How much is average saving during retirement?

[whitestick]

DW asked me how much do the average people who are retired manage to save each year, over and above their expenses. Other then the obvious inflation factor of ~3%, I really didn't have a clue. I expect many of the FIREd folks here to have a higher savings rate then average, but then I don't know, and thought I'd ask before [-]lying through my teeth[/-] giving her the benefit of my wisdom. What's yours and your estimate of the average?

 

[twaddle]

Dumb question: why would a retiree want a non-zero savings rate? Wouldn't that mean that their investments are throwing off too much income? Doesn't sound tax efficient to me. (In fact, my high savings rate is a problem I'm trying to fix.)

 

[W2R]

Dumb question: why would a retiree want a non-zero savings rate? Wouldn't that mean that their investments are throwing off too much income? Doesn't sound tax efficient to me. (In fact, my high savings rate is a problem I'm trying to fix.)

(note: edited because I thought it sounded a little snippy/hostile (due to being crabby when I awakened this morning) - - intended content the same, but snippiness removed since there was no reason for it!):

When I retire, I will want to save for things like a new roof, a new car, any other things that I decide I am yearning for, or to send money to my daughter now and then, or maybe for an elegant assisted living facility... that sort of thing. Who knows? Maybe I will develop a yearning for travel.

Although many retirees live only on investment income, others mainly rely on COLA'd pensions, annuities, and social security, and so on. They might not even have any investments, though they might save money to invest.

 

[OAG]

We live off of Annuities (isn't that what COLA'd Retirement Pay and SS really is). We save way too much -- but it was a long practiced habit and habits are hard to break. Would putting a number to it help OP? If so saving approximately 2X expenses. ONLY future large expense will be a new car (net of the trade in value of the old one). Maybe nursing home for one or both of us -- probably in denial about that one, but maybe that is a "reason" to save.

 

[Moemg]

I don't really save anymore but my spending is way below the 4% level so that money gets reinvested .

 

[whitestick]

The basis for the question is that as i am taking ER in November, and we are faced with the transition of moving from accumulation phase to spending phase (retirement), as R Wood pointed out, old habits are hard to break. I could seek out another J**b while my technical skills are still in high demand, and add to the pot, or take the income streams and do a "real" retirement. We are showing some savings right now of the 3%, for a year or so, and then it begins to ramp up as other income streams or investments begin to become available without penalty. DW is woried about the low savings rate for the first year, and even the out years (6), when it approaches 100% of expenses. She and I are looking for that comfort level of overkill for income versus expenses, thus the reason for the question of what the average savings might be in retirment. Once I hit 70 1/2, then I'll have the same problem that twaddle mentioned, due to RMD from IRAs. Our current expense stream projections (I think she has padded this) puts us above the level of converting to ROTH, or at least till I have a couple of years of experience, first, so that will be a problem when we get there. I know these are higher numbers then many folks have, but, being newbies to RE, we are taking the conservative approach, and continuing on the same expense stream that we have while we are working. Just nevousness, but it's real to us right now.

 

[mickeyd]

My part-time or temp work throughout the year is what I use to fund my Roth IRA up to $5k. My next $5k goes to fund DW's Roth. After that, I dump it in the MMF and it gets spent eventually, but I do not keep track of it after that.

 

[kcowan]

I guess I look at the savings issue differently. We plan on our portfolio returning 9% and our living expense is currently 3.5% WR so our savings is 5.5% currently. We plan for major expenses like cars separately. We plan for our budget to increase at 4% per year, so as long as the portfolio achieves 9%, our savings rate will continue to increase every year.

 

[audreyh1]

I seriously doubt that folks already FIREd are saving nearly as much as they did during their working years when they were building their retirement nest egg - at least in terms of % of salary.

Some folks probably spend to the limit of what their pension/retirement portfolio will support. Others spend less. Those fools who spend more will have to go back to work.

I guess I don't think of this as "saving" - it's rather spending a little less than the retirement portfolio will support, and allowing the portfolio to grow a little extra each year or allowing some extra cash to accumulate in your bank account. Either way provides a little more room for the occasional large lump sum expense.

I suppose this is equivalent of saving up for a rainy day during the working years for the occasional major expense of a new car, or major repair, or home upgrade, or whatever. But the mechanics are quite different.

I doubt there is a "typical" number. But living below your means is just as crucial to financial security during retirement as it is during your working years.

Audrey

 

[Moemg]

I guess I don't think of this as "saving" - it's rather spending a little less than the retirement portfolio will support, and allowing the portfolio to grow a little extra each year or allowing some extra cash to accumulate in your bank account. Either way provides a little more room for the occasional large lump sum expense.



Audrey

Exactly !!!

 

[haha]

I quit saving at least 25 years ago. Since my portfolion will only generate so much, and I have some control over what form this "earnings" takes, I try to pretty closely match ordinary income generated to my ongoing cash needs.

I do try to avoid what I believe may be a common retiree approach of periodically selling a bit of stock to cover expenses. Though this is tax very tax efficient, IMO it is also risky.

Ha

 

[Moemg]

. Though this is tax very tax efficient, IMO it is also risky.

Ha

Why do you feel it's risky ?

 

[haha]

Why do you feel it's risky ?

Complicated and sometimes contentious issue.

Overall, if you choose wisely, income streams are less volatile than capital values. You don't need a market willing to buy what you want to sell in order for you to have the cash you need. You get your scheduled payment- contractually in the case of bonds. And assuming you have chosen wisely and maintained reasonable diversification, you get your periodic stock dividends deposited into your account or landing in your mailbox.

I have owned lots of dividend paying stocks, and I have been pleasantly surprised by dividend increases far more often than disappointed by decreases or suspensions. And I have never had a bond default in 40 years of direct investing.

Meanwhile, market valuations have jiggled up and down, sometimes violently.

Ha

 

[unclemick]

Hmmm - am I the only guy who gets hosed by mergers/private buyouts over the years. This year - New Plan Reality and Keyspan. I suppose I could reinvest my original basis - but I will probably not take the equivalent $ out of my trad IRA since I'm not 70 1/2 yet. Not every year - but it seems to have hit in dribs and drabs since 93.

The ORP calculator says I can look forward to getting pranged big time come RMD. But the time compounded says I still come out ahead.

Meanwhile - I'm all over the map spending vs reinvesting.

heh heh heh - trying to up spending the last few years.

 

[Retire Soon]

I don't actually know how much I'm saving at the present time. All of my dividends are reinvested in my mutual funds. I'm taking slightly more than the recommended 4% withdrawal rate, but am not concerned as dw's SS starts in 3 years. The concept of saving money ended when I fire'd a year ago.

 

[ZMAN]

We have been saving for almost 30 years. I think it is going to be odd and perhaps uncomfortable to spend from the accumulation in ER, although that is why we bulit it up.

 

[whitestick]

And add to the unease of spending, by drastically reducing the dollars of additional savings, and that is the basis of my original question.

 

[audreyh1]

Huh? I'm not really understanding the comments above.

You spend years saving and investing so that you can live off your nest egg. Yes, there is some cultural shock involved in then drawing off that nest egg. It has to last. The culture shock is really even more about no longer having a salary. That really does take some getting used to.

Once you are no longer drawing a salary, you can't "save" in the traditional sense. That option is truly out the window. You gave it up by retiring.

Once retired, the only thing you can do is draw conservatively from your nest egg, invest wisely for the long term which includes investing to counteract inflation, and build up a large enough nest egg before retiring so that it does indeed cover the living expenses you expect to meet the lifestyle you wish to enjoy in retirement.

Audrey

 

[73ss454]

Thanks Audrey, I thought I was the only one confuesed by this thread.

If your spending 4% of your port and the market goes up 20% then you saved some money. On the other hand if you take your 4% and the market drops 20% you didn't save money. How would one know in advance if your going to save money.

 

[Goonie]

When I retire, I will want to save for things like a new roof, a new car, any other things that I decide I am yearning for, or to send money to my daughter now and then, or maybe for an elegant assisted living facility... that sort of thing. Who knows? Maybe I will develop a yearning for travel.

Although many retirees live only on investment income, others mainly rely on COLA'd pensions, annuities, and social security, and so on....

We live off of Annuities (isn't that what COLA'd Retirement Pay and SS really is). We save way too much -- but it was a long practiced habit and habits are hard to break.

My primary income is from a COLA'd pension, and my other investments are secondary streams for me. I'm actually able to save MORE in ER than while I was employed because my expenses are lower now. While w*rking my savings ranged between about 10% and 20% of my net salary income, and now in retirement I'm saving/investing about 30% of my net pension income. (net pension is 87.7% of my former net salary)

Why do I save so much? Because like Want2retire said, I want to save up for things that I want (travel, cars, hobby, etc), or may need (medical, "elegant assisted living facility", etc). And also because like R Wood said, it's an old habit that's hard to break.....and, personally, one that I prefer NOT to break!

I seriously doubt that folks already FIREd are saving nearly as much as they did during their working years when they were building their retirement nest egg - at least in terms of % of salary.

I doubt there is a "typical" number. But living below your means is just as crucial to financial security during retirement as it is during your working years.

I'm the oddball that DOES save more....both % and $$!

And although I LBMM, I don't deprive myself of anything that I may want or need!

 

[audreyh1]

If most of your retirement income is from a pension (hopefully inflation adjusted) then that is pretty much like still having a salary. If your pension income is much higher than your living expenses, you have indeed got it made. Not only do you have a salary, but if after your retirement living expenses drop you just got a big raise!!! Letting some of the excess build up for goodies or special needs down the road is a prudent thing to do.

Living mostly off a nest egg of investments versus having a substantial pension (which more than covers your needs) are radically different situations in retirement.

Audrey

 

[Khan]

I also am still saving. My partially COLAd pension is just under $30K (gross) and so far this year I have not spent more than $4K (I moved it from checking to MMA).

 

[kcowan]

I view my gainful activity right now to be portfolio manager, and so I consider the portfolio returns to be "earnings" and I have been able to keep the earnings well above our spending every year since retirement. At this rate we can live forever. But I am realistic about the need to build a buffer in these good years to help weather the poorer years.

And also to budget for exceptional capital acquisitions like new cars and a home in the sunbelt (if current trends continue).

 

[rs0460a]

Huh? I'm not really understanding the comments above.

You spend years saving and investing so that you can live off your nest egg. Yes, there is some cultural shock involved in then drawing off that nest egg. It has to last. The culture shock is really even more about no longer having a salary. That really does take some getting used to.

Once you are no longer drawing a salary, you can't "save" in the traditional sense. That option is truly out the window. You gave it up by retiring.

Once retired, the only thing you can do is draw conservatively from your nest egg, invest wisely for the long term which includes investing to counteract inflation, and build up a large enough nest egg before retiring so that it does indeed cover the living expenses you expect to meet the lifestyle you wish to enjoy in retirement.

Audrey

Agreed (with your confusion..)

I retired in May; my DW will retire next June. I have no current "income" and my wife will have none in another 7+ months (SS will not be drawn for another six years for either of us). Our expenses will be fully covered from our tax deferred investments (currently consisting of a 60/40 mix. The 40% bond/cash contains MM $$ to cover 3+ years of gross spending, and will be refilled from the equity side during "good" years). I don't consider that "savings" - rather than just "refilling the cookie jar "

- Ron

 

[RetireeRobert]

DW asked me how much do the average people who are retired manage to save each year, over and above their expenses. Other then the obvious inflation factor of ~3%, I really didn't have a clue. I expect many of the FIREd folks here to have a higher savings rate then average, but then I don't know, and thought I'd ask before [-]lying through my teeth[/-] giving her the benefit of my wisdom. What's yours and your estimate of the average?

I have no idea of the "average" for all RE's.

As to myself and wife, I have an $80k cola'd pension that more than covers our living expenses. Anything else goes to savings/investments.

I also just started on SS at 62 and my wife and two of my kids ages 14 and 17 will be getting some SS. The SS for me and wife will go to savings/investments.

In addition, my wife has a pension (from same organization I worked for) still building (she hasn't worked for 24 years, but is vested and her pension fund is accumulating). She can either take that as a full pension anytime, or take 1/2 as a lump and a half pension, or take a full lump. We are thinking the half pension/half lump option, to roll $125k into an IRA perhaps in three or more years as we don't need the money now. But it will give her her own $13k pension plus 1/2 of my $80k when I croak. She will also be elegibile for SS as retiree in 12 to 16 years.

Besides all this, we have close to $1 million in tax deferred retirement accounts (some traditional and some Roth). It will be untouched until we hit the 70-1/2 marker (and the Roths likely never). Right now we are growing it in investments. Besides all that, we have $1/2 million in muni funds throwing off federal tax exempt income. And to beat the band, our home has been mortage free for over ten years.

So, we are probably saving/investing more now than when I was working. We are planning on building a new home. That should solve any problem we have from getting all that muni tax-exempt income from that pot. We'll pay cash for the new home, so will have no new mortage either.

One kid is through college, and we already funded UTMAs over the years for the other two kids college funds. Plus they will get a boost from their SS benefits for awhile---that's why I started SS at age 62. That made the SS at 62 or 66 question a no-brainer for me.

So, even after allowing for an occassional splurge like a cruise, a new (to us) used car, a new home (after 17 years in our mortgage-free current home), we are saving.

My next financial area to look into is longterm care insurance, to decide if the premiums will be worth it or not for us.

We will be able to leave a nice legacy to our three kids, fund some charitable interests, all while living how we want.

And to imagine, I never earned a salary higher than $60,000 a year my entire career when I was working (and even that only is my last year). Somewhere I've got the book "The Wealthy Barber". I'm going to have to finally read that and see if I already followed it's advice.

Back to your original subject---saving IN retirement. I think it is a wise thing to do. Living month-to-month, check-to-pension check, puts one in the same precarious position in retirement one would be in if still working.
Just one emergency away from disaster. Emergencys, unexpected needs, broken-down cars, health crises, leaking roofs, parents to care for, etc, etc all happen in retirement too. They don't magically stop after work ends.

Spending 100% of current income leaves one no way to build the emergency reserves, and it may even cause one to deplete existing reserves. One can live joyfully, contentedly, and richly without needing to spend 100% of retirement income.