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Old 04-19-2016, 05:36 PM
 
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Quote:
Originally Posted by Serious Conversation View Post
Hopefully your expenses won't be anywhere near that in retirement. One of the biggest keys to a successful retirement is to lower your expenses.
Or to find yourself in a situation where you don't have to lower your standards. That involves a lifetime of career and financial decisions with a tad of things working out as hoped for. Doesn't always but for many it does and thus they live their life.
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Old 04-19-2016, 05:40 PM
 
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Quote:
Originally Posted by Perryinva View Post
I would believe that the assumption is maintaining current current lifestyle, which equals expense driven income that is based on current after tax and savings. Just as those charts ignore pensions, as income goes up, the amount of replacement income via SS as a percentage goes down, the gain from not paying SS anymore is a smaller percentage, and the reduction in taxes, as a percentage is far less, so more is "needed" to maintain said lifestyle expenses.

Like you, I agree it is likely totally unrealistic to even want to maintain that level of income. In essence a regular person would say "I only need the income equal of 100k or 125k in retirement to enjoy a very good retirement" . But I'm sure there are high rollers that have country club dues, new cars and boats etc, multiple homes that they want to maintain in retirement. Those multipliers are for them.

Notice the increase in multiplier from 30 to 50 and 50 to 75 is far larger than all subsequent mulitplier increases.
Remember 80% of working income for a couple making 200K a year is 160K. One million at a 4% draw down is only 40k of it.
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Old 04-19-2016, 05:53 PM
 
Location: Grove City, Ohio
10,138 posts, read 12,398,078 times
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Quote:
Originally Posted by mathjak107 View Post
i think we have just another pretty useless chart
Yeah, I think so too.

Everyone has a unique situation, we are all different.

While we have some savings and two small pensions I decided to structure our retirement based on social security only. Some might moan and groan at the prospect of eating cat food but by putting off collecting benefits we have watched our benefit grow.

My wife just got her official letter yesterday of her benefit and I am happy to announce she gets her first check next month. I did the file and suspend thing and we just scraped under the wire by 6 days.

So we got her letter and mine....t these are not estimates but hard amounts.

It is official, if I retired right now we will receive $3,787.96 in benefits.

All of our medical; Part B, Plan G, Plan D and dental insurance comes to a total of $644.34 leaving us with $3,143.62 which is equivalent to having a job with a weekly take home pay of $725.45 with excellent health benefits.

With the house paid for and no debts we can live very well on just that alone. After paying all utilities, internet, cell phones and cable television we should still have +$2,500 left over for food, clothing and entertainment. Better than $400/week, after we spend $150 for food, for fun money really.

If you live in New York or San Francisco $400/week might sound like poverty but around here not that many families with both working have that much disposable income after paying all the bills and the weekly food bill.

I feel real good planning for retirement on social security only leaving the pensions and savings totally out of the budget' these are for emergencies like if the house needs a new roof or the air conditioner blows up. If both these happened in the same year they wouldn't affect our standard of living.

And if we want to go to Vegas for a long weekend then we'll go to Vegas!
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Old 04-19-2016, 05:58 PM
 
Location: Idaho
1,456 posts, read 1,157,703 times
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Quote:
Originally Posted by Serious Conversation View Post
One of the biggest keys to a successful retirement is to lower your expenses.
SC,

The reverse sometimes works out much better.

If you have minimum expenses, live beneath your mean, scrimp and save in your younger days, you will be rewarded richly with the magic of compounding.

This frugal habit in combination with higher earnings later in your life will yield a nice retirement nest egg guaranteeing a successful retirement.

I am just at the beginning of my retirement but feel very comfortable and confident of maintaining our standard of living for the rest of our life.

We are not spendthrift but much freer with our spending than during the early part of our life. Back then, we were very thrifty and hardly spent any money on anything but the basic necessities. Later on, we became more relaxed and started to spend money on vacations, hobbies etc.

It's interesting that I was more 'disturbed' about market gyrations while working than now in retirement. Without any SS benefit payments, we will still be fine with our savings. The upcoming SS payments we will be receiving are guaranteed income thus giving us even more peace of the mind.

P.S.

Back to the OP's question of why a bigger multiplier with bigger salaries, I guess that this may have something to do with the following reasonings:

1. Since SS or other sources of fixed income are likely smaller percentage of income for higher income folks, this will require larger percentages of spending from savings i.e. higher multipliers.

2. High income folks are likely to have high spending need to maintain their lifestyles and living standard (expensive restaurants, luxurious lodgings, top-notch health care, hired help etc).

3. Higher income also means higher taxes - tax on SS, higher Medicare premiums and the bigger 401K/IRA, the higher RMDs and income taxes whereas low income folks can get subsidies for housing, food, medicals etc.

So if you have developed a habit of living at a level lower than your income, you will only need to have a retirement nest egg at the lower-income multiplier than the one FPs figure that you need for your income level. This is back to my position that it's much better to live beneath your mean. The earlier you do it, the better.

Last edited by BellaDL; 04-19-2016 at 06:44 PM..
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Old 04-19-2016, 06:45 PM
 
Location: La La Land
1,565 posts, read 2,000,701 times
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Quote:
Originally Posted by ReachTheBeach View Post
Graphic below is from an NBC article on determining if you have enough in your retirement account. I am not a big believer in using current salary as the primary basis for retirement income and I am not proposing that this is accurate, but I am puzzled about why the multiplier goes up as the salary goes up. If you are approaching retirement making $200K and will have a million banked this chart says you are way underfunded, but if you take a 50% pay cut down to a $100K salary then you will be fine. In what world does that make sense?

The chart tells you how much money you should have in your accounts, based on your current salary and age. Therefore the older you are and the higher your salary, theoretically, you would have accumulated more savings. So, you should have more money in your retirement accounts.

The younger you are, and the less you are making, your savings will be lower.

That's what the multiplier does.
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Old 04-20-2016, 03:26 AM
 
71,763 posts, read 71,853,273 times
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the problem is in retirement the age old saying live below your means sounds good but to many folks it may not mean to much .

it is very difficult to know just what your means are once the pay check stops and you are dependent on interest rates and markets for the bulk of your means .

for those with pensions supporting them the pay check never really stopped but for those who have no pension and can't just live on social security your means are pretty variable .

even 4% the so called safe withdrawal rate has certain parameters attached which may influence what your means are . you can't draw that and inflation adjust from cash instruments right off the bat .

an extended downturn early on can totally change what your means are .

in retirement you can cut expenses as low as you can but for many there is no way of really saying what your means are until after the fact , it can be that variable unles you use insurance products .

in 2008 does the term live below your means mean move that year ? of course not , but since you don't know if a recovery will ever happen in your lifetime you really do not know what your means are .

Last edited by mathjak107; 04-20-2016 at 03:47 AM..
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Old 04-20-2016, 05:57 AM
 
Location: Colorado Springs
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The chart may hinge on a false premise, i.e. assume that just because you made a lot of money you had increased your spending to a higher level.

However, many of us had been saving a lot our whole lives to pay for houses, cars, college education for our kids and of course, to save for retirement. For me, that was a huge percentage of what I earned.

Now that I'm retired with all my savings done and no debt payments to be made, my core spending is easily covered by a much smaller income.

As I said, each situation is unique.
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Old 04-20-2016, 06:32 AM
 
Location: NC Piedmont
3,911 posts, read 2,882,516 times
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Quote:
Originally Posted by quixotic59 View Post
The chart tells you how much money you should have in your accounts, based on your current salary and age. Therefore the older you are and the higher your salary, theoretically, you would have accumulated more savings. So, you should have more money in your retirement accounts.

The younger you are, and the less you are making, your savings will be lower.

That's what the multiplier does.
Thanks - I think this is the actual answer. I am looking at the chart from the wrong end. I think it is a suggested trajectory. It's not saying you need that much, it is saying you should be able to save that much. Maybe...
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Old 04-20-2016, 07:22 AM
 
210 posts, read 151,173 times
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Quote:
Originally Posted by Vision67 View Post
The chart may hinge on a false premise, i.e. assume that just because you made a lot of money you had increased your spending to a higher level.

However, many of us had been saving a lot our whole lives to pay for houses, cars, college education for our kids and of course, to save for retirement. For me, that was a huge percentage of what I earned.

Now that I'm retired with all my savings done and no debt payments to be made, my core spending is easily covered by a much smaller income.

As I said, each situation is unique.
What Vision67 said.


I just went back to my Excel files covering the years prior to retirement. For about 10 years prior to retirement we lived on under 50% of our income. The rest went to savings. We had always saved before that but after our expenses decreased later in life we were able to divert more to savings. We have been retired 5 years without touching the savings except to pay taxes on some of the deferred. I may reach the number in my cell of the table after another few years of not needing it.
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Old 04-21-2016, 04:39 PM
 
Location: Columbia SC
8,993 posts, read 7,762,382 times
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Quote:
Originally Posted by M3 Mitch View Post
To attempt to answer the original question - I guess the author of the study assumed that people with higher incomes live in higher cost of living areas and will stay there in retirement; and/or they are used to blowing through a lot of money and intend/want to keep doing that in retirement.

I have no idea how prevalent this type of behavior is. Most of these articles come out of the NYC area, and I think a lot of people there do act like that.
Mitch hit the nail on the head.

At 45 we had high income, high debt, and a high cost of living area. At 62 we had a much lower income, no debt, and moved to a low cost of living area. We lived as well, or better in many ways, with one whole lot of less stress. I am now 74 and the plan still works.
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