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WHOAA!!! Everyone back to work!
Old 07-08-2005, 08:21 PM   #1
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WHOAA!!! Everyone back to work!

YOW! 120%!!!!

http://money.cnn.com/2004/03/11/reti...osts/index.htm
Retirement: It's going to cost you
Most people have grossly underestimated how much they'll need to save for their golden years.
March 28, 2005: 11:56 AM EST
By Sarah Max, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Americans spend a lot of time fantasizing about all the fun they'll have when they retire. But the daydreams almost never include the ugly reality: just how much those extended vacations are going to cost.

According to a 2003 survey by the American Savings Education Council (ASEC), more than half of all workers anticipate they'll need less than 70 percent of their pre-retirement income during their golden years an estimate that's unrealistic for even the most disciplined budgeters.

"People often wrongly assume that their expenses are going to come down when they retire, but in fact they often go up," said Don Blandin, ASEC's president. "Depending on how long you live, the kinds of medical problems you have and the kind of lifestyle you want, you may need 120 percent of your current income during retirement."
Golf clubs don't grow on trees

One the first mistakes people make when it comes to retirement planning, or lack of it, is not coming up with a good estimate for how much they need to have in the bank before they can quit work for good.

"Rather than just saving blindly, you need to have a realistic end goal in mind," said Blandin, noting that only one third of Americans say they have calculated what they'll need to retire.

To get to that end goal you need to first get a grip on how much you'll be spending each year of your retirement. The minimum amount most often quoted by financial planners is 70 percent of what you earned each year during your peak earning years. But that percentage, says Blandin, assumes that you've paid off most big-ticket expenses, including your home.

"For most people who retire at age 65, their spending will stay the same because what they spent on suits and mortgage payments they're now spending on golf clubs and travel," said Tom Grzymala, a principal with Alexandria Financial Associates. "Their spending might drop a little as they get older but then medical bills will probably bring it back up again."
The big hurdle -- healthcare

In 2002, Americans age 65 and older spent an average of $3,586 on healthcare, representing about 12 percent of their total out-of-pocket expenses, according to the U.S. Bureau of Labor Statistics.

That share is expected only to increase as healthcare costs rise faster than benefits. Retirees often depend on employer-sponsored health plans to supplement their Medicare coverage. But among large employers with healthcare benefits for retirees, 20 percent say they are likely to stop offering such coverage to future retirees within the next three years, according to a survey by the Kaiser Family Foundation and Hewitt Associates. Meanwhile, the majority of employers plan to raise retirees' premiums and prescription drug co-payments over the next three years.

"With more companies not providing healthcare those employees are going to have to figure out how to pay for healthcare," said Blandin, who recommends that anyone who needs a reality check on healthcare costs need only look at the full price of their prescription drugs. "The increase in health care and a longer life expectancy is what could easily eat away at whatever source of income you have in retirement."

While a long life is a blessing, it can throw a loop in your retirement plans if you live longer than you've accounted for in your savings. A healthy 30-year-old woman can expect to live into her 90s, according to Northwestern Mutual's Longevity Game. Unless she stays in good health, she may be living some of these years in a long-term care facility.

"In my state the price of a long-term care facility is now $42,000 to $50,000 a year and is expected to be around $100,000 in 10 years and $200,000 in 20 years," said George Heppner, a certified financial planner in Bend, Oregon. "Few people are prepared to deal with that kind of cost unless they buy long-term care insurance when they're young and it's still affordable."
Do the math yourself

A million dollars certainly seems like a lot of money. But someone who now earns $70,000, hopes to retire in 25 years at age 65 and live until age 90 on 80 percent of his pre-retirement income, will actually need to save $1.3 million to carry him through.

That estimate even assumes that Social Security kicks in an extra $19,000 a year during retirement. But planners warn that the program is likely to undergo some big changes between now and when most people retire. In fact, Alan Greenspan recently said that "significant structural adjustments" to Social Security and Medicare may be in needed in order to deal with the country's budget deficit.

"Even some of us boomers aren't counting much on Social Security," said Blandin. "If anything it should be a little icing on the cake."
Don't just sit there

For most people, the primary source of income in retirement will be what they've saved in their employers' 401(k), 403(b) or 457 plans. But while the majority of large employers offer such plans, only 71 percent of workers say they have saved anything for retirement, according to ASEC.

Those who are saving in their employers' plans are contributing, on average, just 6.8 percent of their pre-tax income, according to Hewitt Associates. Unless you make more than $190,000 a year, you'll need to save more than that before you run up against the current $13,000 contribution limit. (The limit is rising by $1,000 every year to $15,000 in 2006, and people over 50 may be able to "catch up" with even higher contributions.)

If you're hesitant to raise your contribution for fear it will eat up too much of your take-home pay, raise your savings slowly. Most plans allow you to log on to their site and change your contribution rate as you see fit.

You may not even notice the additional one or two or three percent coming out of your check. But that extra amount will go a long way toward securing your golden years.
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Re: WHOAA!!! Everyone back to work!
Old 07-08-2005, 09:06 PM   #2
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Re: WHOAA!!! Everyone back to work!

If Money didn't scare us, we wouldn't buy the magazine to learn all the "tricks" to getting enough money to retire.
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Re: WHOAA!!! Everyone back to work!
Old 07-08-2005, 09:29 PM   #3
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Re: WHOAA!!! Everyone back to work!

Anybody heard of buying used golf clubs? This is flippin bs? I am planning to spend at least the same as I do now, but I still dont think that I will need as much and also part of my potential budget will to save for the next day.

Do they really think that people start to "live it up". I dont think people can. Once they are programmed over the years, hard for them to start spending over their means.
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Re: WHOAA!!! Everyone back to work!
Old 07-08-2005, 09:43 PM   #4
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by bigfoot
Most people have grossly underestimated how much they'll need to save for their golden years.
Yep, it's hopeless.

Don't believe me? Just ask OAP. He's got $2M and says "It's not enough. I'm going back to work".

So if you haven't already hung it up, keep on workin' and building your nest egg. Those of us who have already retired need your help in growing the equity markets and funding SS contributions.

[Special thanks to Money Magazine for all you do...]

REW
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Re: WHOAA!!! Everyone back to work!
Old 07-08-2005, 09:46 PM   #5
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Re: WHOAA!!! Everyone back to work!

Hmmm

For some quirky reason - 100k - his and hers, including rental income in 1992. 1993 - in ER - my personal best 12k expenses - mostly 18 -20 k - creeping up to maybe 33k or better this year - deliberately getting frivolous.

Again - looking back - perhaps a tad overkill on frugal - but I don't think we ever felt deprived - or left anything on the table - as in gee I wish we could only afford to
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Re: WHOAA!!! Everyone back to work!
Old 07-08-2005, 11:09 PM   #6
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Re: WHOAA!!! Everyone back to work!

Don Blandin can eat my shorts.
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:14 AM   #7
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Re: WHOAA!!! Everyone back to work!

When it actually comes time to take out tax deferred account money (401ks 457ks, etc.), this doesnt include social security and med. taxes, right. Those are taken out of your payroll when you were actually working on the front-end, I believe so that is another thing to tack on my cost savings (it is an extra 7.65 (6.2+1.45) percent of current income is going to these taxes right now).

so taking out 30,000 out of a 401k is more money than making 30,000 at a job, which would cost you an extra 2300 in payroll taxes.





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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 01:11 AM   #8
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Re: WHOAA!!! Everyone back to work!

Have only been FIREd not even half a year, but after an initial spending burst (airtickets/furniture/health insurance) my spending have dropped like a rock witout me really trying with no obvious big spending in the horizon.

The luxury of having my time for myself makes up for many of the comfort purchases I felt I had to do I guess.

Even at the limited gains the market have given us ytd 2005 my net worth still increased (sofar..) so for now I have a hard time seeing expenses go up in traditionel retirement (healthcare being the big ?).

Cheers!
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 06:14 AM   #9
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Re: WHOAA!!! Everyone back to work!

Unclemick got me thinking. Retired completely in 1998 with NW
WAY under 500K (that includes everything). Now we are a couple and four (4) dogs living on 25K per year.
I was trying to think if we really gave up or really missed anything
because of our low NW and drastic cutting back (remember, I used
to live a pretty lavish lifestyle). Honestly, the only thing I can come up with is the boat I just bought is a bit smaller than what I had planned,
but even this has turned out serendipitously as I now think it is the
perfect boat for our purposes. Otherwise, our homes, traveling, clothing, food, drink, possessions; all just fine. 25% of
peak pre-ER income (that's just mine - the % goes down to around 20% if you add in DW's income). Didn't even break a sweat.

JG
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:10 PM   #10
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Re: WHOAA!!! Everyone back to work!

I'm about to be 51 in a few months, hoping to retire by the time I'm 55. I have a really hard time understanding the need for 75% or more of of my pre-retirement income after I tell the company to kiss my ass.

I'd like the wisdom of those that have been there, done that.

It seems to me that the level of pre-retirement income is a factor. Individuals at the lower end houshold income will need a higher % than those making 6 figures. Our household income is ~$100K (this is after my wife was forced to retire due to health issues a year ago). There's no way we're going to need $75,000+ a year to live on.

Given the $100,000 figure;

$ 100,000
$ 30,000- primary and condo at the beach will be paid for.
$ 28,000- no longer contributing to 401K, SS ...
$ 6,000- reduced tax burden
$ 2,000- off of pocket working expenses
-------------
$ 34,000 amount needed to maintain life style

$ 5,000 health insurance -- can continue policy with employer @50% of cost
-------------
$ 39,000

Now there may be a few miscellaneous expense I've neglected -- at most the're a couple thousand. And I feel pretty comfortable with this estimate -- because if I look at my current monthly expenses and remove the mortgage payements (leaving in real estate tax, insurance) our monthly expenses are $2,500 and we're not living a pauper's existence.

At 55, I'm planing on taking a lump sum from my employer of $210K, current investments with an expected return of 6% should be $450K and we're planning on selling our primary residence and moving to the condo $400K. That leaves us with a nest egg of over $1,000K. And once we hit 62, SS should kick in another $25,000, giving us a yearly income of $60,000+

So my only real concern are the years until we can get SS and my wife's health. In the 55 to 62 year period, I could also work 2 days a week and generate an additional $20,000/yr.



So, am I missing something?

Thanks!!!
dwk







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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:25 PM   #11
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Re: WHOAA!!! Everyone back to work!

I agree with you. From my calcuations with a paid off residence and tax savings, I am looking at needing 45-50% of my income. Some on this board have said even 40% as a rule of thumb. I guess that it all depends. I think my estimation is just being conservative. Another item that I added to my list of expenses saved is the cost of a 2nd vehicle in my household and commuting expense. Cost of work cloths, etc.

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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:32 PM   #12
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by dwk
I'm about to be 51 in a few months, hoping to retire by the time I'm 55.* I have a really hard time understanding the need for 75% or* more of of my pre-retirement income after I tell the company to kiss my ass.

. . .
You are on the right track, dwk. *Forget the 75% rule. *This is one of those rules-of-thumb that makes no sense whatsoever. *Estimating what you are going to spend based on what you used to earn is crazy. *My spending this year is running about 18% of my pre-retirement income. *

A key to most successful ER plans is learning to de-couple earning from spending. *Once you accomplish this, any rule that estimates retirment spending from pre-retirement earnings has to be wrong. *
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:33 PM   #13
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Re: WHOAA!!! Everyone back to work!

My spending is under 4% of my old income. Shows you how well THAT rule works...
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:39 PM   #14
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by maddythebeagle
I agree with you. From my calcuations with a paid off residence and tax savings, I am looking at needing 45-50% of my income. Some on this board have said even 40% as a rule of thumb. I guess that it all depends. I think my estimation is just being conservative. Another item that I added to my list of expenses saved is the cost of a 2nd vehicle in my household and commuting expense. Cost of work cloths, etc.

Decided to look at this in a different way................I took the 5 years from 1993
to 1998 (when I retired completely), estimated my gross income and added
my est. current spouse's income) *I was too lazy to actually look it up, but I know I am close. *Anyway, using a combined est. average against our current 25K per year, I get around 38% instead of the 25% I have reported which was
based on my peak years just prior to ER. *38% puts me more in line with
Dory's "33%, that's my story". *Anyway, my income was all over the map during
those 5 years, but using an average instead of the highest year is probably
a more useful number.

JG
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:42 PM   #15
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Re: WHOAA!!! Everyone back to work!

Pre-retirement income has nothing to do with how much you will spend in retirement. *If you earn 1M in pre-retirement income per year do you need $750,000 per year to live in retirement? * It's the basic flaw with almost all retirement calculators and formulas. *As soon as I see a retirement article with any percentage tied to income, I know the author is full of it. *Also remember - none of these authors are retired - they all are working at putting out and being paid for this bullcrap. *If they're so smart how come they still are working? *
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 12:53 PM   #16
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by riskaverse
Pre-retirement income has nothing to do with how much you will spend in retirement. *If you earn 1M in pre-retirement income per year do you need $750,000 per year to live in retirement? * It's the basic flaw with almost all retirement calculators and formulas. *As soon as I see a retirement article with any percentage tied to income, I know the author is full of it. *Also remember - none of these authors are retired - they all are working at putting out and being paid for this bullcrap. *If they're so smart how come they still are working? *
This is a good post. I agree with you.

JG
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 02:44 PM   #17
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by ()
My spending is under 4% of my old income.* Shows you how well THAT rule works...
[/quote

Obviously a very flawed rule of thumb.

Off orig. topic a bit.

That 4% would put you about $1,000,000.00 in prev. annual income. You have a 170 I.Q., and made a small fortune in real estate.

You are screwing up the demographics in Yuba City.

Regards, Jarhead
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 04:49 PM   #18
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Re: WHOAA!!! Everyone back to work!

Quote:
Originally Posted by ex-Jarhead
This poster has the IQ of a radish. 170+?? I could endure his posts right
up until he threw that out. Rubbish!

JG
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 05:46 PM   #19
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Re: WHOAA!!! Everyone back to work!

At least I dont go around telling people I retired with no plan and no money and got by on brains and balls when its my wifes paycheck I'm living off of.

You know, I used to like you John, and even privately stuck up for you a couple of times when people got on your case. I enjoyed our snappy ripostes. If you're upset that I made more money than you when I was working, retired earlier than you did with more money, have a higher IQ than you do, and know enough to leave the white wine in the fridge when eating red meat, I very humbly apologize. You can quit being a turd anytime now.

If its such a linchpin issue for you, PM me your fax number and I'll fax you a copy of the frickin IQ test results, my 1040's from my last 3 years working and any other salient documentation that will satisfy you.
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Re: WHOAA!!! Everyone back to work!
Old 07-09-2005, 05:49 PM   #20
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Re: WHOAA!!! Everyone back to work!

Working income is 160K plus. *We have no debt and should have no trouble getting by on 48,000 or 30%. *According to my budgets we could make it on 30,000 but 48,000 would be a breaze. *Our net worth has been increasing around 120k a year and most of that is from savings and paying off the mortgage. *So we have not been spending a big part of our income.
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