Future Retirees and the "Living on a Shoestring" Saga (pensions, supplement)

[modhatter]

Been reading some articles about the sorry shape of future retirees, which site various problems

The elimination of pensions
Poor performing 401K's
Inadequate income to fund 401K's and Ira's enough to make a real difference.
Shrinking number of young people to balance the older population
Health Care costs escalating out of control
Proposals of cutting social security and medicare as opposed to strengthening it.
Salaries and benefits being squeezed by corporations.

Here's just one article:
The Greatest Retirement Crisis In American History - Forbes

When I lay out a bare bones budget for someone having to live on a small income. We'll say $25-$30,000 a year for a couple, even with a small paid off house, living in a low cost living area with one car. It is really hard to see them managing. I know some on here in the past have claimed to live on very small incomes, but I'm discounting having your own pigs and chickens and burning wood chips for fuel and riding a bike for transportation. I am cutting out cable, and expensive phones, and cutting back food budgets, minimal clothes and no entertainment budget, etc., and I still see it being very difficult. Just needing dental work or replacing your heating/AC unit, can do you in. What are your thoughts?

[Escort Rider]

Well, $30,000 per year equals $2,500 a month. Given your parameters of a paid off house, one car, and a low cost of living area, I believe that is very doable. I base this on my own spending experiences since retirement in a rather high cost of living area (Los Angeles). I do not spend much more than that and I have a considerable entertainment budget and I usually take one major road trip a year. (Of course I am divorced and live alone, and you were talking about two people, so food and clothing would have to be a little more for two).

It becomes a little trickier to figure in reserves for such major repairs as replacing one's heating/AC unit. Those things are by their nature unpredictable, especially dental work (normally no dental work is covered by Medicare). Other items can vary also, such as "one car". (What kind of car with what gas mileage? How new? How reliable?, etc.)

Of course in one respect I live in a very low cost area - utilities. We need very little heating and very little air conditioning here. So I save money in that limited respect, but it can be quite a bit of money depending on how severe one's winters are and how hot and humid one's summers are.

I don't think it's quite as hard as you are saying, but it's tough to compare our own experiences directly, as I have tried to point out. Have you actually tracked your own total expenditures over a period of two or three years? I find that to be a useful exercise.

[livecontent]

One can easily live on less. The problem is many have come to make that which is optional in life an expected and an entitled necessity. The media has contributed because we readily can see how those with more live and then we want it for ourselves. Years ago, people did not always see easily the difference in wealth and they were more attuned to the idea that some have more and some have less. They now take the idea of a democratic society to the wrong idea that everyone is entitled to everything that everyone else has.

Those ideas creates the constant spending person who has no concept of thrift. They spend as fast as they can earn because they want it all now. With no thrift, there is no savings and with no savings there is that battle to pay for emergencies that will definitely come.

Many of us have learned to reduce our needs, wants and desires and have a lifelong habit of thrift. Many of us learned it from our parents. Many of as are not affected by peer pressure to do this, buy that and have the biggest and the best. Many of us are not affected by advertising and celebrities to purchase. Many of us do not need overpriced entertainment, sports venues and the cost of celebrity admiration. Many of use do not have addiction to expensive habits of alcohol, tobacco, drugs and even starbucks coffee and dining out constantly. Many of us live on what we earn and do not take on continuous and excessive debt to pay for excessive needs, wants and desires.

Many of us do not need the affirmation of others by having and owning. Many of us do not care what others think about what we dress, where we go, what we eat, what we drive. As a result, many of us are free, independent and have the funds to survive many of the calamities that befall others.

I make no judgment of those who have the means to afford all that they want. If you do not have those means then it is all of to you. There is not always a rescue for your lifestyle; you may be on your own.

One of Many,
Livecontent

[Tetto]

Scary stuff indeed. All the more reason to double down on saving and thriftiness now.

[The Venerable Bede]

My wife and I are 100% debt-free in a very low cost-of-living area. I calculated a "bare bones" budget at $42,000 per year before I retired from a government position, but that included $1,100 per month for health insurance as well as federal and state income taxes. $30,000 would be difficult to live on even in my area unless that amount is the net after taxes and health insurance; if it is, then it is actually somewhat higher than my projected $42,000 (which did include cable TV, Internet, a cell phone and other reasonable amenities). Fortunately, I haven't had to test my projection because I am paid considerably more than that for consulting, but as I look at my "retirement-like" lifestyle (I work from home) it does seem to me that my projection was pretty close. I think you absolutely have to have a nest egg that covers the inevitable disasters of life over and above whatever your monthly income will be. If I didn't have a nest egg that would cover any reasonably foreseeable disaster, I never would have left my government position and probably wouldn't be able to sleep at night. I have a good friend who did this -- his monthly income is about $3,000, but his nest egg at age 67 is precisely $0 -- and even having to buy tires for his truck is a small disaster. I think it will always be possible to live some version of a bare bones lifestyle if one does some careful planning and saving, carefully picks a low cost-of-living area, budgets carefully, and accumulates at least a minimal nest egg to cover reasonably foreseeable disasters.

[modhatter]

Actually, I have been tracking my own. I have that paid off house (1600 sq. ft.) in a moderately (not the lowest by any means) cost of living area. Southwest desert climate. Utilities average $350 a month all year long which is probably the expensive part of where I live. Car insurance is a little over $110 a month (there are cheaper areas) I have an economical older car 2007 (Prius), no cable or expensive monthly phone plans. I do have a landscaper $100 mo., cause I can't do the work myself. My RE taxes are around $2,000 a year. Health insurance even on Medicare with supplement and Part D and a/b is a little over $400 a month (for one person), not counting costs of medication co-pays.

So my high cost items would be the health insurance, utilities, and higher car insurance than other areas (but I do save on no state income taxes) Other then those things, I consider costs here probably average. When you factor in utilities, homeowners insurance, low HOA fees, real estate taxes, landscaper and home repairs. and replacement items. Even without a mortgage, renting is cheaper or at least not more than a paid off house. The only thing that I could cut would be changing from regular medicare with supplement to an Advantage Plan, but for health reason's I don't think it advisable and I don't think it will be much of an Advantage in future years (a little play on words there)

I always was a strong advocate for home ownership and still am for younger people. But I'm beginning to rethink it for older people The colder weather will be a turn off for many older folks Who wants to shovel snow after 70. It appears that areas that have lower cost of living usually have higher crime rates as well.

My expenses are actually much higher, but that's because I'm paying for two families. Because of this, and because I am trying to preserve a good part of my savings for my son, I have tried to cut my own expenses to a minimum. In doing this, I can't help think about those who will arrive at my age with little to no savings and wonder how they will make it. The article above puts them at 75% with limited savings.

[Escort Rider]

Originally Posted by The Venerable Bede

..... I think you absolutely have to have a nest egg that covers the inevitable disasters of life over and above whatever your monthly income will be. If I didn't have a nest egg that would cover any reasonably foreseeable disaster, I never would have left my government position and probably wouldn't be able to sleep at night. I have a good friend who did this -- his monthly income is about $3,000, but his nest egg at age 67 is precisely $0 -- and even having to buy tires for his truck is a small disaster. I think it will always be possible to live some version of a bare bones lifestyle if one does some careful planning and saving, carefully picks a low cost-of-living area, budgets carefully, and accumulates at least a minimal nest egg to cover reasonably foreseeable disasters.

I agree. It would bug the hell out of me to live in such a way that buying tires would be problematic. We all have comfort zones, psychologically speaking. It sounds like the two of us have similar comfort zones. It is a great stress reducer to know that one has a reasonable cushion for stuff that may come up.

[texdav]

yep; people need to face facts that likely most entitlements are looking at reductions coming. One only has to read SS and medicare trustees reports as to what is coming and Breaux commission on fixing the problem which contains pain no matter what is decided.

[Weichert]

I'm not so sure that SS will change that much primarily because those on it receive a fixed amount. That is, it is measurable, very much noticeable and would be political suicide for whoever supported any reductions. Medicare is different, lots of squishiness in it. I think that it is quite possible that Advantage/Medigap/Tricare might be merged into a single cost containment plan - event based with HMO and a much more expensive PPO.

In any event modhatter, our total expenses are essentially the same as yours. The details vary but the total is about the same. We live under our retirement income and that does not include the income from the business that my wife started 10 years ago. So, even today we are in a savings mode. Old habits hard to break I guess. The only extravagance is the car we bought last year but that payment is $250 a month (with a 1.5% interest rate, I went with payments rather than paying cash although I will likely get tired of those soon and just pay it off).

I don't know that this is a bare bones budget but we do live a much simpler lifestyle than before retirement. However, in total, there is no way that we could live on $25k-$30k even with this simpler lifestyle.

[foglover]

Uh, some people work and live on a less than $25-$30K. I know that my 57 year-old sister - she's single - has never made beyond $25K and the only way she made that much was by working lots of overtime. Is it tough? Yeah, but I know that she is grateful for everything she has.

I will have an annual gross of about $33K when I retire in a couple of months. And that includes SS. And I plan on relocating to a high-tax state. The whole thing is very scary, but I am not willing to spend more time in the workplace. I have never traveled except by armchair; never taken any but working vacations or camping vacations; never taken on debt except the mortgage and that is paid. I have wasted lots of money in my lifetime, but not on such frivolous excesses like Disney or new cars or jewelry, etc. If you can afford all that crap, then fine; but it seems to me that everyone thinks they are entitled to those things and they are willing to incur debt to acquire them. Nutz.

Can I live on less than $33K? Yes. If I were part of a couple? I could, but not as comfortably.

Maybe being an introvert has some economic advantage after all.