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Hey there.....Pension question
Old 08-16-2007, 08:40 AM   #1
Confused about dryer sheets
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Hey there.....Pension question

Wow, I was given this forum a couple of days ago, and there is a ton of great information on this site. Some super smart people on here who really know what they are talking about.

Anyway, I'm 16 years away from retirement. It won't be early, but I'll be 51. So, I figured it was time to really start plugging away at things. I'm a long range planner, as most on this board probably are.

Let me start off with a quick question. I've done some searches, but probably haven't looked closely enough to find an answer.........

Anyway, my government pension will give me roughly %70 of my ending salary. We also get a 4% cost of living increase every year on top of that.

Will that be enough to retire on, assuming the house is paid for and we have no other outstanding debt? Or would 70% be the bare minimum?

Again, great forum, and I plan on being a daily visitor.

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Old 08-16-2007, 08:50 AM   #2
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Some questions for you first...

What are your expenses now ?

Does your job cover healthcare ? Do you have to contribute to healthcare ?

But the quick answer is... subtract off the SS and Medicare payroll taxes plus anything that you are saving now and other work related charges. Subtract off the mortgage costs and add in the extra medical expense (if any).

Then add or subtract and travel or hobbies that you plan for ER. Subtract off any work related costs.

Are you in the ballpark ?

In short look at expenses, not percentages of income ?

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Old 08-16-2007, 08:55 AM   #3
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Mo, welcome to the forum.

I don't think you are asking the right question. It doesn't matter what % of your pre-retirement salary is "enough". What matters is your expenses in retirement, and that's the question you need to ask yourself.

You need to understand what your expected annual cost of living in retirement will be and work from that point to determine what stream of income you will need to support your annual needs. Then determine if you have what it takes to fund that stream of income (pension, SS, savings, etc.) FIRECalc is a great tool to help in this area.

So if you haven't already started tracking your expenses, it's never too early to start. Once you know what you spend now, you can estimate how that will change in retirement (the closer you get to pulling the plug the better you can fine tune this number).

And I disagree with your statement that retiring at 51 isn't "early"...
Numbers is hard.

Retired in 2005 at age 58, no pension

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Old 08-16-2007, 08:58 AM   #4
Confused about dryer sheets
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That makes sense.

I never really looked at it that way. I think 70% will be more than enough for us as we don't spend much money now. It's a lot easier looking at it that way than the other.
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Old 08-16-2007, 09:14 AM   #5
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Originally Posted by Mo Trooper View Post

I think 70% will be more than enough for us as we don't spend much money now. It's a lot easier looking at it that way than the other.
True. But when you get withing a few years, or months, or days of pulling the plug on a paycheck and living off whatever you've managed to put together, you may feel differently. If you are like me, at that point I wanted to have every possible assurance that I knew what it was going to take to live in retirement. And believe me, relying on a ballpark % of salary calculation and not knowing my annual needs would not allow me sleep well at night.

Retiring early (however you define it) is a big decision. Tracking your expenses isn't a big deal (you can track in a few big categories and get fancier only if you think you need to) and I wouldn't have dared to retire unless I knew that side of the retirement equation.
Numbers is hard.

Retired in 2005 at age 58, no pension

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Old 08-16-2007, 09:17 AM   #6
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I guess it's a case of never having enough money. If you do, it just means the kiddos will get more one day, or I'll take some better trips.

I suppose my goal should be to try and supplement to the extent that I'm making at retirement what I'm making now. I know I will be able to live comfortably off that.
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Old 08-16-2007, 10:38 AM   #7
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We have tracked our income and expenses for over 20 years now. Been thru some bear and bull markets and always over time exceeded all our expectations. The tracking of expenses allows us to look at OUR trends and to make projections based on our situation.

It is comforting to know we could live on one of our pensions if we had to and what we would need to alter. Now with two pensions, income from investments and possible SS, we are sitting pretty. And know it for a fact due to our meticulous recordkeeping. It wont be a guess or a possibility.

If something truly bad happened, there are going to be a whole lot worse off.

So remember we started about the same age you are and it worked for us.
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Old 08-16-2007, 11:00 AM   #8
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Like the others have said, if you track your expenses now, and can kind of estimate your after retirement expenses, you'll have a idea of how much you'll need to make it.

When I was doing my figuring, I also took my current (at that time) pay stubs, and looked at all of the deductions, and the final net pay. I then calculated out how much my pension would be, and how much would be deducted from my pension checks, to get the net. My only pension deductions are Fed tax and health ins premiums (it is exempt from state tax). Once I knew the net of both my paycheck and of my impending pension check, I knew how much I'd had available for current expenses, as well as how much I would have available to cover my future living expenses.

As an aside, my net (cola) pension is 87.8% of my former net salary (although only 68% of the gross). I don't even miss the measly 12.2% difference, since at least that much was spent on eating lunch out every day, as well as other w*rk related expenses like w*rk clothes and equipment.

I bring in more than enough to enjoy a comfortable lifestyle, as well as continue socking away a good chunk of change 'for my old age'. Also the annual cola increases, will be larger than the averages pay raises I got while employed. But as others have mentioned, expenses play a bigger part than % of prior salary.
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Old 08-16-2007, 09:05 PM   #9
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Mo Trooper,
Welcome to the board. Glad you found us. As you said, there is a ton of information here to read and think about. Please use the Search function to look up specific topics which may have already been very well discussed.

Retirement at age 51 is not exactly late. Many folks here retired later than that and still consider it "early". So don't sweat the age you retire.

70% pension is quite good by any standard. Many folks have little or no pension and have retired "early" and seem to be doing quite well. Those who don't have a pension have had to save and invest more so they have something to live on in their Golden Years. Having a nice pension just means you many not have to save nearly as much to still live very close to your "working" years. Like REWAHOO said, it is all about your expenses. Once I subtracted payments for Social Security, 401k, working lunches, extra gas for the commute, higher income taxes, etc. my post retirement expenses dropped by almost 40%. I don't have much of a pension (beer and gas money at best) so my nest egg had to fund almost all my expenses so it took longer to get it big enough to sustain us for 30+ years of retirement.

Run FIRECalc FIRECalc: A different kind of retirement calculator and see how you stand once you really do some number crunching on your expected expenses.

Good luck and again welcome to the board.
Work? I don't have time to work....I'm retired.
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Old 08-16-2007, 10:18 PM   #10
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While you are thinking about retirement don't forget to consider the possibility of disability. Troopers take a lot of risks for the benefit of society. Consider buying long term care insurance, it is inexpensive if you start when you are young. Yes, I know that your employer probably has a disability program but it may not be enough.
Duck bjorn.
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Old 08-18-2007, 10:20 AM   #11
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Hi Mo and welcome to the board,

as others have said, what really matters is how much you need to cover your expenses in retirement. It has nothing to do with how much you are making today. For example, my wife and I envision a fairly simple retirement and we will only need 25% of our current income to cover basic retirement expenses (including healthcare, food, gas, utilities, home and car repairs, taxes...). Social security alone (assuming it's still around when we retire) should cover those basic expenses for us. So if we had a pension guaranteeing 70% of pre-retirement income, we would have it made (unfortunately we don't). For other people, 70% of their current income might not be enough to finance the lifestyle they envision for their retirement. So try to estimate the annual expenses you'll incur in retirement and make sure that your pension will give you enough income to cover those expenses.

42 y/o, married, retirement portfolio = 43 x annual expenses
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