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Old 02-10-2016, 04:08 PM
Location: RVA
2,175 posts, read 1,274,479 times
Reputation: 4500


OK, I tried finding something similar with the search function, but couldn't. If it's out there, please point me to a better way to find it!

What I'm asking, which is the direct result of a "Saving and Planning for Retirement" lunch session at work (so by definition, no one retired, some close, some not) we had recently, is how many retirees actually accounted for an effective increase in net income due to not paying in to SS, Medicare, reduction in Federal and State (if taxed, which we are here) income tax, and other paystub standard deductions that went away when you retired.

This conversation came up, when the inevitable "85% of pre-retirement income rule of thumb" bullet was brought up, which, thanks to the recent Poll and discussions here, I was quite easily able to discuss intelligently and dispel the notion as that being a useful number. Instead I directed the conversation to talk about actual costs of living, non discretionary costs, and discretionary costs, inflation, health care costs, etc. What surprised me most, was how many in the group still argued pro FOR that rule of thumb, based on some rather poor reasons. Virtually no one discussed the equivalent gains from taxable amount and required deductions on a "pre-retirement basis", ie: apples and apples. They discussed the taxable income after retirement as if it was the same as pre-retirement.

Just a random example: If you make $100k pre retirement, gross, when discussing retirement you have to assume that $85K replacement is also gross. For this group, where we have rather nice pre-65 retirement benefits for medical, normal retirement is 60, and your health care costs will be roughly the same even when eligible for Medicare, thanks to a company supplement.

Most people in the group state they will collect SS at 62, unless they work past that age. No one, not one, planned on going past FRA.

So to keep the discussion apples and apples, we discussed costs and savings at 62 and beyond.

When I look at my December paystub, adding all the deductions, savings, taxes, SS, etc, accounts for 41% of my pay. It's been that amount plus or minus a small amount for years. And I'm not a monster saver, either, about 15% of my pay.

Naturally, in retirement, we all know you are more likely to pay less taxes, no SS, stop mandatory saving, etc, but the discussion was that the savings from THAT amount was roughly the 15% missing from 85% rule.

So, without belaboring actual amounts, I'm just curious, did many retirees actually look at what their real net income would be after retirement, accounting for all the above disappearing costs that then became a "phantom income" or may be a better term is "phantom raise" INSTEAD OF just looking at what their retirement income would be from sources? And how did that amount compare to reality. Naturally, if you relocate to totally different tax structure state, etc, then it becomes perhaps hopelessly more complex. My take on it would be that many simply knew it would be less, and hoped that it would be much more than anticipated, so better news than expected.

Maybe I'm all wet, and totally off base on this, or unclear. But based on the wild wide spread of the recent "What percentage Poll", I think not. The best thing about that poll was the large percentages of people where retirement income was under say 60% or pre. That's very positive and encouraging information.
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Old 02-10-2016, 04:16 PM
Location: Columbia SC
9,032 posts, read 7,791,206 times
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One of the things I looked at in retirement was reducing my cost of living. I was not looking to maintain my existing lifestyle on just "a little bit less". I knew in retirement I was not going to be making less than "a little bit less" but I knew with a lower cost of living I could live comfortably. That was some 13 years ago and it is still working.
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Old 02-10-2016, 04:24 PM
71,995 posts, read 72,020,102 times
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The flip side of that tax savings is medical insuarance is all after tax dollars. With medicare and medigap running 10k or more for a couple that is a big monkey wrench in the tax savings.
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Old 02-10-2016, 04:25 PM
Location: Jamestown, NY
7,841 posts, read 7,349,248 times
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I didn't. I aimed for 90% because I put 10% of my gross salary into a 403b account (that's like a 401k account for public employees who also have a pension plan). Any tax savings that I get will be a bonus, but I'm thinking that much of those may get eaten up by Medicare Part B, Part D, and Medigap because I have excellent health insurance through my employer for relatively little money.
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Old 02-10-2016, 06:08 PM
1,228 posts, read 1,264,090 times
Reputation: 4310
I included the tax savings on self-employment tax. However, my Federal tax bracket and marginal tax rate at best will remain the same. When adding in RMD it will probably increase. If there are any savings at all, I suspect they will be eaten up by the fact that our annual TriCare premium (which will stop at age 65) is much smaller than our Medicare costs (which will start at age 65) will be.

I've gone through all of our expenses and noted which will stop or decrease. However, I also have to factor in inflation and other costs rising... such as medical costs. No matter how I run my numbers, things stay petty much the same although they are dispersed differently.
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Old 02-10-2016, 07:55 PM
Location: Florida
4,383 posts, read 3,724,411 times
Reputation: 4126
Rule of thumbs such as this are ok for younger people. As you get closer to retirement and really start to plan you have to use actual costs so the rule of thumb goes in the trash can. Don't be surprised if you need 100% or more than your income. I am including income taxes in the 100%.
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Old 02-10-2016, 10:25 PM
Location: Albuquerque NM
1,665 posts, read 1,533,977 times
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Well I'm an engineer so I calculated it all out. I ran federal income tax calculations to include SS at 62. Although my gross retirement income will be 67% of my current income, the federal taxes are only $5K less. I also calculated state taxes for my new state and read their tax instructions which were quite different than my present state. Based on my current expenses that I track, I came up with an estimated retirement budget as best as I could that also reflected increased cost of living in Oregon. Identified areas where I could save money and areas that might go up. The results of this exercise were the main reason that I decided to wait another 1-2 years to retire to boost my retirement income. My discretionary travel/fun budget was starting to shrink a little and I was concerned that factors beyond my control like the increasing Oregon housing costs, extra Medicaid Part B costs and possibility of cutting SS for higher incomes, etc. might cut it even more. Decided it was safer to work to age 62.
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Old 02-10-2016, 10:49 PM
Location: SW MO
23,605 posts, read 31,538,376 times
Reputation: 29083
I looked at all of it as well as other "phantom raises." We also moved to another state and knew almost precisely what our tax and COL differences would be.
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Old 02-10-2016, 11:30 PM
Location: Living rent free in your head
31,193 posts, read 13,683,830 times
Reputation: 22236
Our income from SS and pensions is about 60% of what we were earning when my husband was working and much less than that what our income was when we were both working, but we easily manage to bank about 20% of our pensions every month. But, we live a simple life and don't have any debt other than a very small mortgage.
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Old 02-11-2016, 01:01 AM
33,046 posts, read 22,121,606 times
Reputation: 8970
I believe workers who do not own homes should regard retirement as effecting no change is discretionary income because their healthcare and housing costs will inexorably rise and necessarily skyrocket.
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