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Old 10-12-2014, 09:14 PM   #81
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My brother-in-law, just retired this last month. I had lengthy discussion with my sister where I had opportunity to show off all my accumulated FIRE knowledge. E.g. "No you don't want to roll the stock into IRA, you want to take advantage of something called Net Unrealized Appreciation to save money on taxes."

I walked her through FIRECalc, she is pretty analytical so I hope she plays with it some more.

One of the things that struck me is that Social Security does provide a pretty respectable living if you wait until 66/7 to take it. The max benefit is $2,642, with the spousal benefit that is $48K a year. Not a lot if you are used to making $120K+ (to qualify for max SS benefits), but 48K is certainly enough to live on. If you have a paid off or nearly paid off house and don't live in super expensive place.

My sister and her hubby primarily saved just by maxing out their 401K (and while it was invested conservatively (1/3 equities and lot in in cash) they still end up with $650K. So 4% of that plus SS gives them $75K, which after taxes and 401K deductions isn't a huge decrease from their take home pay. Turns out despite the family perception that they were constantly spending (new cars ever few years), they saved even more and are in fine shape, with an annuity and other savings.

But I honestly think the doom and gloom of retirement is overblown. Looking at the SS facts, the average married couple is collecting $31K in SS benefits. For about 1/2 of couple like my sister it is more than 1/2 their income but that hardly means poverty. Only 22% of married couples rely on SS for more than 90% of their income.

The median income for 65 year old is 36K/year. The over 65 groups is the only age group who has seen a real income increase this century.

I honestly don't think the ship has sailed even for a 55 year old with no saving. If they are an average Jane making $50K and they can manage to save $5,000 in IRA over the next 12 years, it will likely grow into $100k by the time they reach full retirement age at 67. I did a Firecalc run with 0 current saving, average social security, and 20 years of retirement and median spending of 36,000. Saving 5,000/year gives them a 75% chance of success, $6,000 a year of saving is 92% .

Now there is a modest lifestyle reduction for somebody making $50K saving $5-6K and living on $36K, but it isn't huge.

Now there are two groups that I think are in trouble who are 55 without savings: Singles, it just a lot cheaper to live with somebody and SS provides a really high portion of singles incomes. The second group is the high income couple with no saving, somebody making $120K+ a year trying to live on $48K is going to be in for a rude awakening. But I think for average joe, or anybody with a pension + SS, I don't think there is a need to panic if you have no savings at 55.

Most of us on the forum, have or are planning on retiring many years before full SS kicks in. It is substantially harder (i.e. requires serious savings early) to do this.
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Old 10-12-2014, 09:54 PM   #82
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I agree with clifp. Most people will find a way to manage, even if it means a drastic reduction in their standard of living. As someone said in another thread recently (it might have been bestwifeever, but that's only a guess), most people survive because what is the alternative?

I'm sure there will be a few poor souls who fall through the cracks and end up pushing shopping carts and sleeping under bridges, but with the various benefits and subsidies available nowadays, my guess is that it's far fewer people than in the early part of the 20th century.
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Old 10-12-2014, 10:43 PM   #83
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One of the things that struck me is that Social Security does provide a pretty respectable living if you wait until 66/7 to take it.
+1
Many comments here discount SS as maybe not being there when it's needed. My personal bet is on SS still being there, compared to invested capital which may be more susceptible in the case of large or long market corrections or depression, but that's just my opinion.
We've been collecting for more than 16 years with the reduced age 62 amount, and with minimum spousal benefits... The total for 2014 will be over $25K. For us, a not inconsiderable amount. It's an inflation adjusted amount, which, although it doesn't track actual inflation, over the years, has certainly helped.

Could we live on this amount?... No!. Fortunately we don't have to, but, together with the incentive of not using taxable capital in the early years, Social Security is a basis for our future plans. I see nothing wrong with that, and in discussing the future planning for my four (age 45 to 55 year old sons)...suggest that they do the same. I believe that waiting to retire based on not having SS, could delay the retirement date by two or even three years.

Living on 70% of pre-retirement income those who are earning $150K/yr is far different than the household that is earning the median income of $53K. All of us have different requirements. Broad brushing SS as an amount that should not be counted in long term planning could reduce the number of the wonderful retirement years.

The other part that should be considered in the actual dollar planning, is the amount that will be put into the retirement capital account. Obviously the final salary years for higher paid workers will allow for marginally higher nest eggs. (Much easier to put $20K/yr aside when making $150K, than for those who earn the $53K/yr.)

The financial calculators and the Financial advisor plan (that we didn't follow)
back in 1989 called for us to continue working for three more years and wait until 65 (full payout at that time) for SS. Instead of recommended age 56, we retired at 53 and took SS at 62. No regrets, and we're well ahead of the projections.

We had much more fun-per-year at age 53, than we do now, 25 years later. You can't put a price on that!
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Old 10-13-2014, 06:26 AM   #84
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They also plan to stop smoking, drinking and start losing weight at the same time.

To the OP: what should they do? They should start LBYM right now and pay down those debts and try to save what they can. Now is not the time to buy a car every 2 years. You have to start somewhere. Having something besides just SS helps. Maybe that extra will allow you to keep a house and pay for gas.

But what if they don't pay down debts and have no savings? Well, that's what SS is for. I've seen plenty of people live only on SS. It is pretty spartan, but doable. Don't plan on travel or luxuries. You may not be able to live in your house because you can't maintain it. But there is subsidized senior housing available.

Then you have one of my BILs. He has intentionally avoided taxes of all kinds. Always doing jobs for cash. Now he begs and will have to try to live on SSI. (Something I learned on this board... even if you totally blew it and don't even have SS, you can get SSI.) I suspect he'll be bugging us for cash too.

I hate to be a downer, but I suspect some Congress in the next 20 years or so will institute some wealth tax (asset tax) to "help" these folks.
Uncle Sam will come and take from the savers again, something else you need to plan for
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Old 10-13-2014, 07:47 AM   #85
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It's helpful for me to read this variety of experiences and viewpoints.

I wasn't supposed to be where I am today, after having torn up and re-written every script life wrote for me.

Sort of confirms this vaguely nagging feeling that I can lighten up now.
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Old 10-13-2014, 08:32 AM   #86
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I'll also add this. For those I've seen living on SS alone, they consistently do NOT have a drug, alcohol or gambling habit. Have one of those, and you are sunk.
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Old 10-13-2014, 08:38 AM   #87
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I'm 44, but my wife is a bit older. We're planning to be FIRED in 8-9 years, which will be very early retirement for me, not so early for her. So far, we are on track and hitting our goals. I talked to a colleague last week, age 60, who said he would probably never be able to retire. He is a very well paid professional and probably has a nice nest egg. Turns out, he has no idea what he spends. He tries to save 10% per year, but has never looked at what he spends or what size retirement kitty he needs. I told him to start tracking his expenses and go to the FIRECALC website!
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Old 10-13-2014, 08:38 AM   #88
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If they had a drug or alcohol problem they wouldn't have survived long enough to collect SS, at least for very long.


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Old 10-13-2014, 09:16 AM   #89
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If they had a drug or alcohol problem they wouldn't have survived long enough to collect SS, at least for very long.
Sorry Doc. It doesn't always work that way. I have an 85 yo neighbor that smells of booze sometimes when he walks his dog in the morning. He frequently compains about his hangovers. He told one neighbor who found him stumbling and smelling like bourbon that he thinks he might drink a little too much.

I will agree that the odds should be against him. He's definitely in the alcohol problem group. Smoking is another one that's not a given. My mother died at 65 from lung cancer but her mother her smoked even more made it to 84.
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Old 10-13-2014, 09:47 AM   #90
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If they had a drug or alcohol problem they wouldn't have survived long enough to collect SS, at least for very long.


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Old 10-13-2014, 09:53 AM   #91
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But I honestly think the doom and gloom of retirement is overblown. Looking at the SS facts, the average married couple is collecting $31K in SS benefits. For about 1/2 of couple like my sister it is more than 1/2 their income but that hardly means poverty.
It is not poverty if you understand how to live like that. I can see on some of the forums where people do not. One household was broke on $60K and asking for others to review their budget on how they could possibly cut back because they were out of ideas. They have to get that cutting back doesn't mean using coupons to buy processed foods or switching to basic cable - it means they have to tackle the big issues like selling the vacation home or else working part-time.
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Old 10-13-2014, 09:54 AM   #92
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Uncle Sam will come and take from the savers again, something else you need to plan for
Hard to discuss this without getting into politics but how do you see them accomplishing this? I mean, ignoring Constitutional issues, how would you take this wealth without causing massive disruption that would exceed the financial gain to the government?

If they take savings accounts, the banks no longer have the assets they lent out as mortgages and loans. If they take stocks, do they sell these off or do we become a socialist country? Real estate and bonds are similar. In the end, other than somehow confiscating the cash that banks keep on hand, where do they confiscate? What happened in Cyprus where they locked the banks and took a percentage? I think it mainly hit large cash accounts.
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Old 10-13-2014, 09:57 AM   #93
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I'll also add this. For those I've seen living on SS alone, they consistently do NOT have a drug, alcohol or gambling habit. Have one of those, and you are sunk.
A good percentage are homeless or in public housing.
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Old 10-13-2014, 10:24 AM   #94
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Hard to discuss this without getting into politics but how do you see them accomplishing this? I mean, ignoring Constitutional issues, how would you take this wealth without causing massive disruption that would exceed the financial gain to the government?

If they take savings accounts, the banks no longer have the assets they lent out as mortgages and loans. If they take stocks, do they sell these off or do we become a socialist country? Real estate and bonds are similar. In the end, other than somehow confiscating the cash that banks keep on hand, where do they confiscate? What happened in Cyprus where they locked the banks and took a percentage? I think it mainly hit large cash accounts.
They will do it the way they have always done it. They will change the tax code. Look at SS. We pay tax on it when it is deducted from our pay. It goes into the "trust fund" that pays benefits. At first the benefits were tax free. Then to make it "fair" the people with very large incomes had to pay income taxes on up to 80% of their SS benefit. This only impacted a very small percentage of recipients. Fast forward to today, a very high percentage of SS recipients have it added to their taxable income and in a few years it will probably be everyone.

Income tax was originally implemented at a 2% tax on (at the time) astronomical income. It has been tweeked and adjusted where half the people pay it. There are constant cries to increase it to have people pay their "fair" share.

The beauracracy is a living beast. Both political parties have jiggered with the tax code to grow it.

I can easily see Roth's taxed at a small amount for withdrawls exceeding a rather large amount which grows larger with every passing year. I can see inherited Roth's losing their tax free status entirely.

"When Congress is in session no ones wallet (purse) is safe." It's an old quote even more true today. Government risk is something we all need to keep in mind whether it is in regard to our supposedly guaranteed public pension, SS or tax rates.
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Old 10-13-2014, 10:32 AM   #95
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I brought it up, but let me back it off a bit.

What I'm talking about is a wealth tax or intangibles tax. Many states have some form of intangibles tax.

For the federal system, if tried, it would likely be heavily contested through the courts. Many see it as unconstitutional. An amendment would be necessary, and probably won't pass muster.

But who knows?
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Old 10-13-2014, 10:40 AM   #96
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The original income tax was ruled unconstitutional. We all know how that worked out in the end.

There are many ways to skin a cat. With the right triggers, the pols will go after whatever they think they can get. SCOTUS killed almost every New Deal program that came out. FDR tried to pack the court in a thinly veiled threat. It was rebuffed but SCOTUS became much more compliant afterwards. Coincidence?
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Old 10-13-2014, 10:44 AM   #97
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I can easily see Roth's taxed at a small amount for withdrawls exceeding a rather large amount which grows larger with every passing year. I can see inherited Roth's losing their tax free status entirely.
This could happen, but I think it is more likely that the "Tax free Roth" promise will be kept in a technical sense, but not really. For example, Roth withdrawals perhaps won't be taxed, but will be counted as taxable income in order to determine what tax rate your other income is subjected to. Or the Roth withdrawals reduce deductions at some ratio. Or they increase the amount of SS income subject to taxation. Etc.
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Old 10-13-2014, 10:48 AM   #98
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Yeah I can see the states being able to do this. Don't think they still do it but they use to tax your home possessions here in AR. They just estimated based upon the value of your home. A "personal property tax" they called it. I think now they just do it as part of the real estate tax.

Feds should have a constitutional problem with this. But then, somehow they justify an estate tax. Somehow they regulate a person growing wheat/hay on a farm, for feeding his own cattle, as "interstate trade" since that reduces his need to buy feed from across state lines! They will find a way to do what they want.

I am more concerned with the mechanisms since those I can try and plan for. I need to go back and read more about Cyprus. Quick implication is to not keep large cash amounts in the bank.
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Old 10-13-2014, 11:03 AM   #99
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The folks who intrigue me are the wider circle of acquaintences/friends or even family members at middle age.
I don't worry about such people … they are healthy adults and responsible for their own decisions, and there is nothing I can - or should - do to protect them from their choices.

Nor do I secretly feel smug about my own relative wealth.
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Old 10-13-2014, 11:11 AM   #100
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Here is an article that says 60 percent of people 65 and older are working full time: The anti-retirement plan: Working 9-to-5 past 65 - The Washington Post

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As of September, 60 percent of workers age 65 and older had full-time jobs, up from about 55 percent in September of 2007, according to the Bureau of Labor Statistics. Over that time, the share of workers with part-time jobs fell to 40 percent from about 45 percent.
I was surprised at this (that 60 per), but it must be true haha. We RE'ers can probably not worry that the employed cohort (is that a term usable here?) is coming after our $ just yet.
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