What percent of current income are you trying to achieve? (move, federal)

[M3 Mitch]

I expect to have a defined benefit pension of somewhat less than 50% of my final pre-tax income, but also expect to have a 401K near 7 figures or slightly over that, some other minor accounts of a few 10's of thousands, and a paid-for house at retirement. But to me the main asset is that I will have ME full time at home, repairing things, gardening, hunting, fishing, etc. So having my own time to myself should result in less need for cash.

[M3 Mitch]

Originally Posted by Submariner

When I was working, our expenses were never allowed to approach my salary.

We tithed 10%+, and then anything left over beyond expenses was invested in principal-only payments.

That's the way you do it!

[M3 Mitch]

Originally Posted by Listener2307

100%

We retired in 2010. Neither of us had a significant pension, but both had high Social Security earnings. We also had rental properties (2) that were paid for since we have had them over 30 years.

So we went backwards. We figured out what our income would be when we retired, and we started living on that amount way back in '05.
That made our retirement seamless. Our income is the same now that it has always been.

How we managed money:
Everything we made - every penny - went into a money market account. Then, the first of every month we would have the "correct" amount transferred into the checking account so we could spend it. The saved money piled up very rapidly.
Now, 5 years into retirement we still have every bit of that saved money still in our money market account; actually, a little more, because it costs less to live when you are retired - at least for us, it does. We call the money market account our "bucket". During the month our sources of income get poured into the bucket and once a month we dip some out. Payday is every month on the 1st.

One could argue that if you are still managing a couple of rental properties, you are not fully "retired".

Not saying that's a bad thing, but, even if you have a property manager, you are the owners, the "big" decisions will always find themselves to you.

Still, well done!

[AlaskaErik]

Originally Posted by emm74

And you are still missing or ignoring my point. I didn't ask how people arrived at their estimation, just what it ended up being. If your current income is $120,000, you are looking to achieve 100% of that in retirement. If it's $240,000, you are looking to achieve 50% of it.

Percent is a good estimator because you know how you are doing in relation to your current income, and it's pretty easy to think about whether you are doing well and would like to keep around the same amount so you can continue to same general standard of living, whether you feel like you'd be spending more than you do now so you want to try to achieve more in retirement or if you can see some pretty easy places where you know you'd be cutting back so you can have a similar standard of living on less income.

And fwiw, many people use a percentage of income to think about debt to income ratio and how much they can afford in a mortgage. Not that it's a hard and fast rule and you have to adjust for personal circumstances, but it's a good place to start. Comparing what you anticipate your expenses in retirement to be vs. what you spend now based on income is similarly a place to start.

I'm not missing anything. Trying to establish what I need in retirement as a percentage of what I made working is meaningless. There are deductions and expenses I no longer have in retirement. A better comparison would be take home pay when you worked vs take home pay in retirement. But that only works if you don't plan on any changes to your lifestyle. And then there is the matter of what percent do you use. Two different people can have the same income but require different percentages of income in retirement. If more people looked at how much money they really needed in retirement to fund their desired lifestyle there would be fewer surprises. Look at what you need expressed as a dollar amount and then work towards that goal.

[mathjak107]

alaska eric you are spot on and quite correct !

this guessing at percentages of working income is really a poor way of looking at things and at the end of the day may do you no good at all as you may not be able to even generate 80% or whatever percentage of working income you think you need . .

you need to work backwards from expenses and wants and first see what you can support in retirement not what you think you need as a percentage of what was ..

it is all well and good you think you need a percentage less then or more then what you had when you worked but how does that translate out to what you can generate and provide as a retirement income ?

what good is what you used to earn if your new jobs pay you a fraction of what was ?

just because you pull some numbers out of basically the air does not mean that income may be realistic as far as you coming close to even generating that amount ..


it is always better to forget what your income was and FIRST see what safe , realistic , potential income you are dealing with in retirement . you need to first look at what the chances are of generating what you think you will need off expenses and wants and decide if you are even going to commit to using more aggressive investments like equity's to generate it .

when it comes to giving up those pay checks you have to pretend you are starting from scratch again and building a lifestyle you can support , not take an existing life style and assume your retirement income can cover it .

so what we did is forget about what was while working . we started the process like we were getting married and had to see what our 2 incomes could support in the first place safely . what used to be is useless information at this point if the pay checks stop .

even if i said we need 20% less , so what , that does not mean savings and social security can give me 80% of what our checks were .

just because we think we need 80% of our working income to pay our bills and have some money for wants does not mean we can generate that level of income regardless of what we add up we need ..

so we started by adding up all our non discretionary expenses like rent , utility's , insurances we want to maintain , etc , basically anything we prefer not to cut back on or can't cut back .

so lets say that came to 40k . we then doubled that so it includes the wants , food , clothes ,travel , gifts , entertainment , the gym ,hobbies, etc ,etc .

so our estimated potential budget is 80k and that has a wide margin of 50% to cut back on in discretionary spending if need be . we then subtract out social security , so lets say it is 30k , we then know we need 50k to come from savings . but now we need to see if that is even possible to generate . .

today you safely need 1.25 million in at least a 40/60 portfolio to reliably generate 50k and even that may turn out to be not enough savings with low rates and crappy markets .

so looking at retirement planning data we know we need at least 40% equity's to stand a 90% chance of pulling that income .

but what if i want to use only 25% or no equity's ? well then you need a lot more in savings so you have to see if your savings is great enough to support 50k with no equity's . you may only be able to generate 2% inflation adjusted reliably with no equity's. you may need double the savings if that is the case or you need a lifestyle change .

if the answer is yes , you can generate that income safely then you are good to go but if the answer is no then you may need a lifestyle change .


see the difference between working off the pay checks as a percentage vs what your actual income generation potential is ?

looking at your pay checks while working may be like driving and looking in the rear view mirror . it may have no basis for what is up the road nor may that percentage of working income even be possible to generate .

so it is great that most of the voters added up their expenses and came to an 80% percentage of working income needed , but you need to reverse things to see how much you can actually generate , safely ,securely and consistently and see what you actually stand a HIGH SUCCESS RATE OF GENERATING .

just think of the fact that it is no different then getting new jobs with new pay levels and at this point the new pay levels may be much less then your old pay checks and they can't pay for the old expenses .

you need to know your expenses vs your new pay level , not the old one when you were working.

.

[mathjak107]

hope this chart helps .

the success rates are based on the absolute worst outcome we have had to date .

no rolling retirement time frames have been worse the last 50 years then the success rate's are based on .. 90% is considered the minimum acceptable success rate for a retirement income .

[Vasily]

A single metric isn't a strategy, it's a tool to help with analysis and planning. I have a section in my plan with projected income, and another section with projected expenses. I would assume many others reporting ther percent projected income are also using this number in a planning context. You have to determine what expenses will go away and estimate what additional expenses you'll have, and consider what you need to cut back on as well as what additional sources of income you need to consider. If you don't want percent of current income on your retirement "KPI dashboard", don't use it.

[mathjak107]

you would be surprised . i frequent a few retirement forums and folks add up all their projected retirement expenses , they then come to the conclusion they need 80% less then they earned or whatever percentage .

but they have no clue whether they can support that level of income long term nor even how to ball park that income potential or savings amounts needed to stand a good chance of safely generating it . . many assume 4% of their savings but do not understand there are parameters that have to be met and conditions under which it won't fail ..

using 100% cash instruments can only generate 2% inflation adjusted ,bullet proof so they may need 2x the savings as an example or no matter what percentage of working income you need it may not be a do ..

it is always better to start with the budget and then back in to what you need - then see whether your savings amount and allocations will meet those levels .

once you do that , well then you can always express it as a percentage of working income , but that is different then starting with working income off the bat , subtracting out things like 401k contributions , work clothes , work traveling , etc and coming to the conclusion you need 80% of your pay check . .

[Vasily]

Just like in a project plan you have to consider best case, most likely, and worst case scenarios. Worst case for most of us being something like living to a hundred with the last 30 being in a long term care facility.

[Listener2307]

Originally Posted by Listener2307
100%

We retired in 2010. Neither of us had a significant pension, but both had high Social Security earnings. We also had rental properties (2) that were paid for since we have had them over 30 years.

So we went backwards. We figured out what our income would be when we retired, and we started living on that amount way back in '05.
That made our retirement seamless. Our income is the same now that it has always been.

How we managed money:
Everything we made - every penny - went into a money market account. Then, the first of every month we would have the "correct" amount transferred into the checking account so we could spend it. The saved money piled up very rapidly.
Now, 5 years into retirement we still have every bit of that saved money still in our money market account; actually, a little more, because it costs less to live when you are retired - at least for us, it does. We call the money market account our "bucket". During the month our sources of income get poured into the bucket and once a month we dip some out. Payday is every month on the 1st.

Originally Posted by M3 Mitch

One could argue that if you are still managing a couple of rental properties, you are not fully "retired".

Not saying that's a bad thing, but, even if you have a property manager, you are the owners, the "big" decisions will always find themselves to you.

Still, well done!

Nice observation. I do, indeed, have a thing to do now and then. But we own very good rental properties with good tenants and have not had turnover in several years.

For the future:
When I finally get too old and want to sell out, we will try to sell both properties (they are adjoining townhouses) to the same person and will carry the note ourselves. Carrying the note allows us to escape some taxes (or at least pay them gradually) as both properties are fully depreciated.
I expect I will sell out at age 80 or so and carry the note for 20 years. The mortgage note will be about equal to what we net out of the properties now, so there still will be no change in income.