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Your mom has a pension? In California the teachers (and all state workers have a pension.) They figured it out that someone who works 30 years and retires from teaching will have the equivalent of having saved $2 million easy. They have no reason to save because we the people of the state get to pick up that bill.
Do you have a pension? Most places don't offer them anymore. If you don't have one you may want to figure out how you will save the $2mill that your mom has given to her because she was a teacher.
I always love those that claim they will "live" on social security. I have seen the numbers and if I retire at age 68 I will get less than $2,000 a month. Who can live on that?
I kind of doubt that... Salary in San Francisco (best pay in the state) for my job with the government is $110,000, more than a teacher. It's typical county retirement 2% at 55 (now 2% at 60). So for 30 years of service, if I retired at 55 I would get 60% of the salary or $66,000 a year. At 55, I'd probably live on average another 20 years. Of course, you only get that because you aren't getting social security which is $2000 a month. So it's really $42,000. Or $800,000. Contributions are negotiated case by case, I'm not sure what San Francisco does. It used to be pretty common to not have contributions, most now require employee contributions. My county uses the state maximum and requires 50% contribution.
A new hire in most of the state ($80,000 ceiling after 15 years, still way higher than a teacher) retires at 60. So it's 15 years of pension of $24000 (plus $24000 in social security exemption that's taken out of FICA taxes) or $360,000 of which they contributed half so the pension is worth $180,000 at retirement. The old zero contribution @55 pensions would be worth $480,000. Most retire (and go work in the private sector part-time) at or before 55, and I honestly don't know how many are going to make it to 60. Government work is not an 8-hour a day job, more like 10-12. The overtime is, of course, paid, but pension is off base salary and excludes overtime. Most people around 50 start to slow down and don't want to work the 60 and 70 hour weeks that are required fairly regularly.
Expensive? Yes. Most counties are privatizing. The agency I work for bills between $500 and $600 a day for contracts, of which I see 70% which works out to $43-53 an hour. No benefits, SE taxes. The pay is low so it's always available. In the larger counties that have privatized they have formed their own pools and bypass the agencies which makes it more attractive, but I'm not in one of those pools as I do little contract work with the government. So they've gone from paying a salary of $80-110k plus benefits to buying labor on the private sector for $120-$150k a year with no benefits and no employment taxes. They're also grossly violating 1099 "contract" laws since they're hiring employees and treating them as contractors, but no one is complaining and it's the government, so it's not like the IRS is going to enforce it.
Do you have a pension? Most places don't offer them anymore. If you don't have one you may want to figure out how you will save the $2mill that your mom has given to her because she was a teacher.
Yes I do. The company froze it at the current level (the amount I'll eventually get over a decade from now at retirement) and switched future retirement planning to a defined contribution plan, going forward.
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I always love those that claim they will "live" on social security.
I have not said anyone 'can live off Soc. Sec.,' certainly not alone.
YOUR calculations are the ones mentioning only 2,00.00 a month 21 years from now....and 'living off SS."
ARE YOU planning to have anything saved for your own retirement? Because you don't say anything about that?
My only point is you (generic) or not everyone will need millions.
Obviously, the age at which one retires and the lifestyle one wants to live are factors.
I have given two -- yes, only two -- but two examples of people who made no where NEAR even six figures (one a live in domestic) -- and OTHER people have also given examples, of how it is quite possible to more than just 'exist' and NOT have $2mill saved for retirement.
MY OWN personal goal is to have as much as I can saved, while still traveling and doing anything I'd like today (eating out, buying gifts for family and friends, etc.), while I'm young enough to enjoy it. If all I have is 500-thou saved then that's all it will be, but I am on track to have more. (Not 2 mill, though I don't think. But who knows. I'm only 52.)
I am saving, but am I MAXING out my 401K and Roth IRA instead of eating out? No. I'm not going to deny myself...only to drop dead and never enjoy all that savings I put aside.
How about enjoying life now, without the stress of "I HAVE to have 2million, I HAVE to have 2 million, I HAVE to have 2 million?"
With so many money gurus pushing 'you'll need millions" -- I don't think many people they even THINK they might be able to do it with less.
The point is to get people to realize they don't have to freak out about having $2mill for retirement, or deny themselves now try try to have that much.
People buy into that, stress themselves out over it, and it's not really necessary.
If you think you'll need 2 mill, or are aiming for 2 mill (or more) saved, I wish you well.
Heck, you may already have it. More power to you.
What gurus are saying you need $2 million? For a 20 year retirement, that's $100,000 a year with no appreciation. There's certainly people who feel that to maintain a reasonably comparable standard of living in retirement they need that kind of money in retirement. Most of us aren't accustomed to a $100,000 income during our working years.
My napkin math is to have about $1 million when I retire, so I try to save $12,000 a year or $1000 a month which over a 30 year working span from 25 to 55 and 7% appreciation will get me there. That should, with no appreciation during the draw down phase, give me an income of $50,000 a year from 55 to 75. To me, that's comfortable. It's about what I live on now, and I'm by no means hurting for money. I'm also assuming that at some point I'll buy a house which will be paid off by the time I retire. I'm also assuming that social security will be there but at about half of the current rate, or $1000 a month. Even paid-off housing and social security, I'd be fine to retire at 55. I just would have to be a bit more frugal than I am now since I'm not counting on croaking at 75. Probably no buying new cars every 5 years or vacations to Hawaii, but it's not like I'd be forced to work until 70 and living in a studio apartment on the bad side of town and eating ramen noodles.
a 20 year retirement is kind of short, especially with a spouse and retiring at 62 . if you retire at 70 even 25 years may leave you with not much extra for unexpected expenses.
its not so much living until that age as the slack for the unexpected expenses it provides. the financial budget killers are divorce , illnes and having to help out family members.
heres the ball park i use which i think has a pretty good basis.
add up all your non discretionary bills . those are bills that must be paid period. i times that by 2x to come up with a number i can spend for both discretionary and non discretionary spending. thats my budget for life year one of retirement and it will be adjusted by inflation each year...
why do i times my discretionary bills times 2 for a budget? you will see later .
i know my non discretionary expenses with health insurance at 62 are 45k so i allow 90k a year for a budget.
i then subtract out other income like social security ,pension,rental ,etc.
in our case we would get about 55k a year in income from other sources we have including spousal benefits but not inluding my ss which ill delay to 66 or even 70..
i times 35k by 25 and get 875k as the minimum i would want to retire with at 62.
now backing into generating 35k and using a retirement calculator i come up with the fact that historically a 50/50 mix of equities and bonds should do that with over a 90% success rate basing it on the worst retiree returns in history ever .. thats the group who retired in the 1960's and had 20 years of down to flat markets and then were hit with double digit inflation.
BUT being conservative i dont want to take on 50% equities unless i have to so ill keep massaging the allocations until i find a comfortable allocation i can sleep with.
of course that raises the amount ill need to save before i retire. remember , if you are figuring a 4% safe withdrawal rate it requires at least a 50/50 allocation to cover the worst case scenerio we had so far so if your not going to go that high your success rate drops.
actually my calculations worked out to having to save 1.8 million at a consevative 2% withdrawal rate . that would allow me to use under 30% equities early on and after my social security kicks in i may not need any equities at all depending on rates. i would stand an almost bullet-proof chance of making it through retirement and having enough of a cushion for the black swans of life.
each 1% you withdraw represents a 25% increase or decrease in the amount you take each year so the fact im drawing 2% vs 4% a year is a 50% difference in what i will take.
a 50/50 mix would allow me to take 72k a year, a 2% withdrawal against a fixed income mix is only 36k.
that 2% withdrawal could even be reduced more once i take my social security at 66 or 70 and i need even less from savings . as you can see being conservative can require alot more dough saved up front.
had i gone with the 50/50 mix i would have needed only 875k but remember we figured 2x our discretionary spending so in theory we can cut spending in bad market years by up to 50% .. not that you would as 5 to 10% is more normal but the fact is you could if you have to.
that is why i like to figure 2x the non discretionary expenses as a goal.
to many folks shoot numbers from the hip as to what they need without any thought as to inflation, the allocations they want to make , and how much slack do they have for cut backs and emergency expenses..
there is a whole lot more involved coming up with an initial ball park then most people figure or think about.
thats why the retirement graveyard is chock full of failed retirements. folks under estimate the black swans, inflation and just what is required as far as returns needed to generate that income .
the biggest factors of your success depend on how much you need to withdraw a year , market sequences of your gains and losses, inflation , and the returns you get each year, in that order.
it all depends whether you want to base your withdrawals on the worst returns ever ,more normal returns , or the markets and rates really doing well.
your success rate hinges on what cushion for the unexpected or new worst case returns you leave margin for.
the negative interest rates today leave those who do nothing to grow their money in a real pickle. they either have to cut spending or hope rates turn around for them before its to late and they spent down to far. . i prefer not to use hope as a strategy when it comes to my retirement planning
Last edited by mathjak107; 11-17-2012 at 03:48 AM..
I guess we have different versions of "well off" because I firmly believe, I'm FAR, FAR from well off! I'm not rich, wealthy, or even upper-class...it's just not who I am! I work a normal 40-50/ hour per week job, I live in a normal home, I drive a Ford and a Chevy, etc. You're trying to paint me as something I simply am not. I don't even "have a lot of money" in the sense that I can go out and purchase what I please, go where I please, do whatever, etc.
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My whole point is if you're waiting until you have the "feeling" of being well off....well it will probably never happen. It's the way our brains are wired...we quickly adapt to higher pay, higher standard of living etc, and start looking to the next thing (or to the guy who has more than we do). But on some objective level you have to step back and realize that...yes...you ARE well off (financially speaking) whether you "feel" that way or not. I am pointing this out because it doesn't come through in your posts that you understand or recognize this fact. Feelings can be quite slippery and inaccurate reflections of true reality. Now I understand why religion emphasizes "counting your blessings". It seems to be human nature that we do not do this unless we are constantly reminded to do so.
When planning for retirement, I follow something I call the 20-40-30 rule. Roughly 20 years of school, 40 years of work, and 30 years for retirement. Within my 40 working years, I need to have enough saved and invested to give me enough money to live ACTIVELY for another 30 years. When some people talk about their retirement plans as sitting around their house watching television and only needing $30K/ year to maintain that "lifestyle" (if you can call it that), I get a sinking feeling in my stomach. The point of retirement, in my opinion, is to allocate time to activities that you couldn't pursue while you were working beside of time restraints, financial inability, children, etc. In retirement, I want to live an ACTIVE lifestyle consisting of traveling the world, exploring fascinating places, learning about history and culture, and living my golden years to the fullest.
My parents are ACTIVE retirees and the majority of their friends are ACTIVE retirees. It's certainly possible to retire on a decent social security and a 401K with a little supplemental income but it doesn't really allow you to see and do everything you couldn't when employed. The retirees that I know and envy are those who literally "GO" on a moment's notice and there's a few who live in the same community as my parents and do simply that. In recent years a group of 8 to 12 of them have gone to:
Munich for Oktoberfest
New Years Eve in Times Square
Carnival in Rio De Janiero
Running of the Bulls in Pamplona
Chinese New Year in Hong Kong
Summer and Winter Olympics
St. Patrick's Festival in Dublin
And probably more than I know of.
THIS is my dream retirement; not sitting in my house letting the days pass by. Explore, learn, travel, become a connoisseur of history and culture. Does this take money? Of course it does but it'd be worth every penny to me.
What gurus are saying you need $2 million? For a 20 year retirement, that's $100,000 a year with no appreciation. There's certainly people who feel that to maintain a reasonably comparable standard of living in retirement they need that kind of money in retirement. Most of us aren't accustomed to a $100,000 income during our working years.
My napkin math is to have about $1 million when I retire, so I try to save $12,000 a year or $1000 a month which over a 30 year working span from 25 to 55 and 7% appreciation will get me there. That should, with no appreciation during the draw down phase, give me an income of $50,000 a year from 55 to 75. To me, that's comfortable. It's about what I live on now, and I'm by no means hurting for money. I'm also assuming that at some point I'll buy a house which will be paid off by the time I retire. I'm also assuming that social security will be there but at about half of the current rate, or $1000 a month. Even paid-off housing and social security, I'd be fine to retire at 55. I just would have to be a bit more frugal than I am now since I'm not counting on croaking at 75. Probably no buying new cars every 5 years or vacations to Hawaii, but it's not like I'd be forced to work until 70 and living in a studio apartment on the bad side of town and eating ramen noodles.
The value of the $1 mil in 30 years would be equal to $410k in 2012 dollars. While $410k seems like a lot of money now, that's about $20k/yr for a 20-yr retirement and $13.6k/year for a 30-yr retirement. While initial costs are low early in retirement, it increases greatly near the end. As father time takes his toll, we will need more assistance. A cost of a nursing home could can surpass $20k/yr.
Ibbotson & Associates, a financial research firm based in Chicago, calculates that the rate of inflation has been approximately 3% since 1926. This means that you lose 3% of your purchasing power every year. For example, one dollar today will buy only 97 cents worth of merchandise next year. In two years, that dollar is worth only 94 cents. Over 30 years, that dollar is worth only 41 cents. You can perform this uplifting calculation by multiplying the product of the first number by 0.97, thirty times, or you can use a financial calculator or spreadsheet program.
Last edited by move4ward; 11-17-2012 at 11:03 AM..
Retirement calculators and their models do allow for taking an inflation adjusted raise each year.
Thats why its important to get your calculations in the ball park at least initionally when stepping foot into retirement.
You dont need to follow to the letter what they say but you should at least see if the numbers look reasonable over a long term view.
The unknown of the future may still eat you alive but you should at least use good basic planning skills that at least wouldnt have failed based on the worst we had to date.
Your plan should at least stand high odds of surviving when sniff tested against what was .
Your assets,risk and withdrawal amount should at least make some sense.
Last edited by mathjak107; 11-17-2012 at 11:09 AM..
What gurus are saying you need $2 million? For a 20 year retirement, that's $100,000 a year with no appreciation. There's certainly people who feel that to maintain a reasonably comparable standard of living in retirement they need that kind of money in retirement. Most of us aren't accustomed to a $100,000 income during our working years.
My napkin math is to have about $1 million when I retire, so I try to save $12,000 a year or $1000 a month which over a 30 year working span from 25 to 55 and 7% appreciation will get me there. That should, with no appreciation during the draw down phase, give me an income of $50,000 a year from 55 to 75. To me, that's comfortable. It's about what I live on now, and I'm by no means hurting for money. I'm also assuming that at some point I'll buy a house which will be paid off by the time I retire. I'm also assuming that social security will be there but at about half of the current rate, or $1000 a month. Even paid-off housing and social security, I'd be fine to retire at 55. I just would have to be a bit more frugal than I am now since I'm not counting on croaking at 75. Probably no buying new cars every 5 years or vacations to Hawaii, but it's not like I'd be forced to work until 70 and living in a studio apartment on the bad side of town and eating ramen noodles.
When you say a 7% return should get you there be aware average returns dont exist when spending down.
Its very different when spending down vs accumulating. When accumulating average returns means something.
That goes out the window once your spending down.
The only thing that counts is the sequence and the return for that year.
If you want to know why ill explain otherwise ill spare you.
Munich for Oktoberfest
New Years Eve in Times Square
Carnival in Rio De Janiero
Running of the Bulls in Pamplona
Chinese New Year in Hong Kong
Summer and Winter Olympics
St. Patrick's Festival in Dublin
And probably more than I know of.
THIS is my dream retirement; not sitting in my house letting the days pass by. Explore, learn, travel, become a connoisseur of history and culture. Does this take money? Of course it does but it'd be worth every penny to me.
How much traveling like that did these folks do when they were working, or younger? (I ask because many people can't do it all - raise kids, save for retirement -- AND travel like that, while working. Maybe they could. If you make enough you can do anything you'd like)
I'm glad that taking the chance that they'd still be in good enough health to do this in retirement that has worked out for them.
One truth is that retirement can cost MORE than one's working years.
If you're not taking vacations while working, and plan all kinds of trips in retirement then retirement will cost more.
Two 3-thousand dollar trips a year -- taking classes -- (even with senior discounts) can cost you more than the loss of expenses for not driving to work or dry cleaning uniforms or suits.
Most people don't live to be 95.
U.S Life expectancy: OVERALL 78.2........MALE: 75.6 .............FEMALE: 80.8
Length of time in retirement:
-- one website had that as of 2011 it was 10 years for men -- 16 years for women
-- one website said the U.S. Census Bureau has average length of retirement at 18 years.
-- From Statistic brain.com:
Retirement Statistics Data
Average retirement age 62
Average length of retirement 18 years
Average savings of a 50 year old $43,797
Total cost for a couple over 65 to pay for medical treatment over a 20 year span $215,000
Percentage of people ages 30-54 who believe they will not have enough money put away for retirement 80%
Percentage of Americans over 65 who rely completely on Social Security 35%
Percentage of Americans who don’t save anything for retirement 36%
Total Number of Americans who turn 65 per day 6,000
Percentage of population that is 65 years of age or older 13%
Out of 100 people who starts working at the age of 25, by the age 65:
Will be considered wealthy 1%
Have adequate capital stowed away for retirement 4%
Will still be working 3%
Are dependant on Social Security, friends, relatives or charity 63%
Are dead 29%
Americans older than 50 account for:
Percent of all financial assets 77%
Percent of total consumer demand 54%
Prescription drug purchases 77%
All over-the-counter drugs 61%
Auto Sales 47%
All luxury travel purchases 80%
Amount Needed in Savings For Retirement
Monthly income need Savings Needed for 20 Years Savings Needed for 30 Years
$1,000 $166,696 $212,150
$2,000 $333,392 $424,300
$3,000 $500,087 $636,450
$4,000 $666,783 $848,601
$5,000 $833,479 $1,060,751
$6,000 $1,000,175 $1,272,901
$7,000 $1,166,871 $1,485,051
$8,000 $1,333,567 $1,697,201
$9,000 $1,500,262 $1,909,351
$10,000 $1,666,958 $2,121,501
The above sums assume your portfolio will earn a 6 percent annualized return during the course of your retirement and endure 2 percent annual inflation erosion.
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Save as much as you reasonably can -- but don't kill yourself doing it. I also would say don't deny yourself too much doing it either.
Life is short and no day is promised to anyone.
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