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Old 11-19-2012, 01:25 PM   #21
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Lazarus, rescueme,

Sorry it took so long to get back to you, but Sunday is my football day....

Ok, we're pretty much on the same wavelength. I agree that starting with your expected expenses in retirement will give you a more accurate estimate. And, in fact, if you've had a chance to look at the spreadsheet upon which the graphs are based, you've seen that's where the spreadsheet starts.

However, most 20-45 year-olds have no clue what their retirement expenses are going to be at age 65 -- 20-45 years from now! (remember, the graph is designed for those ages 20-45). For people who can't estimate their expenses, assuming their expenses will be approximately 75% of their current (real) salary gives them the benefit of lots of other peoples' experience, and will typically get them in the right ballpark.

Those who do feel comfortable calculating their retirement expenses 20 to 45 years from now can always use the spreadsheet. Actually, in the post, I encourage all readers to put their data into the spreadsheet -- and specifically mention expected spending level as something they could change. Not sure what more to do.

So, again I don't see any real differences in philosophy here.

Thanks for the feedback. I expect retirement planning posts will be a significant focus of my blog for the next 6 months or so. As a result, I'll probably be stopping by Early Retirement more frequently.
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Old 11-19-2012, 01:43 PM   #22
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I calculated my expected expenses about 15 years ahead of retirement. They are a little lower than calculated back then. My required net worth to generate that amount was calculated also. I ended up within 10% of that on the high side.

Young people should save as early as possible. But they need to get a handle on their expenses as early as possible also. First thing is to find out exactly what you are spending. Then look for ways to optimize it. You have to know what you are spending now to have an idea of what you will be spending after stopping work.

For example my gas consumption is much lower.
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Old 11-19-2012, 05:01 PM   #23
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Congratulations. You did a great job of planning! Would that everyone could be so successful.

As for the rest of your reply... you're "preaching to the choir." I agree completely! I developed my first retirement model/spreadsheet around 1980 -- about 20 years before I retired. I remember being shocked at how far ahead I needed to plan. I called it my 100-year plan -- even though it actually "only" covered less than 60 years. Developed my first "budget" when I started my first job (cleaning my father's office everyday for $1 a week); it wasn't very formal, but it did include savings for my piggy bank. I was about 6 years old. Unfortunately, our experiences are not the norm -- especially these days.

Not surprisingly, my goal in my retirement plan was to maintain my same standard of living once I had retired. I assume that most people will want the same. They'll probably want to be able to afford roughly equivalent expenses once they've retired. They'll no longer need to save for retirement, but will still have living expenses and taxes. Based on my experience, and most research I have seen, that means most will want 70-80% of their ending salary.

I haven't posted much on budgeting yet on my blog, but intend to. I spent a significant portion of my career developing and/or having responsibility for financial systems for Fortune 500 companies. So, I'm well aware that the foundation for a good financial plan is generally a solid understanding of what your current actual expenses are. Sadly, many people don't really know how they are spending their money. In my opinion, this is the result of a significant shortcoming in how we currently raise & educate our kids....
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Old 11-19-2012, 05:33 PM   #24
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There is a danger of sticking with the rule of thumb 70 to 80 percent of income.

I would have needed roughly twice my net worth that I have to support that. It may have taken a decade to get there. I would call that a pretty serious issue. Working for longer than you need to. This is the Early Retirement Board after all.

Overestimating the amount needed will needlessly discourage many from starting at all. Most of them won't anyway.

Interesting though, my expenses in retirement are about 75% of my expenses before retirement.
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Old 11-20-2012, 12:35 PM   #25
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My guestimate is my take home (net) pay right now. Now I am trying to backward plan how much $ I need 10+ years in the future based off of my guestimate.
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Old 11-20-2012, 07:36 PM   #26
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Overestimating the amount needed will needlessly discourage many from starting at all.
I sure hope my charts don't scare people off. Rather, I'm just saying that IF you want 75%, THEN this is what you probably have to do. I plan a later post that discusses some other options; obviously, living on less than 75% is one of those.

Also, we have to balance the risk of scaring people off with the risk of not scaring people enough. Many people that are now struggling in retirement probably wish someone had scared them more. It's really important for people to think through their priorities; that's why I have a whole series on Personal Strategic Planning.

Quote:
This is the Early Retirement Board after all.
This could be a problem. I assume (hope!) you guys are all aware that the 4% w/d approach assumes, among other things, that you're retiring at age 65. Retiring earlier means you'll have more expected years in retirement than that approach is designed to safely support!

Quote:
Interesting though, my expenses in retirement are about 75% of my expenses before retirement.
Yeah, mine too. But, only because I'm not saving anymore. Other than that, total expenses are about the same -- just rearranged.
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Old 11-20-2012, 07:38 PM   #27
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Bimmerbill,

I assume, though, that somewhere in your calculations you're accounting for the fact that you will still have to pay taxes?
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Old 11-20-2012, 09:30 PM   #28
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Originally Posted by 19xxdinosaur View Post
However, most 20-45 year-olds have no clue what their retirement expenses are going to be at age 65 -- 20-45 years from now! (remember, the graph is designed for those ages 20-45). For people who can't estimate their expenses, assuming their expenses will be approximately 75% of their current (real) salary gives them the benefit of lots of other peoples' experience, and will typically get them in the right ballpark.
A couple months ago I attended FINCON. Here's a little blogger tough love from the conversations I had in rooms with 400 personal-finance bloggers.

People who "can't" (e.g., "won't") project their expenses 20-45 years in the future won't bother to read your blog.

People who can project their expenses will excoriate you for perpetuating the ol' canard about retiring on a percentage of your income. And then they'll stop reading your blog because they'll assume that you lack credibility.

As for the question "Percentage of Salary to Save Based on Age You Start", here's a post whose concept I borrowed from Jacob Lund Fisker of ExtremeEarlyRetirement.com:
How many years does it take to become financially independent?

It's routinely in the top 10 of over 340 posts, so people seem to be reading it.
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Old 11-20-2012, 10:51 PM   #29
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Why not just save a couple of hundred bucks a hundred years before your birth. The math works.
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Old 11-21-2012, 12:08 PM   #30
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Nords,

Yeah, I agree that quote was a huge overstatement. I tried to change it to "However, many 20-45 year-olds aren't comfortable estimating their..." to better reflect what I really meant. But, the edit window had closed. I apologize if I offended anyone.

So, I agree that was an overstatement. However, I don't agree with the rest of your analysis. Time will tell.

Nice blog post; I can see why it's one of your top posts. Didn't see anything that I would disagree with there. I think we're saying many of the same things -- just in pretty different ways.


In any event, thanks to all for your comments and feedback.
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Old 11-22-2012, 09:46 AM   #31
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I was thinking about this some more. I think one of the problems young people have in estimating their future expenses is that they expect to continue to increase their lifestyle. They have not yet realized there is a limit to how high you can go which is set by how much your investments can support and how many years you are willing to work or are able to work.

I am living at about the same level that I was 25 years ago. Same size house, cars about the same costs ect.

So the things that have changed since then are cell phones, but no wireline phone. No cable tv but internet and netflix. No mortgage or car payments.

So if I took what I was spending prior to retirement and subtracted the mortgage, commuting costs, social security tax, and savings to get my retirement expenses. Plus the increase in medical insurance. Costs me more as a retiree than an employee. Did not know that. Some information is hard to come by, but that was my only surprise and I can cover it.

I had a spreadsheet that had my expenses while working and in the column
beside it my anticipated retirement expenses.

So calculating the needed amount of money to support my lifestyle was not too hard.

One change I made from my earlier plans. At my company I had the option to take the pension in cash. I planned to do that for a long time but in the end I took the annuity. The amount of cash they offered would not generate the amount the annuity would pay using the 4% rule. The annuity was closer to 6% till 62 when it drops to about 5%. Unfortunately no cola.

So the amount of the pension can be predicted, so can Social Security. Leaving only the amount you need saved to make up the difference.
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Old 12-15-2012, 11:40 AM   #32
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Try using this:

SmartMoney Retirement Planner - SmartMoney.com
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Old 12-15-2012, 01:46 PM   #33
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Oh good! I tried this using no social security and it informed me that I could spend double what I am planning to spend and make it to 90. However, this is a simple mathematical calculator.
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