How Far Does $300,000 of Retirement Savings Go?

[pb4uski]

This seemed to be a well reasoned article. Obviously, more is better.

How Far Does $300,000 of Retirement Savings Go?

This week I came across a recent survey by Wells Fargo which found (among other things) that when middle class Americans were asked how much savings they would need in order to support themselves in retirement, the median reply was just $300,000. That’s a much lower savings target than you typically hear discussed in financial media. And the press release about the survey sure seemed to indicate that the figure wasn’t high enough.

But just what kind of lifestyle can $300,000 of retirement savings support? I suspect it’s a higher standard of living than much of the financial services industry would have you believe.

And then it goes on to explain that $12k of COLA withdrawals from the $300k plus SS would likely provide tax-free income of ~$34k for a married couple using spousal benefit (~$27k for a single and ~$42k for a dual income couple), which when combined with a paid-for home would be enough to survive but not live large.

 

[Dawg52]

With decent insurance, no debt and no desire to live large, probably OK.

 

[samclem]

Looks like a good blog post. I think he probably should have used the median SS benefit rather than the average (mean) benefit, which is about $1500 less per year. The median annual withdrawal rate planned by respondents to the WF survey was 10%, and many were very reluctant to invest in stocks, so that might not work out very well.

I think, given the assumptions cited in the blog post (paid off house, avg SS benefits for two wagearners) , that most middle-class folks could get by with a $300K nestegg, but they might be unpleasantly surprised by the cuts to their present lifestyle that would require.

 

[rescueme]

..<snip>...but they might be unpleasantly surprised by the cuts to their present lifestyle that would require.

I/DW gave up much in our early years to live today, at this time of our lives the way we desire, as I'm sure a lot of folks on this board have done.

For those that always lived to the max in the past, it's going to be a hard road to travel in retirement, IMHO.

I guess we'll up our investment in pharma - especially those that develop/manufacture depression pills ...

 

[FIRE2016]

rescueme,

when you mentioned parma ... I was thinking about investing in ham ...

 

[rescueme]

rescueme,

when you mentioned parma ... I was thinking about investing in ham ...

Oh He**

 

[Nords]

Looks like a good blog post.

I met Mike briefly at FINCON12. Good guy, great experience, excellent blogger. His book (Amazon.com: Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less (9780981454283): Mike Piper: Books) has had very complimentary press and he has a wonderful brand going there.

I'm out of [-]fanboi[/-] superlatives, so I'll stop now.

 

[obgyn65]

Also as important is at what age would the retiree have access to the $300,000. Not the same if you are my age (47) or in your 70s, in which case a SPIA may make more sense.

With decent insurance, no debt and no desire to live large, probably OK.

 

[FANOFJESUS]

Some folks on the board have a 5k a month pension. Now if that was me I would say sure to the 300k but with no pension that is another story.

 

[imoldernu]

The OP article rings a loud bell, as I can relate to the numbers from my own experience and that of many of the members of my Florida community. IMHO, there are also a number of missing pieces that are important, that should be considered.

First, one must assume zero debt at retirement. Either real or calculated,

The social security part. This may be interesting to anyone who is looking at their Social Security estimates, and how the initial dollars may change over the years. I maxed the input and DW receives half. We Took SS at age 62. That was 15 years ago. Today we receive almost the exact amounts described in the article... $15,000 for me, and $7,500 for her.

When does retirement begin? The article infers the beginning is the first day one is eligible. For someone retiring today, the full SS retirement benefit begins at age 66... You may want to check out this page, for some interesting government calculators for SS. Life expectancy, earlier retirement, etc.
Retirement Planner: Benefits By Year Of Birth

Savings... This one always throws me. Yours to determine, but FWIW instead of Savings, I use Net Worth for my own calculations... Not nice by financial planning standards, but a major concern, for the later years. Here's my logic: Suppose a home value of $250K. In my case, in 3 to 5 years, I would reasonably expect to move from my home to a senior retirement housing complex with full meal, transportation, medical care, entertainment and social amenities. This would reduce my living expenses by about $15 -$18K, and the sale of the house would provide $250,000 in additional capital.
(yes... I know... you would never give up the independence and the home that you love...) Hmmm... maybe we can check back when you turn 85.
Retirement communities may not be what you think.
http://www.aplaceformom.com/senior-care-resources/articles/senior-independent-living

The current annual cost in our complex for a large 2 bedroom retirement apartment/2 persons, which covers all of the above mentioned services, is about $35,000. (only pay-for service is the telephone bill.)

The article assumes that one will live forever, retaining the house and the $300,000 savings intact for the kids, or a charity... (4% withdrawal rate)

$300,000 may not sound like enough, but our experience is that as we age, our living expenses go down. In today's dollars, we spend less now, than we did when we retired, now, 24 years ago.

 

[NW-Bound]

The article assumes that one will live forever, retaining the house and the $300,000 savings intact for the kids, or a charity... (4% withdrawal rate)

$300,000 may not sound like enough, but our experience is that as we age, our living expenses go down.

My mother's main assets are the home she lives in and a rental home, which she is not even renting now. Though the homes that she own add up to more than $300K, her liquid assets are not much, yet along with a small pension and SS, she has been doing fine with income of around $30K/yr.

Hmmm... And here I am, limiting myself to 3.5%WR while spending a lot more than my mother (of course we are younger and still travel). Should I live larger? Buying more junk? Fast cars that I do not care about? Even bigger houses so I have even more work to do to maintain them? Nah...

Counting money is fun though. I do not know if or when I will get tired of that. I suspect that if I discover that I get diagnosed with a terminal disease, I will stop caring about money. Of course, I would not want that to happen. Meanwhile, I keep on counting!

 

[scrabbler1]

When I first ERed back in late 2008, my initial investment of $300k in that big bond fund provided enough dividend income (about $1,900 a month) to cover my expenses. I had other investments which provided a cushion or surplus, any of which got reinvested.

I now have a lot more in that fund which is good because the monthly dividends per share has dropped a bit in the last 4 years.

 

[Mulligan]

Some folks on the board have a 5k a month pension. Now if that was me I would say sure to the 300k but with no pension that is another story.

That is certainly true. The number means nothing, it's the context around it. I went into my retirement with way less than 6 figures of assets, a mortgage, and paying my own health insurance. That sounds ridiculous. But then you slide in the oh by the way, I have a very generous semi cola'd pension, then it makes sense. Even that though, I continue to work PT and have saved twice as much in past 3 years as I did in my working years. You never know what may happen...

 

[Chuckanut]

My mother's main assets are the home she lives in and a rental home, which she is not even renting now. Though the homes that she own add up to more than $300K, her liquid assets are not much, yet along with a small pension and SS, she has been doing fine with income of around $30K/yr.

One thing we forget - at least I do - is the huge decrease in taxes after one FIRE's. OK, the people with the 5K per month pension may not find a big decrease, but if one's total income is 30K I would think income taxes would go way down. Add in the SS and Medicare tax savings and they go down further. Some localities offer a property tax break to low-income seniors - another tax decrease if you can get it. And, of course, one no longer has to save for retirement, so no more payments to IRA's, 401k's, pension plans, etc.

In my case, I no longer have to pay $100 a month in dues to my omnipotent teacher's union.

In other words, I suspect the take-home percentage of the 30k is greater than that of their former salary.

 

[Mulligan]

One thing we forget - at least I do - is the huge decrease in taxes after one FIRE's. OK, the people with the 5K per month pension may not find a big decrease, but if one's total income is 30K I would think income taxes would go way down. Add in the SS and Medicare tax savings and they go down further. Some localities offer a property tax break to low-income seniors - another tax decrease if you can get it. And, of course, one no longer has to save for retirement, so no more payments to IRA's, 401k's, pension plans, etc.

In my case, I no longer have to pay $100 a month in dues to my omnipotent teacher's union.

In other words, I suspect the take-home percentage of the 30k is greater than that of their former salary.

That is a good point Chuck. My PT job and pension gross income equal almost exactly my last year on the job income. However despite the gross income being within 2% of being the same, my take home now is over 25% higher.

 

[NW-Bound]

I have been thinking that when I get to my mother's age, it is not likely that I will be spending more than she does now. My mother mentioned earlier that she might want to get a new car, another Honda Accord, just because, but has not brought this up recently. When you have back pain and poor eyesight to worry about, a new car is not something that occupies your mind.

 

[Katsmeow]

My mother (who is a widow in her late 80's) lives fine on about $20k a year composed of SS income (mostly), a few thousand from a couple of small pensions and an oil and gas lease. She takes RMDs from a small IRA most of which she doesn't end up spending. Her costs are low (house is paid for and small with no maintenance costs). Her 1988 car has less than 30k miles on it as she doesn't drive very much or very far (yes, she still drives). She has no real hobbies, doesn't have home internet or cable TV (not because she is depriving herself - she doesn't want them). She doesn't travel except to visit us which doesn't cost us anything as DH will go and get her to bring her to visit (she lives a couple of hundred miles away).

 

[ikonomore]

That is certainly true. The number means nothing, it's the context around it. I went into my retirement with way less than 6 figures of assets, a mortgage, and paying my own health insurance. That sounds ridiculous. But then you slide in the oh by the way, I have a very generous semi cola'd pension, then it makes sense. .

Are you saying retired with less than $100k? I wouldn't be able to sleep at night. Good for you if you made it work though.

 

[Mulligan]

Are you saying retired with less than $100k? I wouldn't be able to sleep at night. Good for you if you made it work though.

I was closer to 50k than a 100k. But it isn't as bad as it sounds. My monthly expenses are about $2k a month under my net pension income, and my
PT job is money on top of that. I'm over 100K now but all this money is just dead money anyways. I will never spend any of it and I will continue to add to it monthly until I die I'm sure. Having a pension let me do things backwards. I borrowed my way to retirement ( purchasing service credit years)
and then saved for retirement after I am already retired.

 

[youbet]

It looks like the scenario described in the the kickoff post would easily support a nifty retirement for a couple. Assuming their paid-for home is a pleasant place where they enjoy life when they're not traveling, dining out, enjoying live entertainment, etc., everything should be great!

 

[veremchuka]

I read that article before I came here today. I can't imagine having just $300k and I own my house and I have a pension and I LBMN and I have not spend any investments in 5+ years except for $21k to help pay off the mortgage. $300k? You better have one heck of a pension!

 

[pb4uski]

I read that article before I came here today. I can't imagine having just $300k and I own my house and I have a pension and I LBMN and I have not spend any investments in 5+ years except for $21k to help pay off the mortgage. $300k? You better have one heck of a pension!

or a simple lifestyle and low living expenses. I think the point is that conventional wisdom is that you need gazillions to retire, but if you own your home and have a simple lifestyle that you could do it on SS and 4% WR from a $300k portfolio. I know people who do it on less - note that these people are FRA or older - I can't see ER with only that amount.

 

[FANOFJESUS]

This is more shocking than the 300k story.
The Shocking Retirement Numbers That Will Blow You Away

According to recent estimates, there are 58 million Americans between the ages of 50 and 64. The median retirement savings for this group is only $26,000 per person.

 

[Mulligan]

I read that article before I came here today. I can't imagine having just $300k and I own my house and I have a pension and I LBMN and I have not spend any investments in 5+ years except for $21k to help pay off the mortgage. $300k? You better have one heck of a pension!

I couldn't imagine having $300k! Though it looks like I will in about 10 years or so if things keep going like they have. My pension is about $75k, with a small 2% bump in a couple of months. Plenty for me and then some, but I live in a low cost area, and don't live extravagant either, though I do what I want.

 

[mathjak107]

This is more shocking than the 300k story.
The Shocking Retirement Numbers That Will Blow You Away

According to recent estimates, there are 58 million Americans between the ages of 50 and 64. The median retirement savings for this group is only $26,000 per person.

These estimates are all over the place and with something as infinate as what we have no one really knows.