135 % of Salary needed in retirement ?

[Lakewood90712]

Acording to Duke University research study by Dan Ariely. link to story in marketwatch Will you need 135% of your salary in retirement? - Robert Powell - MarketWatch . First time I have seen anything like that.

I agree with one thing he says , financial advisors being overpaid for money management.

If I will need 135% of what I make now , maybe I can just find a lower paid position before retirement to fix that problem .

 

[W2R]

Whew, I guess I just don't dream big enough for that researcher.

I don't think I would want to spend that much - - too much shopping, and not enough relaxing and enjoying retired life.

 

[traineeinvestor]

Although the article was based on reseach into people's desires, it is more than possible that given enough inflation living expenses after retirement will grow to exceed the historic salary from employment (at least in nominal terms).

I hope to live long enough and well enough to see that happen.....but not too soon.

 

[farmerEd]

If I will need 135% of what I make now , maybe I can just find a lower paid position before retirement to fix that problem .

Very good point, and why if I am skimming any articles/calculators that are supposed to calculate how much one will need to retire, if the first question they ask is "how much do you earn now", I know the article is useless.

How much anyone earn 'now', has nothing to do with how much you will 'need' to retire.

 

[Dawg52]

Very good point, and why if I am skimming any articles/calculators that are supposed to calculate how much one will need to retire, if the first question they ask is "how much do you earn now", I know the article is useless.

How much anyone earn 'now', has nothing to do with how much you will 'need' to retire.

Agree.

 

[MichaelB]

This is the study Dan Ariely » Blog Archive Asking the right and wrong questions «

In our study, we then took a different approach and instead asked people: How do you want to live in retirement? Where do you want to live? What activities you want to engage in? And similar questions geared to assess the quality of life that people expected in retirement. We then took these answers and itemized them, pricing out their retirement based on the things that people said they’d want to do and have in their retirement. Using these calculations, we found that these people (who told us that they will need 75% of their salary) would actually need 135 percent of their final income to live in the way that they want to in retirement. If you think about it, this should not be very surprising: If you add 8 hours (or more) of free time to someone’s day, they will probably not want to spend this extra time by going for long walks on the beach and watching TV – instead they may want to engage in activities that cost money.

This study apparently says people will need more money to do all the things they want to do. (my bold). That makes sense.

 

[donheff]

It sounds like people don't really know what they will do in retirement and probably don't even know what they would like to do in retirement. Most of us don't suddenly go through a personality change the day we retire (other than possibly a drop in stress).

 

[justplainbll]

135% of current income / 90% of current income = 1.5
16.5 years of 2.5% inflation = 1.5

 

[Lakewood90712]

135% of current income / 90% of current income = 1.5
16.5 years of 2.5% inflation = 1.5

2.5 % is a reasonable figure for inflation. Those who want to continue to spend and consume to fuel the " Consumer Economy " during better have one of the following: 1. A huge, liquid nest egg, 2. A growing nest egg , to counter the effect of inflation compounding over time , or 3. Just keep working like the pundit Suzy O wants everyone to do.

I am planning on option # 2 and spending a whole lot less . I assume most here also would. Problem is, option 2 is getting harder. Very conservative bond portfolio was my plan a few years back. It just isn't going to work for the foeseeable future.

 

[scrabbler1]

Very good point, and why if I am skimming any articles/calculators that are supposed to calculate how much one will need to retire, if the first question they ask is "how much do you earn now", I know the article is useless.

How much anyone earn 'now', has nothing to do with how much you will 'need' to retire.

Agreed. Aa mny of us have pointed out over the years in this forum, when figuring out how much money you will need in a retirement budget, you start at zero and work your way up using projected expenses, not with your current income and work your way down (or up).

In my own case, I twice reduced my income by reducing my weekly hours of work, first from full-time to part-time, then from part-time to lesser part-time. So which income level should I have started with, the FT one, the 55% of FT one, or the 35% of FT one?

 

[arebelspy]

While I agree that planning retirement based on income instead of expenses is Stupid, with a capital 's', let me offer a small defense of it, and hopefully everyone won't jump all over me, but recognize it may make a little sense for some people.

It doesn't for most on this forum because we LBOM. MOST people though live AT or even above their means!

If their lifestyle while working is paycheck to paycheck (as it is for the vast majority of Americans these days, from what I understand), their expenses level IS their income level.

So it could make sense to start there and say "Okay, I'll need less in retirement because no commute, etc etc, so 85% of my income" or "I want to do X, Y, and Z, so I need 135% of my income."

Now yes, those authors could still put expenses and have all those LAtYM people put their income, however most of those Americans don't know their expenses!

So while yes, I wish every article used expenses for planning, for most Americans (who don't know their expenses and live at their means) it is easier and quicker (and yes, lazy on the author's part) to say income. It may be the only thing that makes sense to all of those people.

Even though it makes no sense to us. It's easy to forget sometimes we're in the small minority, because everything you hear here is in such strong agreement.

For example, everyone bashing using income to plan retirement.

Still a bad idea, but hope I showed you it could make a small amount of sense for people not on the ER forum. Don't flame me too hard.

 

[justplainbll]

Agreed. Aa mny of us have pointed out over the years in this forum, when figuring out how much money you will need in a retirement budget, you start at zero and work your way up using projected expenses, not with your current income and work your way down (or up).

In my own case, I twice reduced my income by reducing my weekly hours of work, first from full-time to part-time, then from part-time to lesser part-time. So which income level should I have started with, the FT one, the 55% of FT one, or the 35% of FT one?

A recent income level that comfortably covered you expenses.

 

[Lagniappe]

It's an interesting approach. My retirement planning spreadsheet has me spending 130% to 160% of my current, working, SPENDING. This includes significantly more on travel, dining and entertaining myself, which are purely discretionary, as well as a very large SWAG for health insurance. All of these numbers are less than 75% of my current income. Otherwise I wouldn't be able to save for this dream retirement.

I can totally understand someone saying 135% of their current spending is ideal - it's hard to imagine much beyond that. But it is not what they need, it is what they think they want. I'm not sure what value knowing that brings to people who are already living on 100% (or more) of their income.

 

[justplainbll]

While I agree that planning retirement based on income instead of expenses is Stupid, with a capital 's', let me offer a small defense of it, and hopefully everyone won't jump all over me, but recognize it may make a little sense for some people.

It doesn't for most on this forum because we LBOM. MOST people though live AT or even above their means!

If their lifestyle while working is paycheck to paycheck (as it is for the vast majority of Americans these days, from what I understand), their expenses level IS their income level.

So it could make sense to start there and say "Okay, I'll need less in retirement because no commute, etc etc, so 85% of my income" or "I want to do X, Y, and Z, so I need 135% of my income."

Now yes, those authors could still put expenses and have all those LAtYM people put their income, however most of those Americans don't know their expenses!

So while yes, I wish every article used expenses for planning, for most Americans (who don't know their expenses and live at their means) it is easier and quicker (and yes, lazy on the author's part) to say income. It may be the only thing that makes sense to all of those people.

Even though it makes no sense to us. It's easy to forget sometimes we're in the small minority, because everything you hear here is in such strong agreement.

For example, everyone bashing using income to plan retirement.

Still a bad idea, but hope I showed you it could make a small amount of sense for people not on the ER forum. Don't flame me too hard.

We've never lived beyond our means, never resorted to budget techniques like putting money aside in various envelopes for planned expenses/expenditures. We've generally evaluated what we could afford by looking at what we were able to save over the past several years. E.G. we save up and buy new cars for cash.

 

[arebelspy]

We've never lived beyond our means, never resorted to budget techniques like putting money aside in various envelopes for planned expenses/expenditures. We've generally evaluated what we could afford by looking at what we were able to save over the past several years. E.G. we save up and buy new cars for cash.

Ditto. We are typical on these forums. We are atypical in the real world.

 

[grasshopper]

I suspect none of these folks will retire, because the dream will not turn into reality. My reality is if I could save 40% of my salary, I certainly could live off 60% of it.

 

[ziggy29]

I suspect none of these folks will retire, because the dream will not turn into reality. My reality is if I could save 40% of my salary, I certainly could live off 60% of it.

I suspect that's the key. The assumption in these "you need X% of what you earn to retire" seems to be that you need every penny of your current pay.

 

[arebelspy]

I suspect that's the key. The assumption in these "you need X% of what you earn to retire" seems to be that you need every penny of your current pay.

A reasonable assumption if you SPEND every penny of your current pay.

 

[unclemick]

33% That's My Story. Dory33's article caused me to to join this forum in the first place.

12% my all time never to be repeated best for one year back in early ER.

I was sooo cheap - I could look in the mirror and blow myself a kiss!

After almost 18 yrs of ER - both FireCalc and ORP say I can loosen up and spend the big bucks cause I'm not getting any younger.

heh heh heh - We need less studies and more articles by people who are 'in' retirement.

 

[mickeyd]

I could probably afford to live today on 135% of what I was making back in the day, but I'm not inclined to do so. Instead we just live as comfortable as we can and occasionally spring for a big vacation or renovation on our home whenever DW is so moved. Seems like a sane way to spend 40+ years of savings.

 

[Sandhog]

33% That's My Story. Dory33's article caused me to to join this forum in the first place.

12% my all time never to be repeated best for one year back in early ER.

I was sooo cheap - I could look in the mirror and blow myself a kiss!

After almost 18 yrs of ER - both FireCalc and ORP say I can loosen up and spend the big bucks cause I'm not getting any younger.

heh heh heh - We need less studies and more articles by people who are 'in' retirement.

+1

I concurred. It's better to live more and spend less. Best things in life are still free. For example, views of sun rise and sun set, majestic mountains and ocean tides, and most importantly hot chicks at the malls on hot summer days.

 

[Chuckanut]

I do live below my means, when I include my retirement investments that I make during my working years - SS, IRA, Optional Savings plan, and pension contributions. Since I won't be making those when I retire, that should give me quite a nice cushion. They make up something like 30% of my current gross income (WOW!). Adjust for having to pay medical insurance and that moves down to about 25% of my current gross income. So, 75% should be fine, assuming I am careful and prudent.

 

[ejman]

Top salary about $130K. On the other hand, have been spending about $48- $64K a year for the last 20 years or so. I found that my expenses did not go down much at retirement back in 2002 ( what with the new goat ranch and all) but on the other hand, they did not go up much either. Seems I'm stuck in that expenditure range and I'm quite happy with it - do not intend to change it. And fortunately my nest egg (plus SS) seems to be able to provide that level of expenidtures (at least so far) so for myself, 50% of salary seems to be the right number. But then again, as most of the posters here, I've been expending way below may means so a % of salary doesn't mean much...

 

[clifp]

While I agree that planning retirement based on income instead of expenses is Stupid, with a capital 's', let me offer a small defense of it, and hopefully everyone won't jump all over me, but recognize it may make a little sense for some people.

It doesn't for most on this forum because we LBOM. MOST people though live AT or even above their means!

If their lifestyle while working is paycheck to paycheck (as it is for the vast majority of Americans these days, from what I understand), their expenses level IS their income level.

So it could make sense to start there and say "Okay, I'll need less in retirement because no commute, etc etc, so 85% of my income" or "I want to do X, Y, and Z, so I need 135% of my income."

Now yes, those authors could still put expenses and have all those LAtYM people put their income, however most of those Americans don't know their expenses!

Your points are all correct.

I think what annoys me is the scare tactics of the financial press and the counterproductive impact they have on the public.

20 years ago the headlines were we are all going to be millionaires because of the savings of our IRAs/401K. I am not sure but I think this lulled a lot of people into thinking that all they needed to do was save $2,000/year in a IRA.

Now days all of the financial press articles are all about how you need to save a zillion dollars. The amount of money to get 135% of your salary in retirement is so large that I suspect that a bunch of people will just say screw it I am going to work till I drop.

 

[JmfromTx]

Top salary about $130K. On the other hand, have been spending about $48- $64K a year for the last 20 years or so. I found that my expenses did not go down much at retirement back in 2002 ( what with the new goat ranch and all) but on the other hand, they did not go up much either. Seems I'm stuck in that expenditure range and I'm quite happy with it - do not intend to change it. And fortunately my nest egg (plus SS) seems to be able to provide that level of expenidtures (at least so far) so for myself, 50% of salary seems to be the right number. But then again, as most of the posters here, I've been expending way below may means so a % of salary doesn't mean much...

You make a very good point. I spend more money now than when I was working and I have a lot less income. Percentage of salary doesn't mean a hill of beans if you don't spend it all every month.