U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 04-18-2016, 12:36 PM
 
Location: NC Piedmont
3,911 posts, read 2,878,614 times
Reputation: 6291

Advertisements

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?


Reply With Quote Quick reply to this message

 
Old 04-18-2016, 12:45 PM
 
Location: Colorado Springs
4,840 posts, read 4,954,521 times
Reputation: 17309
I'm not fond of those tools because everybody's situation is unique.

A better plan is to forecast your spending needs and your income.

For example, I know quite a few folks who have paid off houses and cars and live in a low COL area who are doing fine with SS and pensions alone. Their savings are not being used.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 12:52 PM
 
Location: NC Piedmont
3,911 posts, read 2,878,614 times
Reputation: 6291
Quote:
Originally Posted by Vision67 View Post
I'm not fond of those tools because everybody's situation is unique.

A better plan is to forecast your spending needs and your income.

For example, I know quite a few folks who have paid off houses and cars and live in a low COL area who are doing fine with SS and pensions alone. Their savings are not being used.
I completely agree; in the original post I said I am not a big believer in using salary to determine it. But I am curious why they increase the multiplier (how many years of salary you should have) instead of it being the same or going the other way. Why does someone making more need more years worth of salary?
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 12:52 PM
 
Location: Gilbert, AZ
3,182 posts, read 1,959,996 times
Reputation: 3320
As income increases, Social Security replaces a smaller percentage of one's income, although it seems unlikely that alone could change the multiplier by so much. Maybe the are also assuming the higher income folks expect more from their retirement... more traveling, golfing, etc??
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 12:56 PM
 
Location: Haiku
4,078 posts, read 2,574,551 times
Reputation: 6005
Quote:
Originally Posted by ReachTheBeach View Post
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 is assuming your retirement spending will be roughly proportional to your current income. If someone takes a 50% pay cut and cuts his spending by 50%, then the million dollars in savings may be fine. But if he takes a 50% pay cut but spends as if there were no pay cut, then you are right, it makes no sense.

It is not a useful chart, IMO. But many people need really simple explanations and the media likes to give them that even though it is not really all that accurate for good planning.

The lesson here is don't rely on big media like NBC for accuracy.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 12:56 PM
 
Location: Eastern Washington
14,242 posts, read 44,911,592 times
Reputation: 12823
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.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 01:04 PM
 
Location: RVA
2,165 posts, read 1,266,382 times
Reputation: 4456
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.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 01:05 PM
 
Location: Colorado Springs
4,840 posts, read 4,954,521 times
Reputation: 17309
A lot of people from the Northeast move to Florida where the COL is much lower.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 01:11 PM
 
Location: Tennessee
23,581 posts, read 17,567,761 times
Reputation: 27667
Naturally this grid favors married couples, but at least at 30, doesn't seem undoable for a single at normal income levels.

Still, it's not accounting for how much your income has increased over time. I'm right between $50k and $75k at 30, yet because I had several very tough years after college (was making a bit under $11/hr on 1/1/2014), I'm not near the recommend level. Given the situation, that's probably OK.
Reply With Quote Quick reply to this message
 
Old 04-18-2016, 01:36 PM
 
Location: Albuquerque NM
1,660 posts, read 1,525,009 times
Reputation: 3640
This is the footnote at the bottom of the page. It's too difficult for me to provide both the link (google J.P. Morgan Asset Management 2016 Guide to Retirement) and the footnote.

"This chart is for illustrative purposes only and must not be relied upon to make investment decisions. J.P. Morgan’s model is based on J.P. Morgan Asset Management’s
(JPMAM) proprietary long-term capital market assumptions (10-15 years). Household income replacement rates are derived from an inflation-adjusted analysis of:
Consumer Expenditure Survey (BLS) data (2011-2014); Social Security benefits using modified scaled earnings in 2016 for a single wage earner at age 65 and a spousal
benefit at age 62 reduced by Medicare Part B premiums; and 2016 OASDI and FICA taxes. Households earning $30,000 will need to replace at least 16% of their preretirement
income; $50,000 23%; $75,000 34%; $100,000 38%; $150,000 45%; $200,000 51%; $250,000 55%; $300,000 57%. The income replacement needs may
be lower for households in which both spouses are working and the second spouse’s individual benefits are greater than their spousal benefit. Single household income
replacement needs may vary as spending is typically less than a two-spouse household; however, the loss of the Social Security spousal benefit may offset the spending
reduction. Consult with a Financial Advisor for a more personalized assessment. Allocations, assumptions and expected returns are not meant to represent JPMAM performance.
Given the complex risk/reward tradeoffs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations.
References to future returns for either asset allocation strategies or asset classes are not promises or even estimates of actual returns a client portfolio may achieve."

In my case, the percent of preretirement income is about right. That percentage and SS are about the same as my current salary and higher Part B premiums minus FICA, Medicare, and annual savings/investments.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top