Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Are Retirement Needs Overstated?
Old 06-04-2015, 11:12 AM   #1
Recycles dryer sheets
Niuatoputapu's Avatar
 
Join Date: Nov 2014
Posts: 69
Are Retirement Needs Overstated?

"The model used by many financial planners for retirement planning doesn’t accurately reflect how retirees spend during their early and middle retirement years, which means advisors might be overestimating how much their clients will need to save for retirement."

Many of us know that the 12x salary for the nest egg or 80% of final salary for the first year of spending are WAGs that fail to consider many relevant factors. Nice to see M* discussing it.


Are retirement needs overstated? | BenefitsPro
__________________

__________________
ER'd 6/5/2015 at age 58, and DW targets ER in 6/2019
Niuatoputapu is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-05-2015, 10:01 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
I certainly hope so.

Sent from my SM-G900V using Early Retirement Forum mobile app
__________________

__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is online now   Reply With Quote
Old 06-05-2015, 10:23 AM   #3
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
Some expenses that were paid out of my final salary that I don't pay now:

Saving for retirement (a big item!)
Pay Roll Tax
Commute Expense
Extra Car
Lunches five days a week
Extra dry cleaning
Fewer dinners out because DW and I neither felt like cooking

I don't really know if it all totals 20% but my guess is it is quite a bit more!

On the added side, we travel a little bit more, but not a great deal. That's about it.
__________________
If it is after 5:00 when I post I reserve the right to disavow anything I posted.
Rustic23 is offline   Reply With Quote
Old 06-05-2015, 12:03 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,439
Yes, I think retirement needs are frequently overstated, particularly if based on 80% of final salary.

To begin with, many people don't spend 80% of their salary to begin with. When I was working, my take-home pay (after SS, income tax withholdings, health and dental insurance contributions) was slightly less than 80% of my gross. After 401k and HSA savings I was doing my take-home pay was only a little over 50% of my gross pay, so even if we spend every penny of my take home pay (had no after-tax savings) it would have been much less than the 80% commonly used by FPs. In my case 80% would have resulted in a 60% overstatement of what was needed to retire (80%/50%).

Also, as the linked article points out, real spending commonly declines as retirees age as their level of activity declines and could be factored in but commonly is not.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 06-05-2015, 12:31 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,326
Our retirement living expenses are a fraction of our former gross earned incomes and that is with still supporting kids in college.

They've decreased due to:
Lower income taxes (at least until taxes on RMDs kick in)
No more need to save for retirement
No more job and commute costs
For most of our retirement the kids should be off the payroll
Mortgage interest decreasing over time
More time for DIY, price shopping, time to drive on some vacations instead of always having to fly due to time constraints, bargain hunting, cooking at home, optimizing expenses
Not paying as much into Social Security
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 06-05-2015, 06:21 PM   #6
Recycles dryer sheets
 
Join Date: May 2014
Location: Yuma AZ
Posts: 270
Personal opinion: It is % of final working year SPENDING, not salary, that matters.
At 10 years before retirement, we started to "downsize" spending toward eventual pension income. Each year, it provided more funds for investment, and training to live within means.
__________________
unno2002 is offline   Reply With Quote
Old 06-05-2015, 06:29 PM   #7
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,817
I agree with the others.

Since I contributed 26% of my gross to 401k, I was already well below 80%. Factor in SS/Medicare taxes and it's even lower. That said - health insurance went up.

My rough swag retirement budget was based on gross income minus retirement savings, minus SS and Medicare taxes, then adding back in health insurance. (I have a much more detailed budget based on historical spending from quicken data - but it works out remarkably similar.) Almost a year in, we're spending less than the rough swag number. The unknown for me is taxes... I had some 1 time tax things last year. 2015 taxes will tell me if I over or underestimated things.
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 7%, rental income 18%
rodi is offline   Reply With Quote
Old 06-05-2015, 07:03 PM   #8
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 10,146
Quote:
Originally Posted by Niuatoputapu View Post

Many of us know that the 12x salary for the nest egg or 80% of final salary for the first year of spending are WAGs that fail to consider many relevant factors.
All the more reason to start by identifying your actual spending -- now and expected. You need enough to cover that spending, not some multiple or ratio of some other number.
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 06-05-2015, 07:32 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Agree 100% that 80% is just a WAG for most folks. IMHO too rough to be useful. Differences in expenses are very individual. Like HUGE difference between late 50's ER with solid employer-supplied retiree HI vs poor ER souls needing to buy unsubsidized Exchange Plan with those huge premiums & deductibles. Particularly in high cost regions, it is not unusual to see those folks' actual total spending to go UP after retirement.
Others whose spending can go way up in ER are those ex-w#rkoholics who now have the time to take the $$$$ trips they dreamed of.
__________________
ERhoosier is offline   Reply With Quote
Old 06-06-2015, 10:11 AM   #10
Recycles dryer sheets
 
Join Date: Aug 2013
Posts: 188
I'm within 2 years of being retired, and have closely monitored my spending over the past 6 years.

% of gross paycheck
401K savings: 27%
non-retirement savings: 24%
SS, Medicare, Fed and State taxes: 21%

Live on: 28%

Out of that 28%, I have a car payment, real estate taxes, etc.

When I retire, I figure my spending will increase about 20% for additional weeks of vacations, etc. I'm budgeting for 15% above that number, for unknown expenses.
__________________
Al18 is offline   Reply With Quote
Old 06-06-2015, 10:39 AM   #11
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,817
Quote:
Originally Posted by Al18 View Post
I'm within 2 years of being retired, and have closely monitored my spending over the past 6 years.

% of gross paycheck
401K savings: 27%
non-retirement savings: 24%
SS, Medicare, Fed and State taxes: 21%

Live on: 28%

Out of that 28%, I have a car payment, real estate taxes, etc.

When I retire, I figure my spending will increase about 20% for additional weeks of vacations, etc. I'm budgeting for 15% above that number, for unknown expenses.
Keep in mind that federal and state taxes don't go away. They may change a lot - but still need to be accounted for in your overall budget.
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 7%, rental income 18%
rodi is offline   Reply With Quote
Old 06-06-2015, 11:08 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: Florence, AL/Helen, GA
Posts: 2,093
We've found ourselves spending more in retirement than when working. I no longer have the company car and expense account for one.

But we're at the point in our lives where so many of our assets need replacing--like boats, cars, etc. And we're also having to do substantial repairs to our real estate, now that I have the time to work on them.

And with so much time on our hands, we find ourselves traveling extensively on big vacations. But the rest of the year, we stick close to home--seldom going over 2 hrs. away.
__________________
Bamaman is offline   Reply With Quote
Old 06-08-2015, 08:10 PM   #13
Full time employment: Posting here.
 
Join Date: Apr 2015
Posts: 903
Quote:
Originally Posted by rodi View Post
Keep in mind that federal and state taxes don't go away. They may change a lot - but still need to be accounted for in your overall budget.
True but until you reach SS/RMD age, you have fairly good control on optimizing taxes. Might even be worth doing some Roth conversions.
__________________
hnzw_rui is offline   Reply With Quote
Old 06-08-2015, 08:37 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
Quote:
Originally Posted by hnzw_rui View Post
True but until you reach SS/RMD age, you have fairly good control on optimizing taxes. Might even be worth doing some Roth conversions.
This. And if you have taxable, tax-deferred, and Roth accounts, you can strategize further to reduce taxes post-retirement. Pre- and post-retirement taxes are two different ball games.
__________________
Options is offline   Reply With Quote
Old 06-08-2015, 11:43 PM   #15
Thinks s/he gets paid by the post
Telly's Avatar
 
Join Date: Feb 2003
Posts: 1,448
Our spending during 2014, if I subtract out the extra FIT paid for Roth conversion, was about 35% of my last salary... and my last salary was 13 years ago
__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
Telly is offline   Reply With Quote
Old 06-09-2015, 07:56 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,147
Quote:
Originally Posted by Gumby View Post
All the more reason to start by identifying your actual spending -- now and expected. You need enough to cover that spending, not some multiple or ratio of some other number.
Yes, totally agree. You should build up your retirement spending requirements from first principles based on a good historic understanding of where you have (and would like to ) spend in retirement. Using a percentage of pre retirement income is a lazy shortcut. Also needs are quite different than wants and a good retirement spending plan should consider both.
__________________
Danmar is offline   Reply With Quote
Old 06-09-2015, 08:37 AM   #17
Thinks s/he gets paid by the post
mpeirce's Avatar
 
Join Date: Feb 2012
Location: Columbus area
Posts: 1,590
Quote:
Originally Posted by unno2002 View Post
Personal opinion: It is % of final working year SPENDING, not salary, that matters.
This is so true.

The last few years before I stopped working the amount of money pouring into savings kept going up. When the mortgage was paid off, that same amount went into savings. The 401(k) was maxed out. The ESPP was maxed out. These, along with some taxes like FICA, just stop when you stop working.
__________________
mpeirce is offline   Reply With Quote
Old 06-09-2015, 09:37 AM   #18
Full time employment: Posting here.
 
Join Date: Jul 2013
Location: San Diego
Posts: 700
I used to argue this point with a coworker, he just could not wrap his head around the fact that you stop saving money for retirement once you retire. He's a smart guy, but he's still working.
__________________
AllDone is offline   Reply With Quote
Old 06-09-2015, 10:31 AM   #19
Recycles dryer sheets
cbo111's Avatar
 
Join Date: May 2014
Posts: 167
Quote:
Originally Posted by AllDone View Post
I used to argue this point with a coworker, he just could not wrap his head around the fact that you stop saving money for retirement once you retire. He's a smart guy, but he's still working.
That's what we call a quotable quote!
__________________
cbo111 is online now   Reply With Quote
Old 06-09-2015, 12:17 PM   #20
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Fishers
Posts: 385
with health insurance costs added in we project a 40% spend to final salary rate
__________________

__________________
wmc1000 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Insurers overstated doctor networks, California regulators charge Lakewood90712 Health and Early Retirement 5 11-22-2014 10:57 AM
Hi, new user in Ohio needs SS retirement info? David J Hi, I am... 1 12-02-2012 02:51 PM
Who needs retirement anyway? JustCurious FIRE and Money 35 08-24-2009 03:09 PM
Hi from a 53yo who needs retirement planning info CABarb Hi, I am... 10 01-11-2009 07:22 AM
Savings Targets Overstated? prubin FIRE and Money 24 12-01-2007 07:39 AM

 

 
All times are GMT -6. The time now is 02:20 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.