So how much did you really need for retirement? (acquaintance, single, older)
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What you need in retirement is around the amount that you're actually SPENDING prior to retirement--that is, your typical budget, plus or minus. Some things may drop off or decrease, other things will increase.
It's so easy to calculate to get a good baseline number:
(Average Amount spending per year) x 25 = Total Amount Nest Egg Needed
Total Nest Egg = All investments + Social Security + retirement accounts + pension + other income expected such as rental income
Your FERS pension is not anywhere near 80% - it would take 73 years of service to get to that level and that program has not been around that long (1983). Even under CSRS (previous program) it would take 42 years to get to 80% and then would be subject to WEP which would eliminate almost all SS - only a few are on CSRS at this point and should have at least 38 years of service.
Maybe I was not clear in my post, but when my projected FERS pension amount as of the day I planned to retire on was calculated by OPM when I filed for retirement using the calculation for FERS being average of my high 3 salaries x years of service which for me was 21 x 1.1, I am receiving 80% of that amount until my pension is finalized.
You highlight another point that many non pension eligible folks don't realize:
In some pension plans regardless of eligibility if you die prior to retiring there is no pension. That creates pressure for some to retire just to make sure their spouse is taken care of.
You get back your contributions but not the employer contributions or ROI in the cases I know of.
I know of one case where an employee at my company signed his retirement papers on his deathbed so his wife would get his pension.
interesting. I think it sways readers of retirement forum (many who are not yet retired and are younger readers) in a misguided way.
The posters who are on the public dole with their lucrative government pensions making a financial windfall make unknowing readers think it is a norm - as they never mention that most people in the U.S. do not get a pension.
But the number getting a pension is small. (and the vast majority who get a pension worked for the government)
EXCUSE ME....pensions are NOT the government dole. DOLE= welfare. That's really pretty insulting to people who provide countless benefits to you and the rest of the folks in this country (cops, firefighters, prison guards, military personnel, teachers, city bus drivers, park rangers, tax collectors, linemen, people who design/build/maintain bridges and roadways, process your SS payments, etc, etc). A pension is OUR money that was withheld from OUR salary for the many years we worked, often for a salary less than the same position in the private sector. The amount we receive in retirement is actuarially calculated to include the theoretical earnings on the money in the pension plan. It's just a "forced" retirement annuity. In other words, it's just like SS. I don't think you would refer to an annuity or SS as being on the dole. Although many politicians seem to think SS is welfare.
The number getting pensions is not small. While not a majority, 30% of retirees is a healthy chunk of the population. Pretty much 90% of my retired family members, and about 50% of my retired friends, are in that number, so yeah, I take it sort of personal to have someone imply that I (my family and friends included) am mooching off the government. After 25+ years of service, including active duty military time, I earned, and paid for, my pension.
I don't think talking about retirement planning that includes a pension would influence anyone to think that they are going to get a pension too, unless they work, or plan to work, for a pension-providing employer. If they are smart enough to read this forum, I think they know whether or not their employer has a pension plan.
Last edited by TheShadow; 12-17-2021 at 10:44 AM..
Yeah, I'm not even going to tell my husband some people think he is on the government dole because he got pensions for 20 years law enforcement and 20 years with the AF Nat Guard.
He's been stabbed, shot at, and had missiles shot at his planes.
He's nothing but a grifter.
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I totally disagree with the person who said you need exactly the amount of money in retirement that you're making right now. That isn't true. What you need in retirement is around the amount that you're actually SPENDING prior to retirement--that is, your typical budget, plus or minus. Some things may drop off or decrease, other things will increase.
The amount of money one makes prior to retirement isn't equal to the amount one actually spends. Prior to going on semi-retirement, I purposely lived on only 1/2 of my take-home income. The take-home income wasn't even my full income. So I was probably living on only 25% of my gross pay. I was doing this to get used to a reduced income. And I did that successfully, with money left over too. So I don't agree with the people who say you need 80% of your pre-retirement income for retirement. I didn't, and many others don't either.
This topic has been beat to death on C-D where there's a lot of disagreement about how much money one needs. Some people say they need $1 million whereas others live on SS.
Prior to retirement (at least 5 years prior), you should be writing down your expenditures every month to get a handle on what you spend. It's too late to do this at the point when you actually retire. I suggest you get a budget book and track items by categories. Then you will see what you actually spend. Once you know exactly what you're spending, you're better equipped to know what you need in retirement. You might be able to determine from reviewing your budget book that you are going to spend less in retirement because you'll have the mortgage paid off or you're planning to downsize. Or you might see that you are spending an unhealthy amount of money every month on frills that you don't really need and be able to shave $600 off your spending.
This. ^^^
I’ve had people ask me to review their readiness for retirement. This is the first thing I tell them to do. I’d say about 75% of the people I talk with have no idea what they are really spending. Most will know their net income though, and will reflexively just throw that out as their expense number. Sad. Those people are going feel the pain if they can’t replace 100% of their income.
Many years ago my wife asked me what I thought her brother would do if he won the lottery. That was easy, so I said "buy a bigger TV". He lived frugally and loved living that way. After he retired he continued to live frugally, never travelling, never buying a new vehicle, never going out to dinner, loved bargains and getting free stuff.
ADP's website has a calculator where you can plug in your expected 401k, IRA, and Social Security values and they'll tell you when you'll run out of money (or not) at different retirement ages, rates of return, and rates of withdrawal. Once you hit age 90 or higher for running out of money, you're probably set.
All good points. I tracked my expenses for three years prior to retirement. I found that my needs varied month to month but were very stable year to year. The last year I boosted my 401K contribution to give me the take home I expected when I retired as a final test. I pulled the plug at 58-1/2, 6 months prior to my planned retirement age of 59. I couldn't see any reason to wait.
Since my wife was still working I got bored as a house husband so a year later I went back to work for another two years. My wife retired for good at 57 and I did just before I turned 62, a month before my first SS check.
Quote:
Originally Posted by smt1111
I totally disagree with the person who said you need exactly the amount of money in retirement that you're making right now. That isn't true. What you need in retirement is around the amount that you're actually SPENDING prior to retirement--that is, your typical budget, plus or minus. Some things may drop off or decrease, other things will increase.
The amount of money one makes prior to retirement isn't equal to the amount one actually spends. Prior to going on semi-retirement, I purposely lived on only 1/2 of my take-home income. The take-home income wasn't even my full income. So I was probably living on only 25% of my gross pay. I was doing this to get used to a reduced income. And I did that successfully, with money left over too. So I don't agree with the people who say you need 80% of your pre-retirement income for retirement. I didn't, and many others don't either.
This topic has been beat to death on C-D where there's a lot of disagreement about how much money one needs. Some people say they need $1 million whereas others live on SS.
Prior to retirement (at least 5 years prior), you should be writing down your expenditures every month to get a handle on what you spend. It's too late to do this at the point when you actually retire. I suggest you get a budget book and track items by categories. Then you will see what you actually spend. Once you know exactly what you're spending, you're better equipped to know what you need in retirement. You might be able to determine from reviewing your budget book that you are going to spend less in retirement because you'll have the mortgage paid off or you're planning to downsize. Or you might see that you are spending an unhealthy amount of money every month on frills that you don't really need and be able to shave $600 off your spending.
"A 401(k) and a pension are both employer-sponsored retirement plans. The most significant difference between the two is that a 401(k) is a defined-contribution plan, and a pension is a defined-benefit plan.
A defined-contribution plan allows employees and employers (if they choose) to contribute and invest funds to save for retirement, while a defined-benefit plan provides a specified payment amount in retirement. These crucial differences determine whether the employer or employee bears the investment risks.
Pensions have become less common, and 401(k)s have had to pick up the slack, despite having been designed originally as a supplement for traditional pensions rather than as a replacement. As of March 2021, 50% of private industry workers had access to defined-contribution plans, while only 9% had access to defined-benefit plans, and 77% had access to both. About one-third, or 32%, had no access at all to an employer-sponsored retirement plan."
KEY TAKEAWAYS
"A 401(k) is a retirement plan to which employees can contribute; employers may also make matching contributions.
With a pension plan, employers fund and guarantee a specific retirement benefit for each employee and assume the risk of the financial obligation.
Once common, pensions in the private sector are rare and have been replaced by 401(k)s.
The shift to 401(k)s has placed the burden of saving and investing for retirement—and the risk involved—on employees."
Many, many pension plans (both of our pension plans: one muni, one state) are funded not by the employer, but by deductions of up to 15% of the employees' salary. Many employers withhold something like 7% of salary, with an employer match of 5 to 7% (similar to a 401K match). And this is part of our employee compensation package. In other words it's included when they analyze our pay to try to parallel similar positions in the private sector. It's not IN ADDITION to comparable salary, it's counted as part of a comparable salary.
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