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If anyone just sits with a calculator and ask themselves how much they need to retire on, it's scary. I would say one needs at $1-1.5 million in cash/assets to retire at age 60-65 and live another 20-25 years. $1 million dollars over 25 years is $40k a year so we are not even talking about living lavishly here. And I'm assuming we cannot rely on the government here. Whatever benefits we get will be insignificant.
Sure some people can save this money but how many really can, especially the way the markets and the world has turned. Some people even retire abroad in Panama and Thailand because they can't afford it. My question is that are you saving for retirement and how do you plan on funding it?
I wonder how you calculate this?
What is the income stream you want to fund starting at age 60-65 - 40K? I think you are way off if you calculate 1-1.5 million. Are you including social security?
If you need to have 40K per year I'm assuming you make about 90K because taxes are about 30% and savings probably another 15% gets you to 40K per year. If your pre retirment income is 90K then your social security benefit is approximately 2000 per month.
So to match 40K per year minus 24K from social security you only need 16K! You can buy an annuity with a withdrawal rate of 6% so you need about 300K in savings not 1-1.5 million.
You need to be 67 to start social security so maybe add another 200K to pay for years 62-67
Im assuming he wants an inflation adjusted 40k to add to his social security.
You can get an immeadiate annuity that spins off over 6% at age 67 but its not inflation adjusted . 300k gets you about 1800 a month. Thats 22k a year.
600k will get you about 40k but thats without inflation adjustments.
For safety i would want no less then 1 million if i wanted 40k inflation adjusted from savings .
Im assuming he wants an inflation adjusted 40k to add to his social security.
You can get an immeadiate annuity that spins off over 6% at age 67 but its not inflation adjusted . 300k gets you about 1800 a month. Thats 22k a year.
600k will get you about 40k but thats without inflation adjustments.
For safety i would want no less then 1 million if i wanted 40k inflation adjusted from savings .
The life expectancy at age 67 is about 18 years
Inflation protection would only cost you about 20% so 300k would become 360K.
there are better ways to inflation proof. just meeting the cpi index may mean little compared to your actual cost of living.
you really need the ability to exceed that index by a good couple of points long term.
as far as life expectancy age it really depends if your single or married . the life expectancy you need to plan for with 2 horses in the race is alot higher.
the 50% point isnt reached for a 65 year old couple until 87. even 87 is now pretty good odds one of you is going on even longer as thats only the 50% point.
even a single man at 65 has a life expectancy of 82 but thats only the 50% point too.
the important thing to remember is those life expectancy averages are only the 50% mark. thats still pretty good odds 1 out of 2 people will go beyond that point.
there are better ways to inflation proof. just meeting the cpi index may mean little compared to your actual cost of living.
you really need the ability to exceed that index by a good couple of points long term.
as far as life expectancy age it really depends if your single or married . the life expectancy you need to plan for with 2 horses in the race is alot higher.
the 50% point isnt reached for a 65 year old couple until 87. even 87 is now pretty good odds one of you is going on even longer as thats only the 50% point.
even a single man at 65 has a life expectancy of 82 but thats only the 50% point too.
the important thing to remember is those life expectancy averages are only the 50% mark. thats still pretty good odds 1 out of 2 people will go beyond that point.
You could buy an annuity that adjusts for inflation.
Under this scenario you have basically 100% protection. You would need savings of 360K I'm not sure what a joint annuity would cost maybe tack on another 20%.
I think this is about understanding the risk and imagining every what if scenario and trying to protect against it means in the end you protect against nothing. You have to consider the likelihood of failure and with an annuity there isn't any. I guess you could imagine nuclear war but then every strategy fails except buying a bunker and moving to Montana.
The point is advice to save more or else is wrong because it fails to measure the risk properly. Sure anything can happen but some strategies are more likely to succeed than others.
well the problem with buy more annuity is your assuming we had only a set amount of money to put in one which was enough to draw 40k or so..
its still not a good eiher to commit such a large percentage of your money to an inurance company.
they can and do fail and although you may be covered up to a limit that only applys to principal you put in.
it may or may not be true spending drops as we age. money will always find a use and a home.
while no question spending on ourselves drops, the fact is spending on others can take up the slack.
doing for our grand children or children with any extra money seems to be the natural course of events. i know as we age we hope to do more and more for our grand kids when we are alive.
you still cant commit all your money anyway to the annuity as expenses dont care about your budget. any major expense will always cost far more then you are prepared to handle from income alone.
the fact is you need a few years expenses on the side tucked away so that drives up the amount you need to save as well.
think about this ,far fewer retirements fail because folks over estimated what they needed. the retirement graveyard is filled with those who failed because they under estimated.
well the problem with buy more annuity is your assuming we had only a set amount of money to put in one which was enough to draw 40k or so..
its still not a good eiher to commit such a large percentage of your money to an inurance company.
they can and do fail and although you may be covered up to a limit that only applys to principal you put in.
it may or may not be true spending drops as we age. money will always find a use and a home.
while no question spending on ourselves drop the fact is spending on others can take up the slack.
doing for our grand children or children with any extra money seems to be the natural course of events.
What is the probability of failure? Your advice doesn't make any sense if you don't include the likelihood.
This is one piece of advice that everyone touts but there is zero evidence backing it up.
How many insurance companies have failed to pay a life insurance or annuity claim?
I think the answer is zero. But anyway one could fail sure.
You just don't need 1.5 million dollars to generate 16K in retirement savings
I also don't agree that there are lots of people who saved too little. I think the opposite is true most hoard their money scared to spend a penny because catastrophe could strike. They follow a 4% or 3% rule that doesn't make any sense.
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