there. A couple extra years of savings and a healthy chunk of rental real estate and we pulled the trigger. I have not regretted this for a second.

The beauty of this method is that it automatically adjusts for inflation and lifestyle creep. If I have decades of expenses how do I correlate what we spent 15 years ago with what our expenses will be next year? But, what we spent last year correlates pretty well with what we will spend this year and next year.

Just one example. A couple of years before we retired, DW developed a hip problem. Getting in and out of the small cars we both drove for years became impossible. So we needed bigger SUVs, both for door size and seating position. Car expenses increased significantly. But it was easy to just take salaries - savings to get a total budget in the years just before retirement. Of course one could have adjusted actual data upward if necessary, but I don't think it would have been any more accurate.

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Phineas J. Whoopee
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Re: How much money is really needed in retirement?

Post by Phineas J. Whoopee » Mon Nov 04, 2019 6:42 am

Said pros mostly live paycheck to paycheck and on new debt. They assume you do too.
PJW

Jack FFR1846
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Re: How much money is really needed in retirement?

Post by Jack FFR1846 » Mon Nov 04, 2019 7:27 am

If we look at Joe Six pack who makes $55k a year and spends $50k a year, how much does he need if his spending in retirement won't change?

If we look at Warren Buffet who makes $55 Billion a year and spends $50k a year, how much does he need if his spending in retirement won't change?

Hint: earnings number doesn't matter at all.

Another point, if you have a paid off house in retirement and plan to live in it until you die, it would make no sense to count its value in with spendable assets. Only if you will sell the house to go to a lower cost living arrangement will it matter. It does matter if you have a mortgage because the mortgage payment must be included in spending.

I find an excel spread sheet divided into years and accounting for all income and all expenses to be far better than any number or monte carlo analysis. In one year, maybe you're paying $100k for 2 kids in college, need a new car, so pay another $30k. Then the kids graduate and move on and your car is still new, so you're back to a "normal" spending year. I have built such a sheet with predictions for what I'll do and what % gains will come and what one time, big expenses will occur.

There's no easy multiplier that can determine all of life.
Bogle: Smart Beta is stupid

Olemiss540
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Re: How much money is really needed in retirement?

Post by Olemiss540 » Mon Nov 04, 2019 7:42 am

OP,

Don't rely on the media to set your goals, become informed and learn how to project your own goals/savings rates/financial independence. Set a retirement date, set a projected expenses at that time, and then figure out if you are on track saving 60k/year.

Then backtest using monte carlo simulations online and check progress each year. If there is a job loss or poor market returns you will need to either have to reduce spending, delay retirement, or increase income/savings to accomplish FI.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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RickBoglehead
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Re: How much money is really needed in retirement?

Post by RickBoglehead » Mon Nov 04, 2019 7:44 am

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:28 pm
So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).
An internet-savvy person shouldn't read articles on websites that a) are trying to sell you something or b) rely on ads to make money.

An intelligent person should realize that if you search long enough, you'll find 100 different opinions on everything, and that a good many of them are from people that aren't intelligent, or have ulterior motives (i.e. clickbait).

A financially-savvy person should understand that all that matters in retirement is how much you're going to spend, and that spending can easily be forecast using current spending coupled with logical reasoning coupled with a fudge factor. Figure out a year's expenses, multiply by the number of years you expect to have those expenses (less any predictable income including Social Security and/or pension), and that's how much you need.

Example:

Let's say we spend $80,000 a year today (I track everything in Quicken, so I know EXACTLY how much I spend). Let's assume mortgage payment is $20,000 of that. So I'm spending $60,000. I break that down into categories, then tweak each category. For example, maybe I spend $300 per month on medical insurance from my employer. In retirement, before Medicare, I may have to pay full boat. I look in the ACA and see that's $2,000 a month. I change my budget by $1,700 a month. And so on.

Once done, say I come up with $103,000 in expenses per year in retirement. I add $22,000 for yucks, and come up with $125,000. $125,000 x 25 years = $3,125,000. However, for 20 of those years, my wife and I will have $40,000 in guaranteed income. Subtract $800,000 and I now need $2,325,000 in retirement.

Sounds like a lot, but you have $340,000 and are putting away $60,000 a year. In 25 years, with a zero percent return, you'll have $340,000 + (25 x $60,000) = $1,840,000. Of course, returns won't be zero. You can pull up calculators that figure out what you'll have, and you can also add inflation to the budget numbers.

Tip - start tracking your expenses NOW. I've known exactly how much I spend for many decades. I knew that in 1994 when I got a decent pay increase due to changing jobs, my spending basically stopped growing, but my income did not. I put away all that excess and we're now less than 2 years from retirement.

Tip - once you figure things out, stop trying to figure things out. I am constantly amazed at people that post "what about this theory" and "what about this theory" or "I plan on taking out 2.97% a year instead of 3% a year, does that matter?". Determine what you need to do, then go do it. When you get there, stop thinking about it and enjoy life.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Re: How much money is really needed in retirement?

Post by Stoic9 » Mon Nov 04, 2019 8:45 am

Any plan requires you make assumptions. When I was 30 I made some wild assumptions of what we (myself and wifeiod) would do in retirement. By 50 I had narrowed assumptions. But for example my current plan (62) is for my LE to be 75 plus or minus 2 years, wifeiod 90 plus or minus 4. Between 30 and 50 I completely changed careers. What didn't change was I continued to sock monies away to ensure FI which would allow me flexibility in any change in plans. A well quoted adage is. NO PLAN SURVIVES CONTACT. You have to adapt, improvise, overcome. Shooting for FI (individual assessment) is only one part of retirement planning but an important part. My plan had 3 stems, Finance, Health, Relationships. Under Finance I had 4 parts: Passive income (pension, SS, rents), Portfolio ( mine is 80/20...401K, IRA's, taxable), Real Estate (rental properties serve as both investment and provide passive income), and ZERO debt ( no mortgage, no auto, no no no). Good luck, your young and thinking which is the first step.

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Wiggums
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Re: How much money is really needed in retirement?

Post by Wiggums » Mon Nov 04, 2019 9:02 am

RickBoglehead wrote:
Mon Nov 04, 2019 7:44 am

Tip - once you figure things out, stop trying to figure things out. I am constantly amazed at people that post "what about this theory" and "what about this theory" or "I plan on taking out 2.97% a year instead of 3% a year, does that matter?". Determine what you need to do, then go do it. When you get there, stop thinking about it and enjoy life.
I love this tip! It’s so true :-)

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JoMoney
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Re: How much money is really needed in retirement?

Post by JoMoney » Mon Nov 04, 2019 9:30 am

Yes, you can cut your expenses if you have to. Some people get by on social security alone, but you don't have many other options when you get old. By the time you're of age to collect SS, it will be difficult to find work even if you were willing and able to get a job.
A barely getting by standard of living isn't the type of "retirement" most look forward to.

For a lot of people, one of the big unknowns is healthcare. Your house may currently be your largest expense, but if you project the growth rate of healthcare costs in the U.S. into the future it won't be long before it subsumes everything. For decades the cost has been growing at rates faster than inflation, GDP, wages, etc... It can't continue at that rate, but who knows what the limit is.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Rudedog
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Re: How much money is really needed in retirement?

Post by Rudedog » Mon Nov 04, 2019 9:33 am

A good friend of mine, retired for ten years and living in a low cost of living area, said you can get by just fine on $ 50K to $ 60K per year. About half of that comes from social security. Depends on your lifestyle.

randomguy
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Re: How much money is really needed in retirement?

Post by randomguy » Mon Nov 04, 2019 9:42 am

JoMoney wrote:
Mon Nov 04, 2019 9:30 am
Yes, you can cut your expenses if you have to. Some people get by on social security alone, but you don't have many other options when you get old. By the time you're of age to collect SS, it will be difficult to find work even if you were willing and able to get a job.
A barely getting by standard of living isn't the type of "retirement" most look forward to.

For a lot of people, one of the big unknowns is healthcare. Your house may currently be your largest expense, but if you project the growth rate of healthcare costs in the U.S. into the future it won't be long before it subsumes everything. For decades the cost has been growing at rates faster than inflation, GDP, wages, etc... It can't continue at that rate, but who knows what the limit is.
Medicare largely caps your healthcare costs. Until there is some big reform, most of the health care inflation doesn't show up at an individual retiree level. Health care is still expensive and you will be paying more every year but it is something you can plan for.

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JoMoney
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Re: How much money is really needed in retirement?

Post by JoMoney » Mon Nov 04, 2019 9:49 am

randomguy wrote:
Mon Nov 04, 2019 9:42 am
JoMoney wrote:
Mon Nov 04, 2019 9:30 am
Yes, you can cut your expenses if you have to. Some people get by on social security alone, but you don't have many other options when you get old. By the time you're of age to collect SS, it will be difficult to find work even if you were willing and able to get a job.
A barely getting by standard of living isn't the type of "retirement" most look forward to.

For a lot of people, one of the big unknowns is healthcare. Your house may currently be your largest expense, but if you project the growth rate of healthcare costs in the U.S. into the future it won't be long before it subsumes everything. For decades the cost has been growing at rates faster than inflation, GDP, wages, etc... It can't continue at that rate, but who knows what the limit is.
Medicare largely caps your healthcare costs. Until there is some big reform, most of the health care inflation doesn't show up at an individual retiree level. Health care is still expensive and you will be paying more every year but it is something you can plan for.
Yes, medicare (for those that are eligible) is shielding individual retirees from much of the cost... for now. But the money to pay for it has to come from somewhere, and the unsustainable growth rate for whoever is paying the bill is cause for concern.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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HomerJ
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Re: How much money is really needed in retirement?

Post by HomerJ » Mon Nov 04, 2019 9:56 am

OP, you have it exactly right.

Expenses are what matters, not income.

Shoot for 25x expenses by 60 or so...

Now, it's hard to tell exactly what your expenses will be 20-30 years from now, but one can make a good guess, and as you get closer and closer to retirement, your guesses will get better and better.

And you can control your expenses. Don't let your lifestyle expenses creep up too much.
The J stands for Jay

alfredwallace
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Re: How much money is really needed in retirement?

Post by alfredwallace » Mon Nov 04, 2019 9:56 am

Determining how much you need for retirement is easy. You just need to know a few things. First decide what day you are going to die. Now decide how many days before that you'll be using long-term care. Decide if you want to be healthy right up until the day you die or if you want to have a long-term debilitating medical condition and maybe linger for years under intensive nursing care. You'll also want to decide if you want your spouse to be healthy or have a debilitating illness as well. Of course, you'll need to decide how long they'll be alive too. Now identify inflation rates between now and when you die as well as the stock market returns and interest rates between now and when you die. You should also know your pay between now and your retirement day. Ideally, identify any and all emergencies that will occur and/or catastrophic life changes like divorce or your under-insured house being destroyed by a hurricane, or getting fired during the next recession. If you don't have this information, hire a soothsayer also called a financial advisor who will, using dousing rods, a crystal ball, monte carlo simulations or technical analysis, determine what you should do. I've opted for a magic-eight ball because it doesn't charge me a flat fee or a percentage of assets but the information I get is about the same. It says: "Reply hazy, try again".

In other words there is a lot of information that could dramatically increase an estimate of retirement savings need but current income probably is way down the list. Expense and savings rate are the best predictors.

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HomerJ
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Re: How much money is really needed in retirement?

Post by HomerJ » Mon Nov 04, 2019 9:59 am

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:21 pm
fortfun wrote:
Sun Nov 03, 2019 9:11 pm
Approx. 25x your annual spending is a rough estimate. Assuming a 3.5-4% draw down.

ie. 50k/yr spending would require 1.25M savings.
That seems reasonable but how does a paid-off house factor into that? 20% of our annual expenses are mortgage payments (P + I).
If you are spending $50k a year, and $10k a year is mortgage payments, then you only need to plan for $40k a year expenses in retirement with a paid off house.

Now you just need $1 million to retire, instead of $1.25 million. Paid off house is a wonderful thing.
The J stands for Jay

rich126
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Re: How much money is really needed in retirement?

Post by rich126 » Mon Nov 04, 2019 10:03 am

Wiggums wrote:
Mon Nov 04, 2019 9:02 am
RickBoglehead wrote:
Mon Nov 04, 2019 7:44 am

Tip - once you figure things out, stop trying to figure things out. I am constantly amazed at people that post "what about this theory" and "what about this theory" or "I plan on taking out 2.97% a year instead of 3% a year, does that matter?". Determine what you need to do, then go do it. When you get there, stop thinking about it and enjoy life.
I love this tip! It’s so true :-)
Also agree.

People need to look in the mirror and understand what kind of person they are and budget for that. If you feel a need for expensive cars and hobbies, then plan for it, since it is unlikely you will change in retirement. If you are someone that is thrifty you won't need as much.

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Mullins
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Re: How much money is really needed in retirement?

Post by Mullins » Mon Nov 04, 2019 10:12 am

When I was 30 I wouldn't have known to factor into my retirement expenses such things as computer purchases, smart devices, internet, NetFlix or other subscriptions... planning is like travel, you pick a destination and re-align from time to time as you go along.

mbasherp
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Re: How much money is really needed in retirement?

Post by mbasherp » Mon Nov 04, 2019 10:13 am

It was enlightening when I realized that Social Security payments at FRA, combined with a paid off home, would roughly equal our current lifestyle.

I realized that I’m saving for:

1) Extra icing on the cake when we’re older

2) bringing financial independence closer, sooner

What changed was my perception of what I’m saving for. I now save to reduce the age at which my lifestyle can be covered without work. I believe I will still enjoy working, but I’m in my 30’s now and I know a lot can change.

Currently targeting FI around 50 but productively working “forever.”

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bertilak
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Re: How much money is really needed in retirement?

Post by bertilak » Mon Nov 04, 2019 10:15 am

Lots of good points made above.

One point on housing costs: If your house is paid off, yes, your mortgage expenses will be eliminated (but not your taxes nor insurance). What will go up after 30 years may be maintenance and upkeep: new roof, new HVAC, new driveway, new septic system, new paint, new gutters, inflation on all the above and on utilities. How about new furniture? New kitchen appliances? Those are all things I have either already experienced or see on the not-to-distant horizon, and I have been in my house only 10 years! One has a tendency to put a lot of that off until they get critical and more things go critical as time goes by.

Another point: Retirement may also bring on a desire for travel or other adventures or simply eating out more often.

But don't be discouraged. All that makes life more interesting!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

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Re: How much money is really needed in retirement?

Post by MnD » Mon Nov 04, 2019 10:21 am

Coming up on one-year retired. Adjusted for changes in savings (not saving for retirement) and taxes (went way down) we are spending about the same as we did when working. We paid off the house a number of years before retirement and the payment was smallish (purchased 1991) so that was not a big factor. Spending is up on health and fitness, groceries, hobbies, home improvement and travel. Spending is down on gasoline and auto maintenance, take-out dinners, work-week lunches out, clothing and booze.
Last edited by MnD on Mon Nov 04, 2019 10:23 am, edited 1 time in total.
70/30 AA, Global market cap equity. Rebalance if FI <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.

oldfatguy
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Re: How much money is really needed in retirement?

Post by oldfatguy » Mon Nov 04, 2019 10:22 am

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:03 pm

I am 38 and my wife is my 34 and we have like $338k in retirement but are now at a point where we can put away at least $60k a year going forward.

I feel like we are behind the curve ...
You already have more saved than 90% of people in the US.

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CyclingDuo
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Re: How much money is really needed in retirement?

Post by CyclingDuo » Mon Nov 04, 2019 10:23 am

justsomeguy2018 wrote:
Sun Nov 03, 2019 9:28 pm
So how should a financially savvy Boglehead look at it? I did a Google search to try and get an estimation on if we are on the right track and every article referenced a multiple of your income (which by the way can change drastically over any given time period).
The articles that reference the multiples of income are to be used only as a starting point. Fidelity's is one of the more common, but there are others. Keep in mind those benchmarks based on multiples of income have some very important assumptions included. Not everyone fits into the included assumptions which is why the multiples of income should only be used as a starting point when forecasting and making your plans for the future.

For instance, Fidelity's assumes FRA at age 67, receiving Social Security and no pension, investing 15% of one's income beginning at age 25, that the pre-retirement lifestyle will be maintained in retirement, and that you will live to age 93.

https://www.fidelity.com/viewpoints/ret ... -to-retire
https://www.fidelity.com/mymoneylifesty ... come-start

Image

Not everyone will live to age 93. Not everyone will retire age at 67. Not everyone will live the same lifestyle in retirement as they did in pre-retirement. Not everyone will receive SS (those with jobs that do not pay into SS as an example). There are those who will receive a pension. Not everyone started saving at age 25. Not everyone saves 15% (some save a lot more, some less). As your salary increases, so too will the demand to play catch up with your multiples.

That being said, the closer one is to the included assumptions (saving 15% beginning at 25, retiring at FRA of 67, living to 93, receiving SS) then the better such multiples of income can be used as a benchmark for your journey. Multiples of your annual expenses - as KlangFool brings up - is also a very valued benchmark to consider. It also continues to evolve and change throughout your working career and raising a family as does the annual salary, so is more difficult to nail down what it will be in your 5-10 pre-retirement years and your early retirement years for those that are in their 20's, 30's, and 40's. So it is also a starting point as there are many assumptions (withdrawal rate, number of years in retirement to fund, what age one takes retirement be it voluntary or forced, and the number of legs of income one will receive in retirement such as pension, SS, risk portfolio, rental income, etc...).

In other words, since you and your wife are only age 38 & 34 respectively - it is too early to focus in exactly on the number you will need based on your current lifestyle, expenses and salary along with all of the assumptions included in the multiples of income articles, websites, suggestions. If you fit all of the assumptions, then with your current ages you should be somewhere between 2X and 3X your current combined salaries. If your plan is to retire in your 40's or 50's - then that is a different ball game with different assumptions when compared to the working until age 67 factor included in something such as Fidelity's suggested multiples of salary journey. Life throws some curve balls at you as well, so planning for those events is prudent as well.

What are you to do? Keep socking away your $60K per year (or whatever your desired rate of savings is) and keeping tabs on your household expenses through monthly budgeting so you can dial in what your annual expenses are at your current ages and lifestyle. It's a given that those will change and alter as salary increases/decreases, mortgage gets paid down, kids leave the nest, vacation desires change, etc... .

It gets much clearer 15-20 years from now based on your current ages. That clarity unfolds over time and really starts to come more into focus - or at least it did in our household - in the early 50's. In our case, the clarity coincided with kids leaving the nest and finishing college, knowing more accurate numbers for pension and SS, settling into a lifestyle for 2 rather than 4, and experimenting with a pre-retirement budget that looks to meet all of our needs and could be sustained in retirement.

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cpumechanic
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Re: How much money is really needed in retirement?

Post by cpumechanic » Mon Nov 04, 2019 10:24 am

mptfan wrote:
Sun Nov 03, 2019 11:02 pm
KlangFool wrote:
Sun Nov 03, 2019 9:37 pm
<<So how should a financially savvy Boglehead look at it? >>

It should be based on expenses. Not on income.

<<every article referenced a multiple of your income (which by the way can change drastically over any given time period).>>

Common sense is highly uncommon. Those articles could only fool people that choose not to use their common sense.

KlangFool
I agree with KlangFool. You can choose to follow the mass media who ignore common sense and dumb down their advice for the average person who is clueless about money, or you can think for yourself and follow the advice of the very bright people on this forum. By the way, you can go to the early-retirement.org forum and they will tell you the same thing...it is your expenses in retirement that matter.
+1
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Will do good
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Re: How much money is really needed in retirement?

Post by Will do good » Mon Nov 04, 2019 10:25 am

HomerJ wrote:
Mon Nov 04, 2019 9:56 am
OP, you have it exactly right.

Expenses are what matters, not income.

Shoot for 25x expenses by 60 or so...

Now, it's hard to tell exactly what your expenses will be 20-30 years from now, but one can make a good guess, and as you get closer and closer to retirement, your guesses will get better and better.

And you can control your expenses. Don't let your lifestyle expenses creep up too much.
Follow HomerJ's advice and aim for 25x expenses, if you have to error, error by over save bc you can always retire early.

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