Noob worried about retiring in 7-10 years! Will I have enough - you decide!

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TheEleven
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Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 1:38 am

Hi folks - first post. I’m 60 and unfortunately just now learning about retirement finances, never paid much attention before due to abject stupidity. Just discovered John Bogle, etc. Worried that my investments are going to need a pretty bullish market to be able to get by in retirement!

I hope to hold my job for another 7 to 10 years and retire at 67-70.

I’m single, 60. At 67 will get an estimated 2,590 SS check, at 70 it would be 3,247 (per SS Admin.)

Live in California - expensive! Can’t move, family are all here.

Making 75k/yr. Can’t count much on further raises at this point, maybe a little.

Estimate I’ll need about 48,000/yr (plus SS) at 67, or about 41,000/yr (plus SS) if I work to 70. I’ll also need a new car by then, should be my last one.

Summary of assets:
471,000 invested, currently 75/25 in low cost stock/bond indexes, almost all in tax deferred accounts except for 7,000 in a Roth that I will try to add a little to.
Contributing a total of 24,000/yr to 401k until retirement.
Also have 27,000 in a no-interest savings account (need to do something there)
6,000 in checking account.
No property (renter), no debt of any kind.

Market drops scare the crap out of me but so does not being aggressive enough to grow my money to what I'll need. So my risk thing is admittedly all over the place.
I don’t need luxuries, just looking to have an apartment roof over my head and pay basic bills when I retire, but even that is pricey in California.

Seems like things would have to go very well to make my current $471,000 and future contributions come to what I’d need to pull in $41-48k/yr. Hopefully won't live to a real ripe old age, that’ll help.

Any ideas on strategy and/or philosophy to ease my worried mind?
Seems we’re headed for the end of this long bullish cycle, don’t know what to do about that, strategy-wise, but surely it’s coming and I’m afraid of loss and stagnant times. Just what I need now, a bear when I only have 7-10 years to grow. Worried about just keeping up with inflation let alone growing. Can we all just agree to no big long market drops?

Been enjoying this group. Trying to follow along with all this new info, pretty confusing sometimes, but what a great community the Bogleheads are - glad to be here!

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Tamarind
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Tamarind » Fri Jul 05, 2019 5:23 am

Welcome! It's never too late to think about this.

A few thoughts on your situation:

1) Do you really need to maintain the same income in retirement as you have now? SS at 67 + 48k is ~$79k. Most people find their expenses drop in retirement, because they have less tax to pay, aren't saving for retirement anymore, etc.

2) Can you find room in your budget now to max out the Roth IRA ($7k) on top of your 401k contributions?

3) It looks like you do have enough to hold your actual expense budget roughly stable in retirement. Currently you make $75k but after taxes and retirement savings you are only spending $50k or so. With 7 years left to save, your investments should reliably provide about $20k/year to supplement your social security, which gets you to about $50k.

4) You're not going to be able to withdraw $40k pet year or anything close from your nest egg. I don't see any realistic way for you to get there.

Rus In Urbe
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Rus In Urbe » Fri Jul 05, 2019 6:38 am

Other BH's will have more granular advice for you....

But I can just say that you are thinking the wrong way about a BEAR market.

PRAY for a BEAR MARKET to start as soon as possible! You are working for the next 7-10 years and if you are buying into the market, what you WANT is a bear market while you are buying, so you get those securities for cheap (IF you have the discipline and the stomach to keep investing into a down market---most people can't do this and miss out). Historically, these downturns last for a year or two and then comes the bounce. Remember that you will hear that "this time it's different" all over the place; remember that if you are buying into the market, there will be times when the money you put in there seems to disappear, but this is because it is buying devalued shares. If you have a solid plan, you stick to it.

On the other hand----you don't have a lot of time on your side, so maximizing income as much as you can and keeping expenses low as possible are going to be the factors that help you the most when the timeline is a decade. You are in a bit of a precarious situation in terms of funding your retirement, but it's never too late to make sensible moves and you'll be better off than just ignoring the situation.

Here's hoping for some good luck coming your way. :sharebeer
I'd like to live as a poor man with lots of money. ~Pablo Picasso

onourway
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by onourway » Fri Jul 05, 2019 6:45 am

Agreed with the above that I would look closely at your expenses. Hard to see how you'd need the same or more income in retirement.

That said, I do actually see a path for you to get your numbers. The $471k you have now, plus $24k invested for 10 years gets you to a bit over $1M in 10 years. From that you can safely withdraw $40k/year.

The trouble is that you are highly dependent on market conditions over the next 10 years to get there, and you may not be able to actually work another 10 years. I would save as much as possible, work to trim your expenses, and see what the market, the workplace, and your body gives you. :sharebeer

FI4LIFE
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by FI4LIFE » Fri Jul 05, 2019 6:57 am

How is it that you will need to spend more in retirement than you are now? Also, once you stop working you won't need a new car. An acceptable used car should be fine. I do fine commuting to work etc. in my car I bought years ago for $7k. I can't imagine needing $80k a year in retirement as a single person. I'd really look at your spending numbers.

WhyNotUs
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by WhyNotUs » Fri Jul 05, 2019 7:24 am

making $75k
minus $24k investing
Cost of living = $51k

67 scenario
Value of retirement plan at 5% $663000 (no guarantee)
Annual 3% withdrawal= $20,000
SS= $31k

Obviously 70 looks better and the expenses do not include CoL but you are in the ball park.
I own the next hot stock- VTSAX

rantk81
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by rantk81 » Fri Jul 05, 2019 8:12 am

Do you have a good idea what your actual monthly expenses are? You might want to try to track your expenses closely. -- I'm asking this because this doesn't add up to me: You say you make $75K/yr and are going to be putting 24K into a 401k and then possibly some into an IRA? That leaves $50K or less per year that you're living on right now, right? But at the same time, you're predicting that you'll need to be spending somewhere around 80K/yr in retirement? I understand that you'll probably need to pay for your own health insurance after retirement... But you'll be eligible for Medicare at that age. The numbers don't make sense to me.

7eight9
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by 7eight9 » Fri Jul 05, 2019 9:13 am

As you noted, you aren't expecting much in the way of raises in the next 7-10 years. You may not even have a job the entire time for all you know. Or as good a paying job.

The market could continue to climb for the duration of your life. Or we could see a market like Japan's where decades are lost. Could you afford to see your 75% stock allocation halved and never come back during your lifetime? Are you taking on too much risk for a 60 year old? There is a reason for the old adage about having one's age in bonds.

So much for the gloom. Where you do have some control is over your expenses. I would look really carefully at your expenses and ask yourself where you could cut back. I suspect that if you look long and hard enough you may be able to squeeze thousands out of your expenses. And every $1K you cut means you don't need to save $25K (at a 4% withdrawal rate).

Regarding the $27K in your savings account. At the minimum get it into a high yield account. Many to choose from. You could also look into a rewards account that pays more but typically require direct deposit and a certain number of debit transactions monthly. Or start shuffling it around to get bank signup bonuses.

Best of luck!
I guess it all could be much worse. | They could be warming up my hearse.

Coburn
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Coburn » Fri Jul 05, 2019 9:51 am

It's a pity that you don't own property (even it you have a mortgage, that's OK)...whenever someone says they rent, I wince.

Keep saving, cut your expenses if you can and pray for a downturn. Hope you have a little $$$ on the side in case the employment status changes.

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Wiggums
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Wiggums » Fri Jul 05, 2019 10:48 am

A lot of good advice above. It’s very important that you accurately project your retirement expenses. I’d immediately start tracking where your money spent. Your retirement savings plan is fine but you really need some luck with respect to your employment, the stock market and perhaps a raise or two.

CurlyDave
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by CurlyDave » Fri Jul 05, 2019 11:28 am

TheEleven wrote:
Fri Jul 05, 2019 1:38 am

...Making 75k/yr. Can’t count much on further raises at this point, maybe a little.

Estimate I’ll need about 48,000/yr (plus SS) at 67, or about 41,000/yr (plus SS) if I work to 70. I’ll also need a new car by then, should be my last one...
I don't think you will need as much as you believe.

Depending on you employer match (if any) you will not need to make 401(k) contributions after you retire, so subtract approx $24k from your needs to get a more realistic estimate. You also will not longer need many of the employment related expenses we all have: work clothes, commuting costs, etc. Plus you will no longer pay SS tax.

I think with those adjustments you will be fine. I know that when I retired I counted on about 80% of my previous income for an equal standard of living.

There are two wild cards in the mix. Most of us plan for a 30 year retirement. I seriously doubt that one car is going to last that long, no matter the initial kind or quality. I would plan a yearly transportation cost instead of specific items.

Secondly, as a renter you are vulnerable to rent increases, which can seriously outpace inflation. Not much you can do about this, but consider what you would do. And, if you ever need assisted living, the costs will be much higher.

Cody6136
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Cody6136 » Fri Jul 05, 2019 11:47 am

CurlyDave wrote:
Fri Jul 05, 2019 11:28 am
TheEleven wrote:
Fri Jul 05, 2019 1:38 am

...Making 75k/yr. Can’t count much on further raises at this point, maybe a little.

Estimate I’ll need about 48,000/yr (plus SS) at 67, or about 41,000/yr (plus SS) if I work to 70. I’ll also need a new car by then, should be my last one...
I don't think you will need as much as you believe.

Depending on you employer match (if any) you will not need to make 401(k) contributions after you retire, so subtract approx $24k from your needs to get a more realistic estimate. You also will not longer need many of the employment related expenses we all have: work clothes, commuting costs, etc. Plus you will no longer pay SS tax.

I think with those adjustments you will be fine. I know that when I retired I counted on about 80% of my previous income for an equal standard of living.

There are two wild cards in the mix. Most of us plan for a 30 year retirement. I seriously doubt that one car is going to last that long, no matter the initial kind or quality. I would plan a yearly transportation cost instead of specific items.

Secondly, as a renter you are vulnerable to rent increases, which can seriously outpace inflation. Not much you can do about this, but consider what you would do. And, if you ever need assisted living, the costs will be much higher.
I agree with this poster, but I think the Noob is wise to be as concerned as they are...better that outlook than the wall of denial that many non BHers are exhibiting these days. I have little substantive advice, because like you, I am fairly new, getting older and getting serious about my choices ahead.

Congrats on finding this online community, and getting serious about your retirement. Your future self will thank you.

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TheEleven
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 12:59 pm

Hey everybody, thanks for the replies! Most have to do with my estimated expenses. I admit I did budget more of a pad for "other stuff" than I probably should, so I could bring that down.

I actually had in mind not only unforeseen stuff, but also some continued savings. Should we continue to save and invest in retirement? I think I assumed that because my money would probably run out if I didn't continue to save. Or maybe continuing to save will make my money run out??

I think some folks are recommending taking only 20k/yr from investments, but that would be under the RMDs I would be forced to withdraw.

In California a modest working class STUDIO apartment in the South Bay (that's ONE room!) goes for $2,000/mo easily right now. I do plan on retiring in Sacramento, which is cheaper than here in the Silicon Valley, but even there it is getting bad.

I estimated $750 for medical insurance. I cobbled that together from various sources. I found a wide range of estimations on the internet. And adjusted for future dollars.

Speaking of which, I figured in inflation in the budget at 2.5% a year. If I'm calculating it right (and I may not be), The $80k a year I estimate, in 2029, will be like $62k now. So with that in mind I am not figuring on having an income at or over my current income. My income now (75k) would be much less in 2029, wouldn't it? Some people are suggesting living on $50k. In 2029 and beyond??

Any other recommendations on stock/bond ratios? From what I'm trying to understand about it, it seems bonds are a great buffer when the market plunges, but they seem to do little, adjusted for inflation, at other times and that doesn't seem good for a short 7-10 year window that I have to grow. That's why I haven't done my age in stocks - but I certainly may be wrong, only been at learning all this stuff a few weeks.

Maybe some of this stuff is for other threads. Anyway, thanks for the feedback!

Coburn
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Coburn » Fri Jul 05, 2019 1:26 pm

1. Yes, you should continue to save for retirement...that's the easiest part provided the employment continues.

2. Review that AA to make sure you are fine with risk level.

3. Rent will be your biggest concern assuming your health expenses are low. What are the expected yearly increases? If you expect to stay in the area until retirement, will you be able to meet those numbers?

Because if you are not, something has to give...a cheaper or smaller space? A roommate even? provided your lease permits it.

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TheEleven
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 1:36 pm

Coburn wrote:
Fri Jul 05, 2019 1:26 pm
1. Yes, you should continue to save for retirement...that's the easiest part provided the employment continues.

2. Review that AA to make sure you are fine with risk level.

3. Rent will be your biggest concern assuming your health expenses are low. What are the expected yearly increases? If you expect to stay in the area until retirement, will you be able to meet those numbers?

Because if you are not, something has to give...a cheaper or smaller space? A roommate even? provided your lease permits it.
I meant saving after retirement. I will definitely save until retirement every penny I can.

I don’t know what AA is. Except the 12 Step thing.

I might be able to find a cheaper apartment just outside of Sacramento when I retire, instead of close in. That might help. For now I’m grandfathered in to a “cheap” 1300/mo rent in the Silicon Valley. You can’t get cheaper than that, so I’m stuck where I am until retirement. Thanks for the reply!

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Ben Mathew
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Ben Mathew » Fri Jul 05, 2019 1:46 pm

I think you're modeling this in a confusing and convoluted way.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
I actually had in mind not only unforeseen stuff, but also some continued savings. Should we continue to save and invest in retirement? I think I assumed that because my money would probably run out if I didn't continue to save. Or maybe continuing to save will make my money run out??
You don't need to budget like that for savings. What you don't spend is savings. Just figure out how much you will need to spend (in today's $) in a given year.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
Speaking of which, I figured in inflation in the budget at 2.5% a year. If I'm calculating it right (and I may not be), The $80k a year I estimate, in 2029, will be like $62k now. So with that in mind I am not figuring on having an income at or over my current income. My income now (75k) would be much less in 2029, wouldn't it? Some people are suggesting living on $50k. In 2029 and beyond??
It's easier (and more accurate) if you do all your modeling in real terms (i.e. inflation adjusted). Otherwise it's hard to wrap your head around what the numbers means.

For example, on the spending side, you you could assume that you need $70K per year in today's dollars.

On the income side, social security benefits are inflation adjusted already. So you know you will be getting $2,590 in today's dollars. For your 401K investments, make sure you're using real rates of return (nominal rate - inflation rate), and you should be good to go.

Coburn
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Coburn » Fri Jul 05, 2019 1:48 pm

TheEleven wrote:
Fri Jul 05, 2019 1:36 pm
Coburn wrote:
Fri Jul 05, 2019 1:26 pm
1. Yes, you should continue to save for retirement...that's the easiest part provided the employment continues.

2. Review that AA to make sure you are fine with risk level.

3. Rent will be your biggest concern assuming your health expenses are low. What are the expected yearly increases? If you expect to stay in the area until retirement, will you be able to meet those numbers?

Because if you are not, something has to give...a cheaper or smaller space? A roommate even? provided your lease permits it.
I meant saving after retirement. I will definitely save until retirement every penny I can.

I don’t know what AA is. Except the 12 Step thing.

I might be able to find a cheaper apartment just outside of Sacramento when I retire, instead of close in. That might help. For now I’m grandfathered in to a “cheap” 1300/mo rent in the Silicon Valley. You can’t get cheaper than that, so I’m stuck where I am until retirement. Thanks for the reply!
OK...sounds good on the rent situation until retirement. Good for you!

AA is asset allocation. 75/25 is a little higher than average for someone due to retire in 10 years time. Not saying you have to change this...only that you understand possible outcomes if the market goes down and the rate of recovery isn't what you think or expect.

krafty81
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by krafty81 » Fri Jul 05, 2019 1:50 pm

Check out Ally or Wealthfront savings accounts. Paying around 2.5%. Better that what you are getting now. I feel your pain in CA - unfortunately, I do not see transportation/gas taxes going down and the housing market is tight. It puts a squeeze on the working class of our state.

delamer
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by delamer » Fri Jul 05, 2019 1:54 pm

You are making a classic error regarding RMDs. Yes, you have to take the money put and pay taxes on it. But you don’t have to spend it all. You can reinvest the net amount, or some of it, in a taxable account.

You need to look at your expenses and future Social Security benefits in current dollars. The estimates from Social Security are in current dollars. If there is 25% inflation from now until you claim benefits, your benefits will go up by 25%.

Become familiar with the concept of “safe withdrawal rates” (SWR) so you know how much you can take out of your portfolio each year while maintaining a high likelihood of not depleting it. If you invest properly and keep you withdrawal rate reasonable, you won’t need to save money once you retire. At your retirement age, you can withdraw about 4% of your portfolio value annually, increase the annual withdrawal by the inflation rate each year, and not have to be concerned about running out of money. Here is information from the wiki on SWRs: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

(Estimate your portfolio value at retirement by adding in your savings and estimating a real return on your current total.)

samstar
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by samstar » Fri Jul 05, 2019 1:56 pm

......
Last edited by samstar on Thu Jul 11, 2019 2:08 am, edited 1 time in total.

CnC
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by CnC » Fri Jul 05, 2019 2:11 pm

Hey just letting you know your numbers just don't seem to work out. This is a GOOD thing since your numbers are missing pretty far on the conservative side.
Making 75k/yr. Can’t count much on further raises at this point, maybe a little.

Estimate I’ll need about 48,000/yr (plus SS) at 67, or about 41,000/yr (plus SS) if I work to 70. I’ll also need a new car by then, should be my last one.

Contributing a total of 24,000/yr to 401k until retirement.
Right now you are living on 50,000 a year. I can't see your expenses increasing by more than 50% when you retire.

I think you need to go over your estimated expenses again.

Your social security should be increased for inflation when you get it. So you will likely be looking to cover 20-30k a year not 40-50k a year which will greatly help out your chances.

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TheEleven
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 3:48 pm

delamer wrote:
Fri Jul 05, 2019 1:54 pm
You are making a classic error regarding RMDs. Yes, you have to take the money put and pay taxes on it. But you don’t have to spend it all. You can reinvest the net amount, or some of it, in a taxable account.

You need to look at your expenses and future Social Security benefits in current dollars. The estimates from Social Security are in current dollars. If there is 25% inflation from now until you claim benefits, your benefits will go up by 25%.

Become familiar with the concept of “safe withdrawal rates” (SWR) so you know how much you can take out of your portfolio each year while maintaining a high likelihood of not depleting it. If you invest properly and keep you withdrawal rate reasonable, you won’t need to save money once you retire. At your retirement age, you can withdraw about 4% of your portfolio value annually, increase the annual withdrawal by the inflation rate each year, and not have to be concerned about running out of money. Here is information from the wiki on SWRs: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

(Estimate your portfolio value at retirement by adding in your savings and estimating a real return on your current total.)
Wait, what? The estimates I got from the Social Security Admin are in today's dollars? Is that right? I was assuming they meant that $2,590 was the dollar amount I would get in 2026, or $3,247 in 2029. But that is in today's dollars??? That would make a big difference.

Also, I have become aware of the SWR. I guess my concern is if that 4% has a chance to be enough given my current situation. Thanks for the reply!

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Tamarind
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Tamarind » Fri Jul 05, 2019 4:00 pm

TheEleven wrote:
Fri Jul 05, 2019 3:48 pm
delamer wrote:
Fri Jul 05, 2019 1:54 pm
You are making a classic error regarding RMDs. Yes, you have to take the money put and pay taxes on it. But you don’t have to spend it all. You can reinvest the net amount, or some of it, in a taxable account.

You need to look at your expenses and future Social Security benefits in current dollars. The estimates from Social Security are in current dollars. If there is 25% inflation from now until you claim benefits, your benefits will go up by 25%.

Become familiar with the concept of “safe withdrawal rates” (SWR) so you know how much you can take out of your portfolio each year while maintaining a high likelihood of not depleting it. If you invest properly and keep you withdrawal rate reasonable, you won’t need to save money once you retire. At your retirement age, you can withdraw about 4% of your portfolio value annually, increase the annual withdrawal by the inflation rate each year, and not have to be concerned about running out of money. Here is information from the wiki on SWRs: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

(Estimate your portfolio value at retirement by adding in your savings and estimating a real return on your current total.)
Wait, what? The estimates I got from the Social Security Admin are in today's dollars? Is that right? I was assuming they meant that $2,590 was the dollar amount I would get in 2026, or $3,247 in 2029. But that is in today's dollars??? That would make a big difference.

Also, I have become aware of the SWR. I guess my concern is if that 4% has a chance to be enough given my current situation. Thanks for the reply!
Yep! Hopefully this helps you feel better. Social Security (and this forum) uses real dollars, because inflation will be what it will be and we don't need to complicate the already complex forecasting process by guessing what the inflation rate will be. As a result, we use lower numbers for estimated investment returns, which are already the merest guess.

Regarding SWR, 4% is generally held to be safe (i.e you are very unlikely to run out of money) for the retirement length you're planning. The question is just can you manage to live on SS plus 4% annually of whatever nest egg you have saved by the time you retire. If the answer is yes, I hope that gives you some relief and clarity on how much you need to save.

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TheEleven
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 4:30 pm

Ben Mathew wrote:
Fri Jul 05, 2019 1:46 pm
I think you're modeling this in a confusing and convoluted way.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
I actually had in mind not only unforeseen stuff, but also some continued savings. Should we continue to save and invest in retirement? I think I assumed that because my money would probably run out if I didn't continue to save. Or maybe continuing to save will make my money run out??
You don't need to budget like that for savings. What you don't spend is savings. Just figure out how much you will need to spend (in today's $) in a given year.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
Speaking of which, I figured in inflation in the budget at 2.5% a year. If I'm calculating it right (and I may not be), The $80k a year I estimate, in 2029, will be like $62k now. So with that in mind I am not figuring on having an income at or over my current income. My income now (75k) would be much less in 2029, wouldn't it? Some people are suggesting living on $50k. In 2029 and beyond??
It's easier (and more accurate) if you do all your modeling in real terms (i.e. inflation adjusted). Otherwise it's hard to wrap your head around what the numbers means.

For example, on the spending side, you you could assume that you need $70K per year in today's dollars.

On the income side, social security benefits are inflation adjusted already. So you know you will be getting $2,590 in today's dollars. For your 401K investments, make sure you're using real rates of return (nominal rate - inflation rate), and you should be good to go.
Yeah, the inflation part is what really keeps throwing me. I definitely will not need to spend 70k in today's dollars. But I'm trying to figure everything in, like, 2029 dollars at 2.5% inflation. So my estimates are for future dollars but that gets really confusing and I haven't figured out the gap between calculating in what numbers are like now compared to inflated future numbers, which are the numbers I'll actually be dealing with when retirement comes. Spins my head.

delamer
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide

Post by delamer » Fri Jul 05, 2019 4:43 pm

TheEleven wrote:
Fri Jul 05, 2019 3:48 pm
delamer wrote:
Fri Jul 05, 2019 1:54 pm
You are making a classic error regarding RMDs. Yes, you have to take the money put and pay taxes on it. But you don’t have to spend it all. You can reinvest the net amount, or some of it, in a taxable account.

You need to look at your expenses and future Social Security benefits in current dollars. The estimates from Social Security are in current dollars. If there is 25% inflation from now until you claim benefits, your benefits will go up by 25%.

Become familiar with the concept of “safe withdrawal rates” (SWR) so you know how much you can take out of your portfolio each year while maintaining a high likelihood of not depleting it. If you invest properly and keep you withdrawal rate reasonable, you won’t need to save money once you retire. At your retirement age, you can withdraw about 4% of your portfolio value annually, increase the annual withdrawal by the inflation rate each year, and not have to be concerned about running out of money. Here is information from the wiki on SWRs: https://www.bogleheads.org/wiki/Safe_withdrawal_rates

(Estimate your portfolio value at retirement by adding in your savings and estimating a real return on your current total.)
Wait, what? The estimates I got from the Social Security Admin are in today's dollars? Is that right? I was assuming they meant that $2,590 was the dollar amount I would get in 2026, or $3,247 in 2029. But that is in today's dollars??? That would make a big difference.

Also, I have become aware of the SWR. I guess my concern is if that 4% has a chance to be enough given my current situation. Thanks for the reply!
Well, that’s the rub for most people. Have they saved enough or not?

But getting an accurate estimate of expenses, including income taxes, is key to figuring that out.

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Tamarind
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Tamarind » Fri Jul 05, 2019 4:44 pm

TheEleven wrote:
Fri Jul 05, 2019 4:30 pm
Ben Mathew wrote:
Fri Jul 05, 2019 1:46 pm
I think you're modeling this in a confusing and convoluted way.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
I actually had in mind not only unforeseen stuff, but also some continued savings. Should we continue to save and invest in retirement? I think I assumed that because my money would probably run out if I didn't continue to save. Or maybe continuing to save will make my money run out??
You don't need to budget like that for savings. What you don't spend is savings. Just figure out how much you will need to spend (in today's $) in a given year.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
Speaking of which, I figured in inflation in the budget at 2.5% a year. If I'm calculating it right (and I may not be), The $80k a year I estimate, in 2029, will be like $62k now. So with that in mind I am not figuring on having an income at or over my current income. My income now (75k) would be much less in 2029, wouldn't it? Some people are suggesting living on $50k. In 2029 and beyond??
It's easier (and more accurate) if you do all your modeling in real terms (i.e. inflation adjusted). Otherwise it's hard to wrap your head around what the numbers means.

For example, on the spending side, you you could assume that you need $70K per year in today's dollars.

On the income side, social security benefits are inflation adjusted already. So you know you will be getting $2,590 in today's dollars. For your 401K investments, make sure you're using real rates of return (nominal rate - inflation rate), and you should be good to go.
Yeah, the inflation part is what really keeps throwing me. I definitely will not need to spend 70k in today's dollars. But I'm trying to figure everything in, like, 2029 dollars at 2.5% inflation. So my estimates are for future dollars but that gets really confusing and I haven't figured out the gap between calculating in what numbers are like now compared to inflated future numbers, which are the numbers I'll actually be dealing with when retirement comes. Spins my head.
Just stop and do it all in today's dollars! :sharebeer

delamer
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by delamer » Fri Jul 05, 2019 4:49 pm

Tamarind wrote:
Fri Jul 05, 2019 4:44 pm
TheEleven wrote:
Fri Jul 05, 2019 4:30 pm
Ben Mathew wrote:
Fri Jul 05, 2019 1:46 pm
I think you're modeling this in a confusing and convoluted way.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
I actually had in mind not only unforeseen stuff, but also some continued savings. Should we continue to save and invest in retirement? I think I assumed that because my money would probably run out if I didn't continue to save. Or maybe continuing to save will make my money run out??
You don't need to budget like that for savings. What you don't spend is savings. Just figure out how much you will need to spend (in today's $) in a given year.
TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
Speaking of which, I figured in inflation in the budget at 2.5% a year. If I'm calculating it right (and I may not be), The $80k a year I estimate, in 2029, will be like $62k now. So with that in mind I am not figuring on having an income at or over my current income. My income now (75k) would be much less in 2029, wouldn't it? Some people are suggesting living on $50k. In 2029 and beyond??
It's easier (and more accurate) if you do all your modeling in real terms (i.e. inflation adjusted). Otherwise it's hard to wrap your head around what the numbers means.

For example, on the spending side, you you could assume that you need $70K per year in today's dollars.

On the income side, social security benefits are inflation adjusted already. So you know you will be getting $2,590 in today's dollars. For your 401K investments, make sure you're using real rates of return (nominal rate - inflation rate), and you should be good to go.
Yeah, the inflation part is what really keeps throwing me. I definitely will not need to spend 70k in today's dollars. But I'm trying to figure everything in, like, 2029 dollars at 2.5% inflation. So my estimates are for future dollars but that gets really confusing and I haven't figured out the gap between calculating in what numbers are like now compared to inflated future numbers, which are the numbers I'll actually be dealing with when retirement comes. Spins my head.
Just stop and do it all in today's dollars! :sharebeer
Yes, and that includes using a real return to estimate your future portfolio value.

So if you think the nominal return (annual) is going to be 7% and inflation will be 3%, then use 4% to inflate your portfolio.

kilkoyne
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by kilkoyne » Fri Jul 05, 2019 4:55 pm

Have you tried the Vanguard Retirement Calculator? The calculator says you would have enough at age 70 even with a conservative return of only 3%.

This calculator in particular has really helped me quite a bit.

https://retirementplans.vanguard.com/VG ... meCalc.jsf

JoeRetire
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by JoeRetire » Fri Jul 05, 2019 5:51 pm

TheEleven wrote:
Fri Jul 05, 2019 1:38 am
Any ideas on strategy and/or philosophy to ease my worried mind?
If you were my relative, I'd advise you to start talking with a fee-only fiduciary financial planner now.
I'd also advise you to plan on working until 70 (but check that with your planner first).

I'm guessing you may have over-estimated your expenses in retirement, but a good planner will help you determine that.

JoeRetire
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by JoeRetire » Fri Jul 05, 2019 6:08 pm

TheEleven wrote:
Fri Jul 05, 2019 12:59 pm
I think some folks are recommending taking only 20k/yr from investments, but that would be under the RMDs I would be forced to withdraw.
Your first year RMD should only be about 3.65% of your 401k amount.

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TheEleven
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by TheEleven » Fri Jul 05, 2019 7:29 pm

rantk81 wrote:
Fri Jul 05, 2019 8:12 am
Do you have a good idea what your actual monthly expenses are? You might want to try to track your expenses closely. -- I'm asking this because this doesn't add up to me: You say you make $75K/yr and are going to be putting 24K into a 401k and then possibly some into an IRA? That leaves $50K or less per year that you're living on right now, right? But at the same time, you're predicting that you'll need to be spending somewhere around 80K/yr in retirement? I understand that you'll probably need to pay for your own health insurance after retirement... But you'll be eligible for Medicare at that age. The numbers don't make sense to me.
Yep, I found a couple major basic math errors in my numbers, and also overestimated my discretionary spending. I really should learn to do a spreadsheet that automatically calculates things as I change them. Thanks to everyone here who disbelieved my math!

Mr.BB
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by Mr.BB » Fri Jul 05, 2019 7:42 pm

Spend one year tracking all your expenses, in either a spreadsheet or Quicken. Track everything especially cash. Don't forget that cup of coffee or donut that you paid cash for, it all adds up. At the end of that year you will learn a whole bunch more and have a better idea what you may need in retirement. No matter what you think you'll need, try to add an extra $3,000 to that total; because life happens. Every year you have some unexpected expenses.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

CurlyDave
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Re: Noob worried about retiring in 7-10 years! Will I have enough - you decide!

Post by CurlyDave » Sat Jul 06, 2019 1:01 am

TheEleven wrote:
Fri Jul 05, 2019 1:36 pm

...I meant saving after retirement. I will definitely save until retirement every penny I can...
I have been retired since 2007.

I quit setting money aside for the future when I retired -- the future is now. BUT, my portfolio has increased since retirement because my withdrawals do not keep pace with the growth we have experienced.

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