Retirement Income

[papadad111]

Interesting poll results

Age certainly matters-- how do I count or value SS that's 20 years out ?

Withdrawals are not income. They are simply uses of prior income.

Perhaps a better way to ask the question :

1. How much do you add to your net worth annually, and how much do you draw down from that net annually to pay expenses,donate.

Or

2. What economic value add do you generate and/or collect (from govt, pension, annuity, dividend, interest, side hustle retirement job, rental property income annually.

Reference the $40k spending -- I would also guess 50% of currently retired households live on little more than their social security incomes. Which is likely below 40k for a couple.

Another 20-25% live on SS plus a guaranteed pension income. Likely puts them in the 50-75K range

I suspect fewer than 25% of today's retired people are above 75k in household income even when relying on SS, Pension, and substantial personal savings (taxable and tax deferred account withdrawals) as their sources of income.

I think fewer than 5% are retired without the stable sources of income from SS & Pension and just living on portfolio and/or passive income streams like dividend, interest, rental property.

[daylatedollarshort]

Quote:

Originally Posted by NW-Bound People may be thinking that they can cut down to $40K if they need to, but they are in fact spending much more. Is that wishful thinking? We do not really know unless the market takes another dump and loses 50% as it did in 2009, but I think they can. When there's no money but only $40K/year, people will figure out a way.

According to the Pension Rights Center, median household income for retirees in 2014 was $36,895, so many retiree households have to figure out how to live on less than $40K.

Income of Today's Older Adults | Pension Rights Center

Median income from financial assets in 2014 was $1.7K.

[NW-Bound]

OK, there we go. A lot of people are living on under $40K. That level would be a raise to them.

If other people can live on less, so can anybody here when faced with the situation. It's not the end of the world, but merely the end of travel, fancy cars, big homes, eating out, etc...

[Major Tom]

Quote:

Originally Posted by NW-Bound A lot of people are living on under $40K. That level would be a raise to them.

We are, and it sure would be.

Quote:

Originally Posted by NW-Bound If other people can live on less, so can anybody here when faced with the situation. It's not the end of the world, but merely the end of travel, fancy cars, big homes, eating out, etc...

I don't travel much, don't own a car of any description - let alone a fancy one, and my idea of eating out is a $10 burrito. Once every few months, I'll go somewhere a bit nicer, and spend a little more. I was spending more before retiring, and do expect my income to go up in a few years. When that happens, I'll happily increase the travel and eating out activities to fit the new budget.

One adjusts one's activities to fit whatever budget is available. It's easily done.

[pb4uski]

Quote:

Originally Posted by Major Tom ...One adjusts one's activities to fit whatever budget is available. It's easily done.

That is what I told DS at dinner yesterday. He is working and earning perhaps $20k a year but is sharing a cheap apartment with someone, has a paid-for car and a modest lifestyle (occasional movies, once a year modest vacation) and is still able to save some.

Not the life I would choose or wanted for him but to each his own.

[kcowan]

Quote:

Originally Posted by papadad111 Withdrawals are not income. They are simply uses of prior income.

That would apply to annuity payments and pension payment too.

[mathjak107]

not really , pensions are pay checks that never ended . annuity's are buying a pension . yeah many pensions are contributory but the amount you are guaranteed to receive is generally limited to your lifetime and possibly a spouse .

it is not your money until you recieve the income from that pay check you bought .

[Danmar]

Quote:

Originally Posted by Major Tom One adjusts one's activities to fit whatever budget is available. It's easily done.

Agree. And some people are lucky that they actually can increase their spending to match available funding.

[daylatedollarshort]

We really never track income on our long term plans. Because of the ACA, we decide what AGI we need at the beginning of the year to stay under the cliff and then as Captain Picard would say, make it so.

What we track long term are cash flow and net worth.

[kcowan]

Quote:

Originally Posted by mathjak107 not really , pensions are pay checks that never ended . annuity's are buying a pension . yeah many pensions are contributory but the amount you are guaranteed to receive is generally limited to your lifetime and possibly a spouse . it is not your money until you recieve the income from that pay check you bought .

Quote:

Originally Posted by Meadbh That's easy. I just used my taxable income.

There appears to be a disconnect between these two viewpoints. I agree with the taxable income approach.

[GravitySucks]

Dang. I'm the poor cousin in this family. I'll be shuffling on back to my shack on the Tobacco Road now.

[Mulligan]

Quote:

Originally Posted by mathjak107 not really , pensions are pay checks that never ended . annuity's are buying a pension . yeah many pensions are contributory but the amount you are guaranteed to receive is generally limited to your lifetime and possibly a spouse . it is not your money until you recieve the income from that pay check you bought .

I am a simpleton so I think this way. .... My form says I paid over $15,000 this past year in "Federal Income Tax Withheld". So therefore my pension is income if "income tax" is being withheld.


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[NW-Bound]

Quote:

Originally Posted by Danmar Agree. And some people are lucky that they actually can increase their spending to match available funding.

Pardon me, but I think luck is when your available funding increases.

I am still waiting for mine. I promise that I would increase my spending. Just upgrading my airplane seats would take care of mucho additional funding.

[imoldernu]

After enjoying the back and forth, I'd suggest that the OP was clearly stated and IMHO correct, re the home value as an income inclusion.

While we currently live in a regular home we may, at any time, trade it for living in our CCRC's apartments or if health determined, into assisted living. . Whether we rent or sell where we are now, the "income" would effectively be the same.

To say other wise, would be the equivalent of suggesting that a person who owns a Picasso worth 20 million dollars might be in the lowest quintile if in fact he was living on social security.

I would assume that we have polls to make some logical sense of... in this case, value.

...........................
In a way, it goes back to the point that comes up on a regular basis... Is the home a part of one's net worth? If it is not... then prithee tell where does that amount belong? Of course for some calculations the value is excluded, but isn't that a matter of selective choice? As if to say that because you live in a $1 million home, you can't count it as "net worth" because you have to have "someplace to live".

I suppose this discussion will go on forever.

[daylatedollarshort]

Quote:

Originally Posted by kcowan There appears to be a disconnect between these two viewpoints. I agree with the taxable income approach.

Some of our taxable income for last year was withdrawals from tax deferred retirement accounts, created from contributions of earned income in prior years.

[Fedup]

What I understand is the time is now, not 10 years ago, not in the future. So the income I receive this year, 2016. I think there has to be a time bound to make sense. Five years from now, my income would be higher for sure. But I don't know that with 100% certainty.
To be honest, I stole the last part from Legally Blond movie.

[pb4uski]

Good point.... as ER we are currently living on earnings (and in bad years principal) from our nestegg.. but when I start my pension and we start SS then our "retirement income" will increase. I responded based on what it is today (interest, dividends and an average of appreciation).

[Danmar]

Quote:

Originally Posted by NW-Bound Pardon me, but I think luck is when your available funding increases. I am still waiting for mine. I promise that I would increase my spending. Just upgrading my airplane seats would take care of mucho additional funding.

I was thinking about the realization that funding was higher than current spending. When I retired my divs and pensions were higher than spending prior to retirement. Since then, my divs have increased by almost 100% (10years) somehow, I manage to find ways to spend this. Obviously not common or representative.

[Cobra9777]

So, maybe I've had too much coffee this morning, but I've been thinking some more about this "income" measurement issue. Some people advocate the familiar tax definition, and that's fine. But due to certain issues like Roth conversions, municipal interest, non-taxed SS, etc., it's not very comparable or meaningful in some cases, relative to the intent of the poll. It also excludes items like dividends in tax-deferred accounts, which OP and others define as "income."

Others seem to favor some version of a more comprehensive economic definition, which at the extreme, would be what papadad described, essentially: income = consumption +/- change in net worth...

Quote:

Originally Posted by papadad111 ... Perhaps a better way to ask the question : 1. How much do you add to your net worth annually, and how much do you draw down from that net annually to pay expenses,donate...

This describes the Haig-Simons definition of economic income for individuals. However, after re-reading the thread, there seems to be an endless variety of opinions as to which items inside net worth should be included or excluded... home value, unrealized CGs, etc... similar to the never-ending debate about how to define net worth. So while that approach has merit, it seems like a dead end in terms of reaching any form of consensus.

Then, on top of all that, there's the timing issue that several people refererenced. Some people are early in retirement with no SS or pensions yet. So they are consuming principal early on, with more "income" to come later. Other timing issues were discussed as well. So, current year "income" (however defined) may not be very representative of a retirees overall spending power.

So I started thinking, perhaps a better measurement is simply: whatever FIRECalc says you can spend at 95% success rate. For many, this should be fairly close to actual expenses (and as a practical matter, that's probably the simplest way to conduct these polls). But if you are over or under-spending relative to funding capability, this FIRECalc figure would capture that. This also takes care of the timing issue and provides a reasonable and comparable measure of "spending capacity" rather than "retirement income," which seems to be an elusive concept.

Just my 2 cents.

[Danmar]

@cobra: I think your idea has considerable merit. Would ignore personal use real estate which is probably best. In my case firecalc@95% is very close to my actual divs.