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Can I have just a couple of simple answers about my situation? We have about 600 thousand in an IRA and 401K.
At 70 when my husband plans on taking social security he will get as of today about 3400.00/month. I get spousal at about 1000/month. He is still working and will for another year or so- perhaps until 69.
I calculate our monthly expenses, including health insurance for Medicare. We do not have car payments and plan on having no mortgage, We can live totally if we live simply on social security that we receive between the 2 of us. Am I missing anything? I have thought of everything in planning as much as possible including insurance, car maintenance, etc.
I know there are always the emergencies or unexpected but are we really looking at it too simply? We could live without touching our investments. I realize that ss could go away but for us at our age I doubt that it will be taken away.
Can I have just a couple of simple answers about my situation? We have about 600 thousand in an IRA and 401K.
At 70 when my husband plans on taking social security he will get as of today about 3400.00/month. I get spousal at about 1000/month. He is still working and will for another year or so- perhaps until 69.
I calculate our monthly expenses, including health insurance for Medicare. We do not have car payments and plan on having no mortgage, We can live totally if we live simply on social security that we receive between the 2 of us. Am I missing anything? I have thought of everything in planning as much as possible including insurance, car maintenance, etc.
I know there are always the emergencies or unexpected but are we really looking at it too simply? We could live without touching our investments. I realize that ss could go away but for us at our age I doubt that it will be taken away.
If your expenses are under 52k a year you should be golden
That works if you're debt free. However if you owe money on anything, including a mortgage, it often makes more sense to take what you would allocate to "bonds" and "cash" and put it towards the debt, and then still invest what you wanted to put towards stocks.
Often, paying off or down debt is the best "bond" available, since you are effectively becoming your own lender, and cutting out the middleman and his profits.
Yes, this is a good point. I'd say it's more a variation on the same theme than a different concept altogether.
one area even the best planning fails is in the fact the big wild card is long term care. it can destroy the best of plans if not incorporated in to a plan and that can cost money.
if you think that cost is high insuring against it the cost of not having it can be catastrophic.
in fact it is staying out of a nursing home and wanting in home care that can be the more realistic outcome for 75% of us,
folks never figure this in to plans until it is to late.
while a spouse can say no to paying for a spouse admitted to a nursing home that only applys to nursing homes. in home care you do not pay and they do not come.
today you have to consider long term care insurance , staying out of the nursing home insurance.
to many plan on family taking care of them and that never ends well.
usually it follows the same format.
one day the incapacitaded spouse falls and the wife can't lift them. or 24/7 of trying to lift a dead weight object of flaccid mucle eventually justs buckles the person trying to do it.
so the kids get called in to help. well a side from their careers being ruined and jobs in jeopardy there is always one child who helps more or contributes more and then the resentment starts. this has broken up more families then it helped.
now throw in the fact if someone is married they will catch flack from their spouse because the brothers and sisters do not help as much.
that can end in divorce as it becomes a sore spot.
i know my ex wife gave me grief because i contributed far more than other family members for my dad.
so a word to the wise is you better take a good hard look at this in your over all planning.
it may cause that bundle of money you need to save to be more than planned . planning should allow for that uncertainty not rule it out..
Last edited by mathjak107; 06-26-2014 at 01:55 AM..
one big mistake folks make projecting average returns off in the future when time factoring money like the op is trying to do is most folks end up reducing equity exposure quite a few years ahead of retirement.
the fact you are projecting a certain average return to get that blance by retirement may fall short if you are not maintaing the same allocation right up until retirement.
i know we went from 80-90% equities to 35-40% about 5 years ago before the big fall in preperation of retiring at any point .
lower interest rates will have a big effect as well on growing that money.
Show me the calculations how you get these numbers please?
So, I calculated that the amount you would need to withdraw from your savings to support your spending needs in your first year of retirement is $63k in future year dollars. This was based on your stated need of $33.2k in current year dollars, and your 2.5% per year average inflation. I modeled that by applying a constant 2.5% inflation rate to your $33.2k starting value for the 27 years between now and when you project you will retire.
Then, the question is how much savings will you need to support that level of annual spending. The concept of a safe withdrawal rate (SWR) is that you can safely withdraw some percentage of your savings in year 1 of retirement, and then increase that amount to keep pace with inflation. As we have discussed earlier in the thread, there isn't necessarily 100% agreement on what a SWR is. Used to be many folks thought it was 4%. Nowadays I'd say most advisers think that's too aggressive, and would use a number in the 3-3.5% range. There are some that are down in the 2.5% range, but I think that's a bit extreme.
At any rate, since you are still a long way away from retirement, I think for now using a SWR of 3-3.5% to get a ballpark estimate on your required savings at retirement is reasonable. To calculate the required savings simply divide the annual withdrawal requirement by the SWR you want to assume, like this:
If you want to assume 3% is a safe withdrawal rate, then your required savings are $63k/.03 = $2.1M
If you want to assume 3.5% is a safe withdrawal rate, then your required savings are $63k/.035 = $1.8M
If you want to assume 4% is a safe withdrawal rate, then your required savings are $63k/.04 = $1.6M
Remember that there are some assumptions behind the SWR to make it work. First, it's based on a 30 year retirement, so if you retire at 65 it predicts your money will last to 95. Second, it makes some assumptions about your asset allocation. I don't recall exactly what that allocation was, but I think it was either 50/50 equities/bonds, or 60/40. If you search the web you can find various studies of how asset allocation affects the probability of success for a given SWR.
So, I calculated that the amount you would need to withdraw from your savings to support your spending needs in your first year of retirement is $63k in future year dollars. This was based on your stated need of $33.2k in current year dollars, and your 2.5% per year average inflation. I modeled that by applying a constant 2.5% inflation rate to your $33.2k starting value for the 27 years between now and when you project you will retire.
Then, the question is how much savings will you need to support that level of annual spending. The concept of a safe withdrawal rate (SWR) is that you can safely withdraw some percentage of your savings in year 1 of retirement, and then increase that amount to keep pace with inflation. As we have discussed earlier in the thread, there isn't necessarily 100% agreement on what a SWR is. Used to be many folks thought it was 4%. Nowadays I'd say most advisers think that's too aggressive, and would use a number in the 3-3.5% range. There are some that are down in the 2.5% range, but I think that's a bit extreme.
At any rate, since you are still a long way away from retirement, I think for now using a SWR of 3-3.5% to get a ballpark estimate on your required savings at retirement is reasonable. To calculate the required savings simply divide the annual withdrawal requirement by the SWR you want to assume, like this:
If you want to assume 3% is a safe withdrawal rate, then your required savings are $63k/.03 = $2.1M
If you want to assume 3.5% is a safe withdrawal rate, then your required savings are $63k/.035 = $1.8M
If you want to assume 4% is a safe withdrawal rate, then your required savings are $63k/.04 = $1.6M
Remember that there are some assumptions behind the SWR to make it work. First, it's based on a 30 year retirement, so if you retire at 65 it predicts your money will last to 95. Second, it makes some assumptions about your asset allocation. I don't recall exactly what that allocation was, but I think it was either 50/50 equities/bonds, or 60/40. If you search the web you can find various studies of how asset allocation affects the probability of success for a given SWR.
Dave
Thank you
Question: If I go to retirement estimator (http://www.ssa.gov/retire2/estimator.htm) and it says I will receive $2500 at 67, will this adjust for inflation over the years (provided inflation goes up)?
Or is this the amount I will receive at 67 if I am 35 now?
In other words when to subtract the SS income from calucations?:
Yearly Retirement Expense: $60K
Yearly SS Income: $30K
Required Savings (in today dollar): $30k
Required Savings considering 3% inflation 30 years from now: $73k
Is this correct or should I subtract SS income from the $73K? My co-worker said I should subtract SS from the $73K
Thanks
Last edited by darrell2525; 06-26-2014 at 08:52 PM..
So, I calculated that the amount you would need to withdraw from your savings to support your spending needs in your first year of retirement is $63k in future year dollars. This was based on your stated need of $33.2k in current year dollars, and your 2.5% per year average inflation. I modeled that by applying a constant 2.5% inflation rate to your $33.2k starting value for the 27 years between now and when you project you will retire.
Then, the question is how much savings will you need to support that level of annual spending. The concept of a safe withdrawal rate (SWR) is that you can safely withdraw some percentage of your savings in year 1 of retirement, and then increase that amount to keep pace with inflation. As we have discussed earlier in the thread, there isn't necessarily 100% agreement on what a SWR is. Used to be many folks thought it was 4%. Nowadays I'd say most advisers think that's too aggressive, and would use a number in the 3-3.5% range. There are some that are down in the 2.5% range, but I think that's a bit extreme.
At any rate, since you are still a long way away from retirement, I think for now using a SWR of 3-3.5% to get a ballpark estimate on your required savings at retirement is reasonable. To calculate the required savings simply divide the annual withdrawal requirement by the SWR you want to assume, like this:
If you want to assume 3% is a safe withdrawal rate, then your required savings are $63k/.03 = $2.1M
If you want to assume 3.5% is a safe withdrawal rate, then your required savings are $63k/.035 = $1.8M
If you want to assume 4% is a safe withdrawal rate, then your required savings are $63k/.04 = $1.6M
Remember that there are some assumptions behind the SWR to make it work. First, it's based on a 30 year retirement, so if you retire at 65 it predicts your money will last to 95. Second, it makes some assumptions about your asset allocation. I don't recall exactly what that allocation was, but I think it was either 50/50 equities/bonds, or 60/40. If you search the web you can find various studies of how asset allocation affects the probability of success for a given SWR.
Dave
Thank you Dave.
What you wrote makes good sense.
Few questions.
Is the SWR the same as the 4% rule where I see people multiplying required savings by 25?
Does the assest allocation need to be 50/50 or 60/40 throughout retirement or now?
Is the SWR the same as the 4% rule where I see people multiplying required savings by 25?
Does the assest allocation need to be 50/50 or 60/40 throughout retirement or now?
Thanks
A few random comments
A) yes, the multiply by 25 rule is the same as the 4% rule
2) regarding social security, you can double check on the website, but the $ amount they give is normally in "current" dollars, so yes, you can use that for your purposes. There are a bunch of assumptions with it (that you'll continue to earn roughly the same amount, adjusted for wage inflation, over your working career, for one), but there's tons of assumptions at this point in your life anyway. (sadly, I know more about how social security benefits are calculated than is healthy)
iii) the 50/50 or 60/40 is assumed to be throughout retirement. Basically, volatility is your friend when you're accumulating (you just want max overall return over a long time frame, and because you're assumed to never touch the money you don't care about the ups and downs along the way) and your enemy when you're distributing (or "decumulating" as mathjak would say). So you need a mix during retirement that generates decent returns without wild volatile swings.
Hope that helps, other posters have given you scads of more detailed info.
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