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If you can afford to pay the mortgage on a lower paying job, you can pay it off early and sock more away on your current job, then semi-retire at 50 or 52 and fully retire at 55 and get those extra years of your life back, no?
Sounds good but I am trying to do a lot in a short period of time. I will have to see how it goes.
I live in a retirement community with people largely between 60 and 85. Retired, middle to upper middle class. I'd say the retirement dates are mostly 7 to 15 yrs ago. So you gotta read this. It's informative. This assumes you do not have a lush retirement pension that is reliable - i.e., will not be taken away. You retire on your own savings. Very different situation. VERY different!
For many, the collapse of interest rates on savings (CD's in particular) ruined them. They are very reluctantly greeters at Lowes or cashiers at Aco. First thing to know is that you don't put your money inthe stock market after you retire unless you are a gambler...that's rule no. 1. Given that, there are very few if any reliable and profitable investments you can make these days...so, you must simply take your net worth, and do the math. Do not plan on interest. If you live modest, have been accustomed to living that way...then you can go pretty far on just a couple hundred or three hundred thousand. If you require more elaborate things like fancy food, nice car, big house, expensive traveling, expensive hobbies, golf course dues, boats are your thing, or you like to eat out a lot...you gotta plan for that. Restaurant bills are up nearly 50% in the last 10 years.
In the next 20 years utilities; and, just as important, the maintanence of those "hobby" things will become almost prohibitive...I can see it coming. Readily available goods of "new tech" of any type are high priced; I see that too. Discount days are over. This means that if you are able to live in a small (let's say "modest") house, and have little or no interest in acquiring "the latest things" then you can subsist with a couple or a few hundred grand - for many years.
I guess in my experience, those people who retired with X amount of money, but had (or in some cases, subsequently acquired) higher end tastes wound up in trouble. I know a few. In
addition, those who thought that CD's would bring in 5 to 7 % interest forever suddenly found themselves out on the street. Most importantly, those latter folks never ever predicted the massive change in the finance industry that accompanied the credit collapse - and chose to accomodate those in debt instead of those with savings. For this reason, I say...skip any thought of an increase to that nestegg. What you have is what you can assume you will wind up with. At least it makes the math easier.
Bottom line (and to answer your question) this is based on real life observation. The gathering places in my predominantly retirement community are strangely vacant these days....way WAY different from just 5- 6 yrs ago. That alone in a sense has impressed me tremendously. These are people who retired with what they thought would take care of them, in their usual lifestyle forever. It didn't work out that way. My assumption: this trend will continue. Plan accordingly.
Thanks for taking the time to give a detailed answer to my question. Now I do see where you are coming from, even if I do not agree entirely with some of your assumptions. I think the first assumption about not putting your money in the stock market after retirement, which I bolded, is indeed a source of the trouble many people are facing. The extremely conservative "keep it all in CD's" approach, which did work to some extent before 2008, now, tragically, is not working at all, as you point out. I think that very result should cause you to question your recommendation to avoid the stock market entirely.
You seem to have a pessimistic bias about the future, and indeed no one can know the future with any certainty. In that regard, I am curious about your other statement which I bolded, the one about restaurant bills being up nearly 50% in the last ten years. My experience has been that they are up about 20% in the last ten years.
Ah, assumptions! They have lead me to many erroneous conclusions during my long life (69). The people who assumed that "keep it all in CD's" was the way to go have really taken it on the chin. (To that degree I agree with you entirely). I also agree that your boots on the ground experience (living in a retirement community) is something I cannot match because I live in a neighborhood with very few retired people.
i agree about the market assumptions by stuffed cabbge being wrong . in fact new studies shows the opposite to be true.
entering retirement with about 30% equities and INCREASING the allocation each year by 1% up to 70% if you live long enough has produced stellar results as far as failures going back 146 years.
the retirement graveyard is filled with failed retirements by those who thought they could keep up with inflation and unexpected expenses with no market allocations.
in fact 100% equities has never failed over any 30 plus years in retirement going back to 1926 for anyone with the nerve to do so..
the biggest danger to failing with equities is in the first 5 years of retiring. a string of bad market years can have you spending down excessive amounts of money.
by entering retirement with lower equity allocations and increasing them every year you avoid the risk during the early years of bad markets. if you had a string of bad markets odds are you are long over due for an uptrend down the road as you increase equity allocations.
If you are not going to use equities as part of your allocations you can take about 2% a year inflation adjusted using tips ,short term bonds and annuities.
Last edited by mathjak107; 11-30-2013 at 06:33 PM..
for most of america the best deal is the deferred tax route. very few without pensions or other income will be in a higher tax bracket with no pay check or even worse no pay checks down the road.
just the fact tax brackets allow more and more income through at lower tax rates every year means income taxes can go up and you will still be ahead down the road.
throw in relocation to a no tax or low tax state and roths may be your worst choice..
you really need to do alot of numbers crunching with social security and rmd's calculated in.
answers that are just shot from the hip can do more harm than good as the un-informed just usually tell someone to go roth and that may be the worst way.
thinking back over my 40 years of working if we had roths back then i would have gotten sooooo burned with income taxes now at very low levels.
who would have thought 40 years ago we would be paying a fraction of the amount in income taxes we were. every other tax sky rocketed but income taxes are pretty low for the masses.
Doesn't a company 401K function the same way as a traditional IRA? Seems to me having a traditional IRA would be redundant if you have contributed to a 401K, and so a Roth IRA would be a non-overlapping type of investment vehicle if you have a 401K?
they are the same but you can still stuff more tax deferred dollars away . i max my 401k out and still contribute to my wifes ira. i don't see a roth being a benefit to us so i have done very little in them.
there is just no way we will be even close to the brackets we are in with 2 pay checks coming in while working when those checks stop..
It just occurred to me that my house will be paid off when I am 55 and I will also be eligible to take a reduced pension. I am thinking of working for the next 15 years in my present industry (I hate it) to sock as much money as I can in my 401k. I would get a lower paid less stressful job that would give me benefits. I could still save money for my future. Has anyone done this? If so, how is it working out for you?
That sounds like a great idea. My sister and her husband owned their home, both worked full-time since 18, saved a lot, and were able to retire at 55 and not have to work again. Now that doesn't mean they have the money to travel all the time or buy new cars every few years etc. What they did was sold their home in S. Calif. and moved more north to a rural area where they could have a home and some land. They have a huge garden in the summer and a dog and a few goats and live comfortably and are very happy.
one thing you have to becareful of is the "LESS STRESSFUL JOB SYNDROM"
while we may have stressful high paying jobs and good benefits many times we trade that for jobs that are lower down on the food chain for less stress. .
only problem was now that you are low man on the totem pole the jobs may have less stress in one way but more stress and dislike in other ways.
my buddy couldn't wait to retire at half pay from his city job. so he did.
then he still needed to work because it wasn't enough and now has a low end job with low pay and no benefits and now that is stressing him even more.
he gets every crappy detail being low man and has to work holidays and crazy hours.
he now realizes if he still had to work he was better off before with the high pay ,seniority and good benefits.
Wow! I need $400,000 to yield $12,000 per year? That is a lot of money. Perhaps a $1000 per month draw is not realistic.
The back of the envelope method is this:
$300,000 x 0.04 / 12 = $1,000 per month (4 percent withdrawl rate).
This doesn't account for earnings and inflation over the years, just a one year number.
Calculators like firecalc factor in these things and you can see how long your nest egg will last (20, 30, 40 years). money.cnn.com has a retirement calculator too.
And dinkytown.net has plenty of in-depth calculators: http://www.dinkytown.net/retirement.html
Using "How long will my retirement savings last?", It estimates that earning 5% with 2% inflation, withdrawing $12,000/yr, $300,000 will last 44 years.
Last edited by CSRSJim; 12-01-2013 at 07:59 AM..
Reason: Added dinkytown.net
[quote=StuffedCabbage;32431235]I
For many, the , and have little or no interest in acquiring "the latest things" then you can subsist with a couple or a few hundred grand - for many years.
I guess in my experience, those people who retired with X amount of money, but had (or in some cases, subsequently acquired) higher end tastes wound up in trouble. I know a few. In addition, those who thought that CD's would bring in 5 to 7 % interest forever suddenly found themselves out on the street. Most importantly, those latter folks never ever predicted the massive change in the finance industry that accompanied the credit collapse - and chose to accomodate those in debt instead of those with savings. For this reason, I say...skip any thought of an increase to that nestegg. What you have is what you can assume you will wind up with. At least it makes the math easier.
]
The bottom line is that this is NOT your mom and dad's retirement environment. What lies ahead? Nobody knows..no matter what you hear. Never EVER listen to a 30-something year old, so-called "financial advisor." Stupidest thing to do. In case you are not aware, the political and financial state of this country has changed, more dramatically and more quickly, then you've ever seen. Expect that to continue, and plan accordingly. When in doubt...put your cards to your chest.
I know a couple 50-somethings who have recently retired. I have no idea why. I can see them getting out of their beds with creaky achy bones 15 years from now HAVING to work. Not pretty. In fact, a depressing thought. But, then again, people don't want to hear advice, really, never have. So I no longer preach. They'll find out the hard way. None of my business.
Just remember a time honored rule: underestimate your ability to retire; never over estimate. Other then that, good luck.
BTW: White Castles were 53 cents in 2003 and are now 79 cents. An unchanged food item useful for comparison. Noodles (oh...excuse me..."pasta") is cheap fattening and filling.. and have (as you say) increased only 20% since then. Wonder where the Grade AA steaks are going these days; at any price? Hmmm.
Last edited by StuffedCabbage; 12-02-2013 at 08:45 AM..
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