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Good4--
In these situations, it's always good to have an idea of what your expenses are -- work backwards from there. Do you have a Mortgage to pay ?? What does it cost to run your house each month, (gas & electric & water). Are RE Taxes due monthly, quarterly or annually ? Any other debt like car loans and such ?? Insurance on the cars, and yourselves ?? Average monthly food bill ??
Take the time to look thru your checkbook ledger and your bank statements to see where the money is going.....then you can figure out how much you really need to cover.
I would suggest you add in the cost of Medicare part A and B at a minimum, maybe add a supplement. Glad you are healthy now and hope you stay that way, but at least give yourself a cushion for possible health down turns
Your question is fascinating and I did what fiveloaves did. Averaged all my expenses for a year and compared that with projected income. Worked out for me. The hardest thing for me has been learning to spend money, I am a saver by nature, only buy when I must, and am still imprinted with depression era parents' fear of being without.
keep in mind if you are using equities in your portfolio and are drawing income how much discretionary spending is in the budget can be an issue to consider .
if markets go through some extended rough times and you need to cut back , there is no room to cut if most or all of what you calculated is a need and not a want .
the catch 22 is those that need the benefit of equities the most to bolster things are likely the ones with the lowest amount of discretionary spending in the budget .
we could have lived a lifestyle in manhattan but the expenses of living in manhattan vs queens would have cut the discretionary spending level to a point i was not comfortable with . so we developed a retirement budget where almost 50% is discretionary . that is opposed to living a lifestyle that cost as much but one where the non discretionary side is much higher .
I recently read an article in Consumer Reports that says that the average person will need at least $660,000 to retire. Two reasons mostly, don't depend on Social Security because it probably won't be around at all by 2025. Also, medical bills can get very high because eventually you will get sick as you get much older, and people are living longer. It depends on how our government leads us also, which is scary. I am disabled and plan to sell my house so I can invest in some specific stocks that will be very lucrative in the future. I am scared I will not have enough income since my husband has congestive heart failure and not too long to live. I didn't expect to be disabled at 64 because I was healthy but all of a sudden it seems like time has taken its toll. I am very healthy in most ways, but I have severe respiratory so what is a girl to do? Time will only tell but fortunately I have been very successful at times and I know that I can pull it out of the bag no matter what.
I'm a big fan of backing into your number by looking at today's budget/expenses. You'll need to record your expenses for a few months. I mean really look at where every dollar goes and give it a name. Then look at things that are annual, or semi-annual, or any other sort of irregular period...things like replacing tires every 50,000 miles, etc, and convert those things into a monthly figure. As an example, we included annual exams, shots, & meds for our 2 dogs and cats, and threw in a annual animal emergency of a couple hundred, and then divided that by twelve, and added in the monthly cost of pet food and treats to come up with the monthly line item for pet costs. Do that with every category like autos that have periodic costs. Don't forget to include random maintenance issues like paying someone to clean gutters, tune up the furnace/AC, or maintain your sprinklers, or other things that you have done occasionally. Add up all the line items and add a "fudge factor" of 10% or so and you are pretty close to what you need.
Determine if these numbers going to change for you in retirement. Are you staying in your current home or downsizing? Compare your final expense estimate to your income from all sources. This is where those withdrawal rate estimates come in. Do you have any leftover for discretionary spending beyond the basics? If so, it looks like you're good to go.
Theres just not a "typical" scenario. Everyone is different, everyone has different expenses, different hobbies, live in different areas. What sounds fine for you at $30,000, wouldnt cover a quarter of others expenses.
As has been said, you need to write down a budget, everything you will owe, all your bills, expenses, things you might want to do, and take it from there.
Unless you are certain you know what your life, experiences, interests, needs, wants etc will be over the next thirty years it is hard to put a price tag on retirement. Do you want to develop a new interest only to find you really can't pursue it the way you want? We are approaching ten years and our concept of spending has changed with time and we anticipate it will continue to evolve. My only suggestion is to figure that how ever expensive you feel your life will be at retirement assume it will change up or down by a chunk of change. Your own inflation factor will probably also change and not reflect that of what ever is considered normal. Time creates opportunity and interests along freedom from some expenses and the opportunity for others. As Carnivalday said what is workable for one is poverty for another.
The biggest variable I see in retirement is housing expense.
My father has a retirement income of $42K per year. My father-in-law has a retirement income of $36K per year. My father-in-law has a better standard of living because he owns his condo outright and only pays a modest property tax bill and condo fee each month. My Dad pays $950 in rent each month.
I recently read an article in Consumer Reports that says that the average person will need at least $660,000 to retire. Two reasons mostly, don't depend on Social Security because it probably won't be around at all by 2025. Also, medical bills can get very high because eventually you will get sick as you get much older, and people are living longer. It depends on how our government leads us also, which is scary. I am disabled and plan to sell my house so I can invest in some specific stocks that will be very lucrative in the future. I am scared I will not have enough income since my husband has congestive heart failure and not too long to live. I didn't expect to be disabled at 64 because I was healthy but all of a sudden it seems like time has taken its toll. I am very healthy in most ways, but I have severe respiratory so what is a girl to do? Time will only tell but fortunately I have been very successful at times and I know that I can pull it out of the bag no matter what.
Being skeptical about the future of SS, is strongly advisable for younger folks, but anyone who thinks the government is going to abruptly shut down the system for current recipients doesn't understand politics.
Congress will beg, borrow, and print money before that happens.
My SS plus pension is about $24k. 4% of my total savings is about $16k (but none is in equities). So, from what you said, if I had 40% in equities, my total income would be $40k, before taxes. But I don't think I need that much.
And does the 4% withdrawal include principle, or just returns?
Couple of points here. If you do not need it you will still need to withdraw it. You will be hit with higher taxes if that savings grows and you reach 70 and a half. You can though take less now to help make ends meet. There is no set rule that goes for everyone. As the post below says everyone is unique.
Quote:
Originally Posted by carnivalday
Theres just not a "typical" scenario. Everyone is different, everyone has different expenses, different hobbies, live in different areas. What sounds fine for you at $30,000, wouldnt cover a quarter of others expenses.
As has been said, you need to write down a budget, everything you will owe, all your bills, expenses, things you might want to do, and take it from there.
This was such an important statement that I had to add it. Getting a budget is very important to the majority of people that are running expenses at or above income.
I have tried and tried but never could find out what is the typical financial scenario for a person who can afford to retire
Standard model is to assume you need 70%-80% of your working income. So let's split the difference and take 75% of your working income, subtract out any pension and SS income you will be receiving, and if the result is positive multiply that by 25 to get the assets you should have to be able to retire.
Do I think that is a good model for everyone? No, but it is one of the ways that financial planners will crunch the numbers for you. Some people can live on much less, and some will need far more.
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