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The problem with this simple method is what will $3000 get you in future years ? That could be the price of a one BR studio 15 years from now.
And will you still be able to by a car for $25,000 every 8 or 10 years?
It's this that fosters all the other posts in threads like this.
one is to have the income we need to live but the other part is to have enough dry powder to handle inflation, un-expected expenses and huge financial shocks that go even beyond just unexpected expenses.
the two are at odds with each other and fight each other. income and savings are arch enemies.
one of the reasons the 4% swr rate came to be was it was a good balance between the two opposing forces.
it provideded a fairly steady income while at the same time providing a bigger safety buffer.
sure you could pull 6% a year from savings but there goes the safety buffer .
ideally folks want both as well as something to leave their kids and grandkids if they can.
the concept that retirement planning really involves dealing with two opposing forces is very foreign to most.
look at every thread with few exceptions. it is about the income ,the income and the income.
but life is not just about the income it is about preserving the savings for emergencies,unexpected expenses , inflation and helping out family members if need be.
good retirement planning finds a balance that is right for you.
some want to meet expenses and have that cushion. others do not want a cushion they want maximum income . others want that cushion to grow and will live a cheaper lifestyle to do it.
that is why there is no answer that is for each of us other than the size that fits you.
the concept that retirement planning really involves dealing with two opposing forces is very foreign to most.
look at every thread with few exceptions. it is about the income ,the income and the income.
but life is not just about the income it is about preserving the savings for emergencies,unexpected expenses , inflation and helping out family members if need be.
good retirement planning finds a balance that is right for you.
some want to meet expenses and have that cushion. others do not want a cushion they want maximum income . others want that cushion to grow and will live a cheaper lifestyle to do it.
that is why there is no answer that is for each of us other than the size that fits you.
All you say is true however, however in our modern progressive social net society it is not just you that the size has to fit but society in general if your shoe falls off.
here is an interesting interview with michael kitces. michael is one of the most famous researchers today in the field of retirement planning and his words move an entire industry.
he talks about how the 4% rule is not a complete retirement strategy but only sets a safe floor to begin. it assumes you are retiring right on the eve of the worst of times to date.
of course folks hating to spend money for financial advice want a magic number to take with them for life so they do not need an advisor and there is the problem since there is no magic answer. many plan around this worst case floor number and think they need huge amounts of money in their account or they don't think of the fact that crap happens and a plan needs dry powder so to speak. some where between the two is what someone typically will need.
these studies and the numbers that come out of them are only for establishing a safe floor for starting out. things have to be reviewed and personalized criteria looked at and figured in as time goes on.
it was never intended to be a "here is your spending level , have a nice life" it is not nor ever intended to be on auto pilot yet you hear these magic numbers thrown out all the time. or you see things like i will divide my money by 30 years and then divide by 12 months.
this is not what retirement planning is about nor likely will even work..
The problem with this simple method is what will $3000 get you in future years ? That could be the price of a one BR studio 15 years from now.
And will you still be able to by a car for $25,000 every 8 or 10 years?
It's this that fosters all the other posts in threads like this.
The objective is the portfolio is to be structured to keep up with personal inflation. $3000 in 2014 dollars would be adjusted in 2015 and going forward by such an amount.
If most of your retirement savings are tax sheltered in an IRA/401k/457b, you have to start taking minimum withdrawals in the year you turn 70 and a half. My wife and I hit that magic milepost in 2016, so we have this year and next year as a grace period, then things get difficult. When I was younger it never occurred to me that tax sheltered accounts are a lousy place to reserve assets for your final years.
kicking the can down the road may be better then paying taxes up front many times but paying the piper is never fun.
even when in taxable accounts there can be surprises.
etf and index funds are very tax efficient and as a by product can be extra tax heavy when sold down the road as well.
while paying taxes all along with conventional mutual funds may be worse the fact is you can have decades of pent up taxable gains due with these funds since little was paid along the way is something to plan for too
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