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I think it's a case-by-case thing. For me, 80% is way too high as I currently live off 66% of my income (and I too have a mortgage I won't have when I retire). That said, I still try to save as much as I can because I rather err on the side of "too much" money in retirement than not enough. For what it's worth, I don't really plan on retiring 100% either. I've been unemployed before and lived off savings and I was bored out of my mind most of the time. I like working so I plan to do it as long as I can (maybe only part time in retirement though).
Many disagree with me, but I don't think that having a strong work ethic and a large bank account are mutually exclusive.
And when it comes to inheritances, another factor to consider is the timing. Most people are middle-aged when their parents die, so they're old enough to have a career of their own and significant experience handling large amounts of money, and are less likely to waste an inheritance from Mom and Dad (as opposed to an inheritance received from a grandparent or other older relative, which might arrive when one is still young and foolish).
I personally like to base my retirement on my expenses, not income level. I feel it paints a more realistic view of retirement, assuming you don't have huge money spending plans (lots of travel,etc)
And when it comes to inheritances, another factor to consider is the timing. Most people are middle-aged when their parents die, so they're old enough to have a career of their own and significant experience handling large amounts of money, and are less likely to waste an inheritance from Mom and Dad (as opposed to an inheritance received from a grandparent or other older relative, which might arrive when one is still young and foolish).
Thanks. Additionally, there are ways to leave behind wealth other than just giving them money to spend however they like. You can set it up so that the money can only be used for specific purposes or only if certain conditions are met. You can structure it so that only interest can be withdrawn, etc. We're hoping not just to provide for our kids, but to start something that future generations can benefit from and build upon.
The factors that MOST retirement calculators are built around (and I know because one of the firms that I worked for had a whole bunch of them for their sale staff / consultants...) have to be based on things that pass the "sniff test" of regulatory agencies. Most states have a "Department of Insurance" that covers things like the sale of retirement annuities and 'private' retirement plans. There is REAL DATA that shows real people that retire don't just stop spending money because their house is paid off and the kids have moved away. You still have to EAT and lots of retirees prefer to go out as opposed to cooking. Similarly retirees tend to do have LOTS of free time and they, not surprisingly, like to find things to fill up that time like travel or work on their hobbies. Golf ain't free and neither are flower seeds and potting soil.
Sure there are SOME retirees that really do go "hard core hermit" and never spend even 10% of what they did while working but to do that they REALLY have to shift gears and move from an area with high taxes / cost of living, to someplace where things are CHEAP. And sad reality is for lots of folks that do live like Scrooge McDuck end up literally dying of loneliness -- Loneliness Kills, Study Shows
Sure there are ways to live well and still be frugal BUT AGAIN the data shows that MOST people just do not shift into clipping coupons for every deal or find a generic alternative to the name products and THAT is why the calculators SUGGEST that you plan for 80% of your spending to remain solvent!
80% may be a guideline but it is pretty meaningless. What matters is how much you actually need to live on. So start by estimating that and then multiply it by two (because most people grossly underestimate what they will need). Subtract your monthly pension/SS income and then take that number and multiply by 25 and that will tell you how much in non-inflation adjusted capital you need to save.
For example, you estimate you will need $25k/year. Double that and you have $50k/year. But you are getting $3k/month in SS/pension so that is $36k/year. So you need an extra $14k in income. Multiply $14k by 25 and you have $350k that you need saved to provide that income.
Everyone has their own retirement expenses "style", I think it's best to read all of the different types and devise your own.
Here's how I do it:
1. Assume my current expenses, without a mortgage (but I did include the property taxes, homeowners insurance, maintenance, etc). 2. Quadruple the medical expenses for the current (most expensive) year -- birth of second child and wife's back issues. I don't forsee things getting cheaper, healthcare-wise. So 4x "feels right" to me. If that's too much, then it goes to: 3. Add major hobby expenses. Photography for me, gardening for wife, trips to museums, ball games, etc. 4. Quadruple the travel budget. Maybe we'll want to splurge on a better hotel/cruise/what-have-you. Or go on 4 trips a year instead of our current 1.
I like to think this kind of mentality also "future proofs" our expenses a bit. When we get older, we won't be traveling like the early retirement years. That money will then shift to extra healthcare costs. Or a larger inheritance for our kids. It's gravy either way.
As a final point, for our calculations, this works out to about 65% of our current income. It seems like a pretty comfortable retirement, and this is before my wife's gov't pension, my own mini pension, or social security.
There's a problem with income base percentages in general... your costs aren't a percentage of your income.
If you make minimum wage, you're going to have a problem living off even 100% of your income in retirement because your costs won't be lower simply because you make less. Conversely, the person making $1m a year probably doesn't need $800k a year coming in just to get by. Extreme examples on both ends, but they illustrate the problem with referring to expense as a % of income.
However, for the majority of people, the 80% number gets a good ball park, and for the people that are unlikely to figure out the true number they need to live on(typically the less financially savy individuals of the world) 80% typically covers it.
Think about it, if you try to tell someone to accurately forecast what type of income they need when removing a mortgage, adding in medical, accounting for inflation, and considering the tax implications, you're going to get a blank stare. The majority of the country can't even stay out of CC debt and has trouble balancing a monthly budget, let alone figure out something as complex and variable as minimum retirement income needed.
Sure, 65% might work... but if people save based on 80%, they'll probably be better of in case something comes up.
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