NY Times - Three Things I Should Have Said About Retirement Planning

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jef
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NY Times - Three Things I Should Have Said About Retirement Planning

Post by jef » Tue Jul 25, 2017 10:28 pm

Based on what I know now, I have put an addendum on the retirement advice I give to people: “And no matter how much money you think you are going to need, save another 15 percent, just in case.”
I've found the home repair costs mentioned to be suprisingly high too.

https://www.nytimes.com/2017/07/21/your ... ecp=0&_r=0

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willthrill81
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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by willthrill81 » Tue Jul 25, 2017 10:45 pm

I couldn't believe it when he said that he advised 65 year olds with insufficient retirement funds to save only 10% of their income between then and age 70. Delaying SS until age 70 makes total sense, but a 10% savings rate when you know you're in trouble with not much time left? How likely will such a couple be to live on 80% or 90% of their pre-retirement income if that's all they think they can afford?

I know full well that it involves sacrifices that truly are, but if you're not already well set for retirement by age 65, you'd better do whatever it takes to get your savings rate FAR above 10%. You make hay while the sun shines, and at age 65, the sun is frankly setting on your ability to make that hay (with few exceptions).

And this.

"By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement."

If such a couple doesn't even have one year's income saved by age 65, working five more years isn't going to solve that problem. 47% more than $75 is good, but a long, long way from being enough. Such a couple should likely be saving 50% of their income during this five year period and finding ways to dramatically cut their retirement expenses.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by Dopey » Wed Jul 26, 2017 3:11 am

willthrill81 wrote:I couldn't believe it when he said that he advised 65 year olds with insufficient retirement funds to save only 10% of their income between then and age 70. Delaying SS until age 70 makes total sense, but a 10% savings rate when you know you're in trouble with not much time left? How likely will such a couple be to live on 80% or 90% of their pre-retirement income if that's all they think they can afford?

I know full well that it involves sacrifices that truly are, but if you're not already well set for retirement by age 65, you'd better do whatever it takes to get your savings rate FAR above 10%. You make hay while the sun shines, and at age 65, the sun is frankly setting on your ability to make that hay (with few exceptions).

And this.

"By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement."

If such a couple doesn't even have one year's income saved by age 65, working five more years isn't going to solve that problem. 47% more than $75 is good, but a long, long way from being enough. Such a couple should likely be saving 50% of their income during this five year period and finding ways to dramatically cut their retirement expenses.
I think it was a simple example to illustrate his point about the impact of working longer. Not that a 10% savings rate was enough for someone in that circumstance.

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by CyclingDuo » Wed Jul 26, 2017 3:35 am

willthrill81 wrote:
And this.

"By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement."

If such a couple doesn't even have one year's income saved by age 65, working five more years isn't going to solve that problem. 47% more than $75 is good, but a long, long way from being enough. Such a couple should likely be saving 50% of their income during this five year period and finding ways to dramatically cut their retirement expenses.
We agree that a couple making $120K a year at age 55, with only $75K saved makes you scratch your head wondering what they have been doing all these years!!!

Regardless...

The author was factoring in working 15 more years from age 55, saving $12K per year, not taking SS at age 65 (or FRA of 67), but working until 70 and taking SS at 70. Working until 70, and delaying the start of SS for a higher payment, the couple would start their drawdown later which would result in fewer years needed to provide income from their retirement savings.

Current principal: $75,000
Annual Addition: $12,000
Years to Grow: 15
Annual Return: 7%
Future Value after 15 Years: $529,584

Add the increased SS payments by delaying to 70.

First year 4% drawdown would be about $21K. SS would probably be about $57-60K+ for this couple.

The author is simply pointing out the improvement of the above scenario over punching the time card for the last time at age 65, and taking SS at age 65.

Change the Years to Grow to 10 (And change the SS payments to begin at 65)

Current principal: $75,000
Annual Addition: $12,000
Years to Grow: 10
Annual Return: 7%
Future Value after 10 Years: $324,939

SS payments at age 65 would be $6696 per year less for this Boomer couple than if they waited until their assigned FRA of 67. The difference would be even more, (though the author didn't give the figure, but we know that each year they wait means 8% more SS income), compared to waiting until age 70.

NY Times article said...

For a baby boomer born in 1962, “full retirement age,” according to the Social Security Administration, is 67. Your benefits increase 8 percent a year, every year, until age 70, if you defer. (There is no increased benefit for waiting beyond that.)

All these factors make a huge difference, as I was always quick to point out.

By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement.

A huge part of that 47 percent increase comes from higher Social Security benefits. If our hypothetical couple apply for Social Security at age 65, they are in essence penalized for not waiting two years. They would each receive $3,348 less a year.

So, I wrote it was just a no-brainer to work until age 70, if you can.


Our take away, based on data we have all seen about how much - or rather, how little money - people have saved for retirement in the age group mentioned above, it might make the above scenario of working until 70 a necessity for many if at all possible in their jobs. However, in the case of a fictional couple bringing in $120K at age 55, there are plenty of options for them to jumpstart their savings and play some quality catch up with their savings ASAP.

The author points out ...

While my math was right, what I now realize is just how hard it is to keep working as you age. My job doesn’t require much more than typing all day long, and I find myself getting fairly tired by day’s end. I can’t imagine I am going to have more energy a decade from now.

Plenty of aches and pains in my body at age 55 when I haul it out of bed every morning. :shock:
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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by stats99 » Wed Jul 26, 2017 6:05 am

I guess the best advice would be to work till 80 or better yet until you die this assures enough money! Not really a retirement if you have no enjoyment, it is really then just a strategy to survive, which, of course, is useful itself!

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by willthrill81 » Wed Jul 26, 2017 8:55 am

CyclingDuo wrote:
willthrill81 wrote:
And this.

"By working five more years, a husband and wife who are both 55 today, earning a combined $120,000 a year with retirement savings of $75,000, would end up with 47 percent more a year to live on at age 70. That’s assuming they continue to save 10 percent of their income each year, and withdraw 4 percent of savings each year in retirement."

If such a couple doesn't even have one year's income saved by age 65, working five more years isn't going to solve that problem. 47% more than $75 is good, but a long, long way from being enough. Such a couple should likely be saving 50% of their income during this five year period and finding ways to dramatically cut their retirement expenses.
We agree that a couple making $120K a year at age 55, with only $75K saved makes you scratch your head wondering what they have been doing all these years!!!

Regardless...

The author was factoring in working 15 more years from age 55, saving $12K per year, not taking SS at age 65 (or FRA of 67), but working until 70 and taking SS at 70. Working until 70, and delaying the start of SS for a higher payment, the couple would start their drawdown later which would result in fewer years needed to provide income from their retirement savings.
Thanks for the clarification. It still seems like such a couple would be for a rough go of it. If they've been spending 90% of their income for all these years, living on 50% or less seems like a very rude awakening. Clearly, they wouldn't be eating dog food, but I doubt that they would be content either.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by CyclingDuo » Wed Jul 26, 2017 10:22 am

willthrill81 wrote:Thanks for the clarification. It still seems like such a couple would be for a rough go of it. If they've been spending 90% of their income for all these years, living on 50% or less seems like a very rude awakening. Clearly, they wouldn't be eating dog food, but I doubt that they would be content either.
Yes, could be a shock indeed depending on how and where their cash flow is going.

I guess I was assuming, based on the age of 55, that a typical couple at that age has just completed cash flowing and getting their kids through college only to find themselves with the empty nest at age 55 - and in their peak earning years - behind in retirement savings. Not sure how all the 45% of age 55+ folks have found themselves with less than $100K saved for retirement. Certainly the hypothetical couple could take advantage of the $24K max each in their 401K's, plus the $6500 each in their Roth IRA's for some catch up years between now and retirement (be it age 65, 67, or 70).

For those of us who front end loaded retirement savings and went through the rude awakening of living on less, raising children while saving - we know it can be done. The couple making $120K could to it, rude awakening or not, without resorting to dog food - especially provided if they have the big three income eaters in balance (home/transportation/food).

We bumped up our effort to 25% retirement savings last year, and are shooting for 63% this year simply because "we can" now as empty nesters. Those college years, plus everyone having a used car, all the food, clothing, travel, semesters abroad, can eat through dual income salary such as $120K quite easily.
Last edited by CyclingDuo on Wed Jul 26, 2017 11:59 am, edited 1 time in total.
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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by willthrill81 » Wed Jul 26, 2017 10:30 am

CyclingDuo wrote:
willthrill81 wrote:Thanks for the clarification. It still seems like such a couple would be for a rough go of it. If they've been spending 90% of their income for all these years, living on 50% or less seems like a very rude awakening. Clearly, they wouldn't be eating dog food, but I doubt that they would be content either.
Yes, could be a shock indeed depending on how and where their cash flow is going.

I guess I was assuming, based on the age of 55, that a typical couple at that age has just completed cash flowing and getting their kids through college only to find with the empty nest at age 55 - and in their peak earning years - behind in retirement savings. Not sure how all the 45% of age 55+ have found themselves with less than $100K saved for retirement, but certainly the hypothetical couple could take advantage of the $24K in the 401K, plus the $6500 each in their Roth IRA's for some catch up years between now and retirement (be it age 65, 67, or 70).

For those of us who front end loaded retirement savings and went through the rude awakening of living on less, raising children while saving - we know it can be done. The couple making $120K could to it, rude awakening or not, without resorting to dog food - especially provided if they have the big three income eaters in balance (home/transportation/food).

We bumped up our effort to 25% retirement savings last year, and are shooting for 63% this year simply because "we can" now as empty nesters. Those college years, plus everyone having a used car, all the food, clothing, travel, semesters abroad, can eat through dual income salary such as $120K quite easily.
Assuming a 5% return, a 50% savings rate leads to financial independence in about 17 years, not taking SS into account. So an empty nest couple age 55 who is able and willing to jack up their savings rate to at least 40% will probably be fine by age 67-70.

At any rate, my original point is that a 10% savings rate in almost any situation like this, other than a heavily front loaded retirement, just isn't likely to work out well in the end. The savings are too low, and the spending is too high.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by randomizer » Wed Jul 26, 2017 10:32 am

jef wrote:
Based on what I know now, I have put an addendum on the retirement advice I give to people: “And no matter how much money you think you are going to need, save another 15 percent, just in case.”
15% doesn't seem like much of a margin for error at all. I've been multiplying all my numbers by 1.25 myself (that is, + 25%). If I thought I actually had a chance of doing it, I'd be even more conservative: take the amount you think you'll need, then double it. (And if that seems crazy to you, bear in mind that it's basically a hypothetical as there is no way it could ever happen in real life.)
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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by CyclingDuo » Wed Jul 26, 2017 11:56 am

willthrill81 wrote:Assuming a 5% return, a 50% savings rate leads to financial independence in about 17 years, not taking SS into account. So an empty nest couple age 55 who is able and willing to jack up their savings rate to at least 40% will probably be fine by age 67-70.

At any rate, my original point is that a 10% savings rate in almost any situation like this, other than a heavily front loaded retirement, just isn't likely to work out well in the end. The savings are too low, and the spending is too high.
We're in agreement that 10% savings rate is not enough at this point for them, and even jumping through some reality check hoops - such a hypothetical couple (even if they saved 10% for the next 15 years, had decent average returns, and got full SS) will have to live on only 65% of their pre-retirement $120K salary. No doubt that would require a major lifestyle adjustment for "them".
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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by nedsaid » Wed Jul 26, 2017 7:13 pm

It goes to show you that no matter how well you plan there are things that happen that you didn't count on or prepare for. I will say that more planning is better than less planning and more saving is better than less saving. In other words, do the best you can. Few of us will have perfect portfolios, perfect financial plans, or a perfect retirement.

We have a so-called retirement crisis but people seem to be getting by. It seems one area people get caught short is with healthcare. You hear about people splitting pills or perhaps even foregoing prescriptions altogether because they can't afford it. Or elderly people's homes that fall down around them because they can't afford the upkeep. Being short of money in retirement is a bummer.

Moral of the story, be nice to family members, particularly your children. You might need their help someday.
A fool and his money are good for business.

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Re: NY Times - Three Things I Should Have Said About Retirement Planning

Post by willthrill81 » Wed Jul 26, 2017 7:29 pm

nedsaid wrote:It goes to show you that no matter how well you plan there are things that happen that you didn't count on or prepare for. I will say that more planning is better than less planning and more saving is better than less saving. In other words, do the best you can. Few of us will have perfect portfolios, perfect financial plans, or a perfect retirement.

We have a so-called retirement crisis but people seem to be getting by. It seems one area people get caught short is with healthcare. You hear about people splitting pills or perhaps even foregoing prescriptions altogether because they can't afford it. Or elderly people's homes that fall down around them because they can't afford the upkeep. Being short of money in retirement is a bummer.

Moral of the story, be nice to family members, particularly your children. You might need their help someday.
I think that these people seem to fall mostly into one of these three categories.

1. People who truly cannot afford to quit working, so they aren't. I have many coworkers who are of retirement age and would love to retire but simply cannot due to lack of funds. My father, who is about to retire, personally knows a fellow who has household income of over $400k and has for years but won't retire because he's funding his adult children's lifestyles, grandchildren's college, etc. When you start paying close attention, it's rather surprising how many people are working well into their 70s these days, and I don't think it's all due to choice.

2. People who can afford to mostly live on Social Security. My MiL falls into this category. Her SS benefits are below the average, but she's extremely frugal and just barely makes it without dipping into her savings unless she's doing something like traveling. She's not eating dog food, but I know of very few people who would be willing to live a lifestyle like hers unless they had no alternative.

3. People who cannot afford to retire but have anyway. These people are planning on unrealistically high WRs (can you say 8% as recommended by a popular financial 'guru'?) from their unbeknownst to them insufficient retirement assets and will run into hard times in the not distant future, especially when the next market downturn hits.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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