Future Value (55, pensions, beach, supplement)

[LookingatFL]

My problem with retirement planning is this dreaded future value of money. I go along thinking I've got it all covered and then I start playing with numbers.

So today, just as an exercise, I created a single/never-been-married/no children person who is 50 years old with an unspecified amount of retirement savings, no pension, has long-term care insurance, will purchase a Medigap insurance policy, will work until FRA, and plans to draw down savings. I guessed that between everything he/she will be receiving $85,000 annually by the time he/she is 90. It sounded pretty good until I figured out that with 3% inflation over the 40 years, that $85,000 will be worth only $26,057 in today's dollars by the time this person is 90. I wonder if this will be enough money for this person to live comfortably 40 years in the future.

Then I get to wondering how anyone does retire no matter how much assets you have? I keep coming back to the fact that annuities are vital and probably so is the long-term care insurance.

These exercises always leave me with questions and worries.

[Hemlock140]

For those of us that wait until age 68-70 to retire the inflation over only 20 years hopefully won't be that bad, but it is an issue. Even if Social Security has inflation increases (most pensions do not). Chances are, though, once you get to the 80s you would not be taking as many expensive trips, going out to fancy restaurants as much, or even spending as much on gas. Also, 3% seems a high figure for average over 40 years, it's been less than 3% since 2011 but over 10% in 1981). Both of us will have a pension, so we consider the 401K and 457 to be the safety net, and just take the required minimum disbursement amount at age 70-1/2.

[alpineprince]

Originally Posted by LookingatFL

My problem with retirement planning is this dreaded future value of money. I go along thinking I've got it all covered and then I start playing with numbers.

So today, just as an exercise, I created a single/never-been-married/no children person who is 50 years old with an unspecified amount of retirement savings, no pension, has long-term care insurance, will purchase a Medigap insurance policy, will work until FRA, and plans to draw down savings. I guessed that between everything he/she will be receiving $85,000 annually by the time he/she is 90. It sounded pretty good until I figured out that with 3% inflation over the 40 years, that $85,000 will be worth only $26,057 in today's dollars by the time this person is 90. I wonder if this will be enough money for this person to live comfortably 40 years in the future.

Then I get to wondering how anyone does retire no matter how much assets you have? I keep coming back to the fact that annuities are vital and probably so is the long-term care insurance.

These exercises always leave me with questions and worries.

I went through the same exercise a few years ago, only my imaginary person realized that no family and no money = no reason to live and it was several months later that the neighbors complained of the smell and the police found him hanging off the only chandelier he hadn't hocked!

[LookingatFL]

That's a shame. At the very same time, you should have created an imaginary psychiatrist and an imaginary significant other so he/she would not have committed suicide from depression and loneliness.

[Gandalara]

Originally Posted by LookingatFL

My problem with retirement planning is this dreaded future value of money. I go along thinking I've got it all covered and then I start playing with numbers.

So today, just as an exercise, I created a single/never-been-married/no children person who is 50 years old with an unspecified amount of retirement savings, no pension, has long-term care insurance, will purchase a Medigap insurance policy, will work until FRA, and plans to draw down savings. I guessed that between everything he/she will be receiving $85,000 annually by the time he/she is 90. It sounded pretty good until I figured out that with 3% inflation over the 40 years, that $85,000 will be worth only $26,057 in today's dollars by the time this person is 90. I wonder if this will be enough money for this person to live comfortably 40 years in the future.

Then I get to wondering how anyone does retire no matter how much assets you have? I keep coming back to the fact that annuities are vital and probably so is the long-term care insurance.

These exercises always leave me with questions and worries.

I guess I did mine backasswards, LOL
I had a spreadsheet of my annual expenses (Yay, Quicken).
Took out the ones I wouldn't have during retirement (certain payroll taxes, etc etc etc).
Added in new expenses after retirement (med insurance, fun money, etc etc etc)
With the expenses remaining, I added 10% inflation for my column of First Year Expenses.
10% is very high, but made me feel safe, LOL.
Second Year Expenses were 10% more than the First Year.
And on until the Five Year mark.

The expense numbers were astounding, but when my promised income (COLA-based pension plus other stuff) exceeded those Five Year Expenses, I put my notice in at work.

Worked for me.

[astrohip]

Originally Posted by LookingatFL

My problem with retirement planning is this dreaded future value of money. I go along thinking I've got it all covered and then I start playing with numbers.

So today, just as an exercise, I created a single/never-been-married/no children person who is 50 years old with an unspecified amount of retirement savings, no pension, has long-term care insurance, will purchase a Medigap insurance policy, will work until FRA, and plans to draw down savings. I guessed that between everything he/she will be receiving $85,000 annually by the time he/she is 90. It sounded pretty good until I figured out that with 3% inflation over the 40 years, that $85,000 will be worth only $26,057 in today's dollars by the time this person is 90. I wonder if this will be enough money for this person to live comfortably 40 years in the future.

Then I get to wondering how anyone does retire no matter how much assets you have? I keep coming back to the fact that annuities are vital and probably so is the long-term care insurance.

These exercises always leave me with questions and worries.

Two random thoughts...

1) You don't need as much money when you're 90 as when you're 80. Or 70. or any younger age.

Good example is my father. Saved plenty of money, retired in mid-60's, he & my mom then enjoyed retirement. They traveled a lot, several times a year, and fairly expensive trips. He used to joke "Don't worry, I'm only spending your inheritance." But he also planned well, and made sure he wouldn't run out of money, as longevity runs in his family. Now he's 83, still in great shape, bike rides daily, yada yada, but they don't travel as much as it's too much trouble as one gets older. He even made a comment, very out of character for my dad who's fairly untalkative when it comes to money, that he realizes in hindsight he didn't need to save so much. Because when you get older there's just not that much to spend it on.

All those clothes you buy today? You'll wear the same ones for years when you're 80+.

Movies, music, entertainment, drinking & eating, etc? Not as much at that age.

No, you don't become a hermit as you age, but you just don't spend as much. So figure you'll spend much less at 80, and waaay much less at 90.

2) Annuities are a rip-off. Plain & simple, you are gambling your life expectancy against an insurance company. Don't do it. Every (repeat, every) independent, neutral study done has shown they are NOT a good investment in most situations.

[biscuitmom]

Originally Posted by astrohip

1) You don't need as much money when you're 90 as when you're 80. Or 70. or any younger age.

Many people fail to grasp this.

Even those who go into assisted living or a skilled nursing homes often come out no worse on monthly expenses because altho those facilities are $$$, it's a fixed expense that covers everything with very few add-ons. We've seen this several times in our own family circle. Right now for example, my 90 y.o. MIL resides in a nice ALF. She has no pension, draws only SS widow's benefit, and $1130 in Veteran's A&A widow's benefit. In addition we rent out the house she owns, which nets about $1200 a month.

Using these 3 income sources, we're able to cover her monthly ALF costs without drawing from her modest savings. The only add'l expenses she incurs are her Depends, very occasional clothing and linen purchases, snacks, and semi-annual hearing aid replacement. We take care of these out of her modest investment savings account, supplemented by family gifts (i.e., we buy her clothing and snacks for holiday and birthday gifts).

Back when she was widowed at age 62, with no pension, she was still working and had housing, utilities, insurance, clothing, car, and entertaining expenses. We would have panicked had we tried to project these expenses, with inflation, for another 3 decades. Turns out her expenses did indeed drastically diminish along with her health.

[jrkliny]

Every decent retirement income planner includes an offset for inflation. Usually a 3.5% inflation rate is used. This is the average over a long period of time. In order to keep ahead of inflation, you must invest your retirement assets and generate returns. If you try to put your money aside in cash, inflation will eat it up over the course of years.

I suggest you visit the investment forum. Many of us are struggling with the choice of investments and trying to maximize returns will holding risk to a minimum. We have also had long discussions on safe withdrawal rates from our retirement assets.

[brokensky]

Originally Posted by biscuitmom

Many people fail to grasp this.

Even those who go into assisted living or a skilled nursing homes often come out no worse on monthly expenses because altho those facilities are $$$, it's a fixed expense that covers everything with very few add-ons. We've seen this several times in our own family circle. Right now for example, my 90 y.o. MIL resides in a nice ALF. She has no pension, draws only SS widow's benefit, and $1130 in Veteran's A&A widow's benefit. In addition we rent out the house she owns, which nets about $1200 a month.

Using these 3 income sources, we're able to cover her monthly ALF costs without drawing from her modest savings. The only add'l expenses she incurs are her Depends, very occasional clothing and linen purchases, snacks, and semi-annual hearing aid replacement. We take care of these out of her modest investment savings account, supplemented by family gifts (i.e., we buy her clothing and snacks for holiday and birthday gifts).

Back when she was widowed at age 62, with no pension, she was still working and had housing, utilities, insurance, clothing, car, and entertaining expenses. We would have panicked had we tried to project these expenses, with inflation, for another 3 decades. Turns out her expenses did indeed drastically diminish along with her health.

What a sensible way of handling things! I am so glad you posted this information. It really helps to know about "real life" situations and how families have dealt with the financial aspects of late in life care.

Thank you for sharing this, Biscuitmom.

[Listener2307]

We're retired.

And we are happy on less and less money as we go along. We'll both be 70 next year. This week SHE is at the beach with THE GIRLS, next month I go to NC for a few days. Last spring we both went to the beach.

It gets simpler, and this whole idea of "Ya gotta keep up with inflation" we have found to be nonsense. Look; the house is paid for. The cars are paid for. We keep ourselves well insured. And 3 years before we retired, we started living off the amount we were gonna get.

But most people do it backwards. They get their money, buy whatever they think they need and then look to see how much is left over. If you have not learned to handle money by the time you are 50 or 55, you are never going to learn and retirement will be a problem for you.