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Liz Weston article in Sunday LA Times
Old 07-28-2013, 10:09 PM   #1
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Liz Weston article in Sunday LA Times

I saw this in the LA Times today. An insightful reader questioning the logic that many financial planners use to estimate required expenses in retirement. I thought Liz's answer was pretty accurate given the limited info she was provided.

You can find the article here: How to figure income needs for retirement - latimes.com

I will cut and paste a snippet

Quote:
How to figure income needs for retirement

Dear Liz: None of the Web-based tools I've seen really get at the heart of the problem of how much I really need in retirement. For example, if I am diligent and save 20% of my income (I earn over $150,000), why would I need to replace 95% or even 80% of my income to maintain my standard of living in retirement?

Answer: The further you are from retirement, the harder it can be to predict how much you'll need when you get there.
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Old 07-29-2013, 09:44 AM   #2
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Quote:
Originally Posted by Ready View Post
I saw this in the LA Times today. An insightful reader questioning the logic that many financial planners use to estimate required expenses in retirement. I thought Liz's answer was pretty accurate given the limited info she was provided.
+1. No detail understandably, but I agree she covered the major bases pretty well.

I don't see anything wrong with the 70-80% as a starting point - some people are clueless and/or lazy about budgeting, it's better than nothing for them. IME, unfortunately the clueless are more common than those who have a handle on their spending/budget. I don't think anyone has ever seriously suggested that the 70-80% is some universal truth - any more than 4% SWR is.

Some people will actually spend much less, and some much more in retirement - all depends on how your retirement lifestyle/activities compare to pre-retirement. No one can/should guess what any individual should use as a $ or %...but if the questioner is clueless, you could do worse than suggest 70-80% as a starting point, and offer some caveats (like the linked article) for the questioner to ponder.
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Old 07-29-2013, 11:49 AM   #3
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Especially if "most" people budget in retirement the same way they budget before retirement.
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Old 07-29-2013, 02:35 PM   #4
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I enjoyed the article. It always drove me nuts because a lot of financial planners don't necessarily SAY that the 70-80% is a starting point. They state it as-a-matter-of-factly.

It should be based solely off spending habits and potential future spending habits, not income.
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Old 07-29-2013, 02:52 PM   #5
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+1 I think the 70-80% that is frequently used as a starting point is meant to represent take-home pay and assumes that the people spend all of their take home pay, so it probably isn't a bad place to start. It needs to be adjusted for any after-tax savings or other things like additional mortgage payments, loan repayments, college costs that will end, etc. to try to get to what the person is spending on living costs.
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Old 07-30-2013, 09:17 AM   #6
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She has an interesting point on the U shaped spending pattern as we age. I wonder if there is any way to model that in firecalc instead of the Bernicke which uses a reduction to flat type function. Maybe by manipulating the additional spending/income parameters.
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