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Old 03-24-2016, 07:09 AM
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Originally Posted by GeoffD View Post
It depends on when you start. In my case, the best I could do is add as much wealth as possible in my last 15 work years. My target has nothing to do with percent of income replacement. It's simply how much I can set aside per year until I retire without completely disrupting my life. I have a plan and I hope to execute it for the next 7 3/4 years. If life happens and I fall short, I replan. I'm going to have a roof over my head and I'm not going to starve if I quit working today but that is not the retiree lifestyle I desire.
That percent you can save is a percentage of your income and if your income goes up I assume you will increase your savings level. My point is that in some way shape or form planning for retirement involves numbers and assumptions based on numbers linked to your eventual target whether it be short term or longer. From your previous postings I have a since that your target of 15 years is based on assumptions that involve numbers whether related to age or assets. If you are within a couple of years of that retirement date and crunch the numbers and feel a few more years working will give you a better shot will you consider working a couple more?
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Old 03-24-2016, 07:14 AM
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Originally Posted by hikernut View Post
Only you can determine the number. The standard 80% advice is nearly worthless, in my opinion.

The big wildcards on the upside are (1) medical/dental, and (2) what will you be doing with your time and how much will it cost.

The obvious areas of savings have mostly been mentioned, I believe. The no car payment thing may be a bit optimistic, but of course this depends greatly on personal circumstances.
Many of the goals and percentages offered in various publications are targeted for their typical readers profile. There are those who target goals in excess of 100K because their readers profile working income is well in excess of that. Obviously for low income workers the ability to save is minimized and their targets will probably be a lower percentage of their working income. However there are social service benefits that will help fill in the gap. For others there are very few if any social service supports because their income exceeds thresholds. Those folks have to provide more on their own. So many who say they live on less are doing so because of government redistribution ( no value judgement being made) which we have collectively agreed for now to provide. The upcoming elections are much about the supports many in retirement will have in the future.
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Old 03-24-2016, 07:32 AM
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the problem with lower incomes and assets is they become a catch 22 situation .

lower income folks without a fairly large discretionary budget should not be in equity's since they have no where to cut back if markets go terribly wrong .

they are kind of reduced to less volatile choices and with that the lower draw rates those investments safely produce .

hence it is a lot harder to generate income many times and requires more capital to produce the same amount of income someone with more assets and a bigger equity allocation can do .
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Old 03-24-2016, 12:20 PM
Location: Connecticut
26,545 posts, read 42,471,186 times
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Originally Posted by capitalhockey View Post
My wife and I are expecting our first child this year. We are hoping to have two kids long term. That will lower our monthly savings into the taxable account but we are still maxing out the 401k. We are also planning to use the 529 plans for college savings and contribute the max allowable when they are born until they are 18. If that is not enough, they will have to take out loans for the difference. My wife and I both paid for our college educations without any assistance.

We do live in a high cost area and hope to stay in the area for retirement to be close to family and friends. We both love to travel and have done much in the first two years of our marriage. With the kids coming, we will be scaled down. Hopefully, we can travel often again in retirement. We live in a modest 3BR townhouse that is close to our work and serve our needs. We don't plan to upgrade to a big single family home and take on more mortgage/property tax. We want to paid of current mortgage in 20 years.

I am thinking that perhaps 60% income replacement will be comfortable for us in retirement. I keep reading 80% but we are generally frugal people (no luxury car or country club membership). We are happy with a simple life and a few nice things once in a while.
Oh to be young and nave again. It seems like only yesterday we were in your situation. We lived in a condo I had bought in my single days but quickly realized it was not going to work for a family of four and a dog or two. So we bought the house and had the kids and got the dog and like you we saved and saved. The only thing is a few things came along the way. With kids come things like daycare expenses if both your wife and you keep working. And then your house ages and needs things like a new roof, new appliances or even a new kitchen or bath. Even simple updates like painting can cost you, doing it yourself of course.

Then there are the cars. Along the way we bought several because our old ones had 150,000 miles on them. When we could we too bought used cars as suggested but guess what low mileage used cars, if you can even find them, are not cheap either. We found that many dealers offered low cost financing which made the payments about the same as the used.

We basically took one vacation a year and that was doing so the lowest way possible (looking for cheap airfares and hotels). We never bought expensive clothes or ate out a lot (mostly pizza once a week). We saved for our kids college but the rudest awakening was that it was not enough. We thought we did it right but it looks like college will take just about every penny we saved outside of the 529 as well. Our saving grace is that we maxed out the 401k and that we both continue to earn very good incomes which over the next few years should allow us getting back our lost savings. We will see. Good luck with life. It is a wild ride. Jay
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Old 03-24-2016, 01:04 PM
Location: Central IL
15,249 posts, read 8,608,711 times
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Originally Posted by mathjak107 View Post
they better have a very low withdrawal rate to not touch principal . seems a shame to leave so much unspent .

in order to have the principal remain untouched you have to hold to a 2% draw inflation adjusted or less . drawing 4% inflation adjusted assumes principal can fall to zero by the 30th year if the sequence of gains and losses is poor .
I have NO desire to leave my principal untouched! No inheritances to leave behind - whatever happens to be left will have to do. I think I have enough to not run out but I sure won't be 90 and sitting on a mill.
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Old 03-24-2016, 01:05 PM
Location: Gilbert, AZ
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Originally Posted by TuborgP View Post
Many of the goals and percentages offered in various publications are targeted for their typical readers profile.
Well, 80% seems high, for what I would consider a typical reader.

Let's say that during their working years they are able to cover the mortgage, kids, retirement savings, taxes, and all of their other expenses.

In retirement one no longer has to pay FICA tax, so that is going to subtract around 10%. Why 10% you say? I thought FICA was 7.65%? The reason it's more is because FICA is not tax-deductible.

Retirement savings? Let's say 15% pre-tax was going into a 401k. That "expense" is gone.

Mortgage principal+interest are gone if the house is paid off. Here I'm going to say let's leave this one in the budget and allocate the money toward discretionary spending. (If you are just going to watch TV and mow the yard, there's a lot of savings to be had here too.)

Kids. Hopefully one does not retire before the heavy financial lifting is over here. How much savings is here? I'm going to just toss out a number. Savings of 25%.

Medical will likely be higher, so let's add back in 10% for that.

So now in retirement we have 100% - 10% (FICA) -15% (savings) - 25% (kids) +10% (medical)= 60% replacement. That is MY typical reader. I'm not sure why financial planners push such a high number. Maybe they are trying to collect more assets under management? Many they are trying to be (too) conservative?
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Old 03-24-2016, 01:57 PM
Location: Alaska
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In my retirement planning, I had 2 minimum budgets, one with a mortgage and one without. Actually, I had 4 as I also had a maximum estimate for both of the above. Granted, your expenses will go down once you pay off your mortgage, but in order to plan for reduced expenses, you'll need to ensure any future housing choices remain under your current housing value at the time of sale. If you plan to move to a higher cost of living area, then you should not plan on less expenses. If we end up moving when we're both retired, I have veto power on housing and areas base on cost of living.

One thing my plan indicates is that our expenses will be above 6 figures later in retirement. This is just one thing I don't believe (medical and LTC are covered). In communicating with many retirees on different boards, most have said their expenses have gone down through the years. Probably due to life choices and physical limitations. So this makes me certain we'll be well covered through our retirement years as we can adapt to fit our income stream.

Oh, I should add that my budget for no mortgage was about 50% of income, but we planned for 100% of take home pay in retirement.
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Old 03-24-2016, 03:32 PM
Location: Eastern Washington
14,326 posts, read 45,072,962 times
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Originally Posted by Escort Rider View Post
Another way in which any percentage number can be meaningless is what salary we have that we are shooting for 80% of (just to use 80% as an example). Some of us never made much of a salary at any point in our lives, although we seem to constitute a minority here on City-Data. I was a public high school teacher for 34 years and my final year's gross salary before retiring almost 11 years ago was slighly under $60,000. No, that is not a typo. A year's gross salary of $60,000 after 34 years.

So for me 80% of that is $48,000. But for someone making, say, $125,000, 80% comes to $100,000. Quite a difference. Then if we start talking about a smaller percentage, say, 50%, I would be in a world of hurt whereas the guy earning $125,000 would be able to still live fairly well (in my opinion) on half of it.

I am not complaining, because personally I am doing fine with a pension and I am satisfied with my lifestyle. My point was the consideration of a variable (earnings/salary) which seems often to be left out of these discussions.
Teachers and cops tend to be very successful retirees, because:

a Their salary is not very high, so they don't get used to being big spenders, they save and invest generally from the start of their working days, because they know they have to. Sort of like the tortoise, slow and steady, knows he has to start moving as soon as the starting gun fires. People making big money think they can save "later" and to a point they are right, but they tend to delay too long.

b Their pensions tend to be a rather large % of salary, so the "downsize" in income at retirement tends to be less of a shock.

These "percent of working income" theories tend to come from financial people living mostly in NYC, or some other metropolis, where they spend most if not all (if not more than) 100% of salary. These people can't do anything with their hands outside of type. Appliance breaks down, if it's more than X years old, they knee-jerk replace it. Never mind that a guy like me could have fixed the appliance DIY for say $20 in parts and maybe an hour of my own time. Living in the high-rent district, and probably renting, their rent payments dog their financial footsteps literally until their dying day. Me, I have a paid-for house out in the country, I can take care of it myself, my ongoing costs are a small fraction of theirs. Financial people are used to having money as the only "tool" in their "toolbox", so they think they need a lot of it in retirement, almost their full working salary.

There is an old Russian aphorism, "One's own rules don't carry over into one's neighbor's garden". I think this applies very much to "How much money do you need to retire". Two of my friends on here who I consider to be very successful retirees are Escort Rider and Submariner. But beyond both being successful at retirement, they are going about it in entirely different ways, one urban, one rural, etc.
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Old 03-24-2016, 04:11 PM
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Originally Posted by mathjak107 View Post
we are retired and can not just live off dividends . our fund distributions can vary from 29k last year to 69k in 2014 . you have down years principal will be needed to make up shortfalls as well as inflation adjusting and expenses that may exceed dividends

What you say makes a lot of sense. However, in this up and down Market what are the best retiree segments that can return some reliable dividends? I understand you can't live with the 4% rule unless you have well over two million dollars. But, you still need to have that 2 million in a fairly safe place in order to have some appreciation to counter inflation. Financial advisors tend to not be that candid about that issue and are more concerned with accumulating return on your money for themselves!
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Old 03-24-2016, 04:16 PM
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it isn't about dividends it is about total return at the end of the day . the 4% rule has nothing to do with the amount you have , at all . it is based on drawing a percentage of your own balance each year .

there are charts and calculators that can tell you your success rate for withstanding the worst time frames to date which have been pretty bad . .

a 40-60 mix is conservative enough for a retiree over the long haul and has a good success rate . hiding from equity's is the worst thing you can do . that has failed to produce enough income over and over and over at all but the lowest draw rates .

unless you need a draw rate of 2% or less inflation adjusted you need at least 35-40% equity's to stand a safe chance of making it through 30 plus years .

while there is nothing that says we can't have time frames worse then 1929 , 1937 and 1965/1966 the fact is 35-40% equity's made it through just about all history has thrown at us . like a house built to withstand the most severe hurricane it may collapse under something worse but at least you know nothing to date would have destroyed it .

trying to draw more then 2% without equity's would be building that house to not even stand up to the past storms and over and over was damaged repeatedly .

regardless of what the future holds you can see utilizing something that has already failed many times would not be the smartest thing to do .

Last edited by mathjak107; 03-24-2016 at 04:50 PM..
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