Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Consumer Reports "Retire in the Black"
Old 12-04-2004, 05:20 PM   #1
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,069
Consumer Reports "Retire in the Black"

The January issue of Consumer Reports (yes, JG, I know it's a liberal rag, but even a conservative wants to know who makes the best washing machine) has an article on the most often recommended strategies for boosting retirement income. The article describes how they teststed six of these these strategies using software called ESPlanner, developed by Laurence Kotilkoff, a professor of economics at Boston U. and Jagadeesh Gokhale, a senior fellow at the Cato Insitute.

Although interesting (the biggest positive impact to retirement income in their test came from moving to a state with a lower cost of living or delaying retirement), much more detail is needed to understand how they reached their conclusions. Of particular interest was the negative impact of increased contribution to 401(k) accounts for the hypothetical couple in the test.

The article does not describe how the software works, only that it differs from other financial planning tools by determining your "highest sustainable living standard (consumption level) for the rest of your life".

The test involved looking at the financial status of a hypothetical couple, both 55, no dependents, both working with combined incomes of $90,000, a $300,000 house with a $200,000 mortgage, $8,000 in credit card debt, $250,000 in 401(k)'s, with contributions of 5% annually. Based on retiring at age 65, if they made no changes to their current retirement savings plan, ESPlanner calculated their "consumption level" at $50,870 anually. (The article states that the consumption level amounts are expressed in today's dollars but does not make it clear that annual increases are anticipated to keep pace with inflation.)

Using this as a baseline, frequently recommend strategies to improve your retirement income were run through ESPlanner and the resulting consumption level was calculated:

Consumption Level baseline: $50,870

1. Move to a less expensive area (from New York to TX).
Consumption Level: $56,175.

2. She retires at 65 but he continues to work 4 additional years (his income was $60k of the $90k total).
Consumption Level: $54,202

3. He takes a lower paying job after retiring ($22k).
Consumption Level: $52,392

4. Pay off mortgage.
Consumption Level: $51,048

5. Pay off credit card.
Consumption Level: $50,924

6. Double their 401(k) contributions to 10%.
Consumption Level: $50,374

Amazing that the annual amount actually decreased when the couple increased their 401(k) contribution. The reason given was that it raised the couple's tax bracket in retirement and subjected more of their SS benefits to taxation.

REW
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Consumer Reports "Retire in the Black"
Old 12-04-2004, 05:46 PM   #2
Thinks s/he gets paid by the post
retire@40's Avatar
 
Join Date: Feb 2004
Posts: 2,670
Re: Consumer Reports "Retire in the Black"

Quote:
Based on retiring at age 65...

She retires at 65 but he continues to work 4 additional years

He takes a lower paying job after retiring...
With all due respect, I totally shut down when I read about retiring at 65, then continuing to work for another 4 years, working at a lower paying job, blah blah blah.

I'm impressed when someone achieves FIRE at 50 or under, but not at 65. This may be an OK article for the common folk who haven't figured out life yet and just want to do what everyone else is doing, but I enjoy reading more about retiring in the black at say.......40
__________________

__________________
No man is free who is not master of himself. --- Epictetus
Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo
retire@40 is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-04-2004, 06:01 PM   #3
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,069
Re: Consumer Reports "Retire in the Black"

Quote:
With all due respect, I totally shut down when I read about retiring at 65, then continuing to work for another 4 years, working at a lower paying job, blah blah blah.
Agreed. I totally shut down when I read about potato peelers, too.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-04-2004, 07:24 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
dex's Avatar
 
Join Date: Oct 2003
Posts: 5,105
Re: Consumer Reports "Retire in the Black"

5. Pay off credit card.
Consumption Level: $50,924

This one doesn't look correct?
Pay off a high interest credit card and consumption level goes down?
__________________
Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
dex is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-04-2004, 08:28 PM   #5
Full time employment: Posting here.
 
Join Date: Nov 2002
Posts: 768
Re: Consumer Reports "Retire in the Black"

The consumption level doesn't go down when the credit card is paid off. The baseline is 50,870; so paying off the credit card increases consumption level by $54.
__________________
Michael is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 02:38 AM   #6
 
Posts: n/a
Re: Consumer Reports "Retire in the Black"

I give up - how can a $22K job only increase your consumption by $1500?
__________________
  Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 03:15 AM   #7
 
Posts: n/a
Re: Consumer Reports "Retire in the Black"

Disclaimer: I have read very little of this but the article
sounds a little funky to me. Also, Consumer Reports
is about my least favorite source for anything. I almost
prefer Bob Brinker; wrong a lot but more interesting.

JG
__________________
  Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 04:33 AM   #8
Full time employment: Posting here.
bruce1's Avatar
 
Join Date: Aug 2004
Location: Hagersville
Posts: 793
Re: Consumer Reports "Retire in the Black"

Quote:

Agreed. *I totally shut down when I read about potato peelers, too.

You obviously never got KP
__________________
I wish I was half as good as my dog thinks I am!
bruce1 is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 05:58 AM   #9
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,069
Re: Consumer Reports "Retire in the Black"

Quote:


You obviously never got KP
No, but I did get a lot of latrine duty. And I haven't "spit-shined" the chrome on a toilet since.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 06:23 AM   #10
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,069
Re: Consumer Reports "Retire in the Black"

Quote:
I give up - how can a $22K job only increase your consumption by $1500?
The article doesn't say how long the job was held. But you would assume it was for only a few years and the resulting annual impact over the retirement period was $1,500.

It is also pointed out that this strategy is risky because ill health can prevent working after retirement. "Half of all workers retire before age 62 anyway, many because of disabilites". And like many on this board, because of anal glaucouma disease: the inability to see their a** showing up for work anymore. ;D

REW
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 06:50 AM   #11
Full time employment: Posting here.
 
Join Date: Jan 2004
Posts: 844
Re: Consumer Reports "Retire in the Black"

>>3. He takes a lower paying job after retiring ($22k).

If you take a lower paying job after retiring, are you actually retired? Or just working for less money....
__________________
farmerEd is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 07:24 AM   #12
Full time employment: Posting here.
 
Join Date: May 2004
Location: Worldwide
Posts: 913
Re: Consumer Reports "Retire in the Black"

Hi all,
We were just offered jobs yesterday at a resort in a remote location of Ecuador. In return for working six days a week, me as a bartender, and Akaisha as a receptionist, we get lodging, food....and all of the adult beverages we can handle....PLUS.....$65.00 per month!

So I guess that means we would no longer be retired, just working for less...a lot less!....

If anyone is interested in this position, email us and we can give you the info.

Once retired, these types of opportunities come up regularly.

Billy
Website www.geocities.com/ba264
__________________
In 1991 Billy and Akaisha Kaderli retired at the age of 38. They have lived over 2 decades of this financially independent lifestyle, traveling the globe.
Billy is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 07:37 AM   #13
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,069
Re: Consumer Reports "Retire in the Black"

Quote:
Hi all,
We were just offered jobs yesterday at a resort in a remote location of Ecuador. In return for working six days a week, me as a bartender, and Akaisha as a receptionist, we get lodging, food....and all of the adult beverages we can handle....PLUS.....$65.00 per month!
Hmmm.... indentured servitude and free booze. What a nightmare.

REW
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 08:22 AM   #14
 
Posts: n/a
Re: Consumer Reports "Retire in the Black"

Quote:
Once retired, these types of opportunities come up regularly.

Billy
I haven't noticed ANY sort of "opportunities" like this once I retired. The only kind of "opportunities" that come up with any reliability/recurrence are grunt labor. stocking shelves at Christmas time, and H&R Block.

Nobody from Alpine ski resorts or South Sea Island getaways that cater to Arab Shieks, and movie stars ever calls me with "opportunities"
__________________
  Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 08:36 AM   #15
Thinks s/he gets paid by the post
Hyperborea's Avatar
 
Join Date: Sep 2002
Location: Silicon Valley
Posts: 1,008
Re: Consumer Reports "Retire in the Black"

Quote:
Nobody from Alpine ski resorts or South Sea Island getaways *that cater to Arab Shieks, and movie stars *ever calls me with "opportunities"
I think that's the problem. *These kind of weird/interesting job opportunities occur when you are right there. *Nobody calls you up about them. *If you're "right there" most of the time like Billy&Akaisha as near-perpetual travellers then they likely happen a lot more. *I've had some friends who did the year of travel around the world right after finishing their undergrad degree and they came back with some interesting odd job experiences too.

As for Consumer Reports it is a useful tool, in general, for informing the consumer. *An efficient market requires informed participants and it is been difficult to get the information on one side of the market. *The company probably knows that their product is crap but they aren't telling and they'd much rather that some organization isn't telling their potential suckers customers about it.
__________________
Hyperborea is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 08:49 AM   #16
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: Consumer Reports "Retire in the Black"

I read the Consumer Reports article too. I am wondering about the 401(k) issue. Consumer Reports stated that the theory is when you withdraw the money from the 401(k) it is treated as ordinary income thus you could end up paying both taxes on that income and on your social security. For a while we had access to some free financial software, I can't remember the program, but it also advised we stop contributing to a 401(k). I was surprised and ignored the advice.

It seems that if you are at a high tax bracket you should contribute to a 401(k) to the extent possible. But then again, there are advantages in paying tax now and then paying tax on the gain at the lower capital gains and dividend rates. Anyone give some thoughts to this issue? It is important for those planning an early retirement.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 10:23 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Consumer Reports "Retire in the Black"

I see only two problems with the conclusions from this article: 1) For many situations all of the conclusions are wrong quantitatively, and 2) For many situations all of the conclusions are wrong qualitatively.

Other than that, I don't see any problems.
__________________
sgeeeee is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 11:06 AM   #18
Full time employment: Posting here.
 
Join Date: Nov 2002
Posts: 768
Re: Consumer Reports "Retire in the Black"

Quote:
It seems that if you are at a high tax bracket you should contribute to a 401(k) to the extent possible.
Most of those articles assume that you will not retire until you start collecting Social Security. If you plan to retire significantly before then, you will be withdrawing money from your 401k at a reduced tax rate for many years before Social Security becomes an issue. This can change the results. Everyone pretty much has to crunch the numbers for their individual situation.
__________________
Michael is offline   Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 02:46 PM   #19
 
Posts: n/a
Re: Consumer Reports "Retire in the Black"

Hey salaryguru.......nicely put. Keep writing such
insightful and tersely cogent commentary and you may get added
to my official list of ER heroes

JG
__________________
  Reply With Quote
Re: Consumer Reports "Retire in the Black"
Old 12-05-2004, 02:54 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Consumer Reports "Retire in the Black"

Quote:
Hey salaryguru.......nicely put. *Keep writing such
insightful and tersely cogent commentary and you may get added
to my official list of ER heroes

JG
Well . . . thanks for the vote of confidence, John. But others on that list may ask to be removed if my name appears alongside theirs. Besides, once I was on the list I'd probably just blow it by saying something liberal that would demand my immediate removal.
__________________

__________________
sgeeeee is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Consumer Reports: Feb 2007 "Simplify Your Financial Life" ZMAN FIRE and Money 25 01-17-2007 08:00 PM
Credit Reports DRiP Guy Other topics 5 01-06-2007 05:19 PM
Consumer Driven Healthcare tomz Other topics 6 06-16-2006 02:57 PM
Consumer Confidence Index (CCI) mickeyd Other topics 2 01-15-2005 07:36 PM

 

 
All times are GMT -6. The time now is 09:46 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.