How to Get to Retirement? Practice!

[obgyn65]

"Take a couple, both age 60, with a combined salary of $100,000 and a $500,000 nest egg. If they saved 15% of their annual income until age 62 and then retired—, the cliff-diver approach—, their retirement income from savings and Social Security would be $52,000 per year, and their cumulative total income from age 60 through 69 (net of retirement-plan contributions) would be $586,000 pretax, assuming various investment, inflation and withdrawal rates.

If instead they saved 15% from age 60 through 69 and retired at age 70—, worker bees— they'd have $96,000 a year in retirement income, plus total income in their 60s of $850,000.

And what if they stopped saving at age 60 and retired at 70— retirees in training? They'd have $88,000 a year in retirement income— $8,000 less than the worker bees— but $1 million in total income through age 69 because they stopped making contributions to a (401)k— $150,000 more than the worker bees and nearly twice as much as the cliff divers."

How to Get to Retirement? Practice! - WSJ.com

The maths make sense, but what is missing, in my view, is the life expectancy factor.

 

[photoguy]

I'm not sure I understand the point the WSJ is trying to make. If you delay SS until 70, you get a large income bump? or if you don't contribute to 401K you can use that money to pay your mortgage/other expenses instead?

 

[ERhoosier]

This article didn't make much sense to me either. However the author words it, the 62 yo "cliff diver" has enjoyed 8 more yrs of retirement vs the "retiree in training". Just a combo of OMY Syndrome (x8!!) + higher SS payments from w@rking 'til 70.

 

[fritz]

The article starts out by stating that more than half of us won't have enough money to maintain our lifestyles in retirement. It adds that +/- 33% of 65-69 year olds are actively working/looking for work (and 62% of 45-60 year olds plan to delay retirement). It throws in a little later, how we've lost value in our homes, depleted our investments, etc. (doom and gloom).

Then it uses a gainfully employed couple earning $100k annually (about 50% above the average US household income), with $500k in savings and plans out their retirement scenarios. They suggest they stop saving for retirement, but work until 70 and practice retirement with the "extra money" from not saving.

Quite the retirement planning article - if you ask me..

 

[Stanley]

The article starts out by stating that more than half of us won't have enough money to maintain our lifestyles in retirement. It adds that +/- 33% of 65-69 year olds are actively working/looking for work (and 62% of 45-60 year olds plan to delay retirement). It throws in a little later, how we've lost value in our homes, depleted our investments, etc. (doom and gloom).

Then it uses a gainfully employed couple earning $100k annually (about 50% above the average US household income), with $500k in savings and plans out their retirement scenarios.

Given the demographics of WSJ subscribers, a couple earning 100K annually and with a pathetic half million in savings are probably considered low income wage slaves. The poor slobs can probably only afford one, maybe two, weekend trips a year to Paris for a good dinner. Life is tough.

But, I think the point of the article is that there are alternatives to retiring early or working until 70, and that is working longer while starting to do many of the things you plan to do in retirement. My only question is "will your employer allow you time off to do these things?" That is the fly in the ointment. I could have worked part time, but at about 1/4 my previous hourly earnings and no benefits.

 

[WestLake]

I have 4 weeks of vacation and 2 of PTO. Most of that seems to go for errands, doctor appointments, home and car repairs et al. Not enough time!

 

[fritz]

Given the demographics of WSJ subscribers, a couple earning 100K annually and with a pathetic half million in savings are probably considered low income wage slaves. The poor slobs can probably only afford one, maybe two, weekend trips a year to Paris for a good dinner. Life is tough.

But, I think the point of the article is that there are alternatives to retiring early or working until 70, and that is working longer while starting to do many of the things you plan to do in retirement. My only question is "will your employer allow you time off to do these things?" That is the fly in the ointment. I could have worked part time, but at about 1/4 my previous hourly earnings and no benefits.

We retired early (late 50's), and I considered early retirement as buying my time for personal use. Buying time isn't cheap, and it actually scales that cost to your present income/lifestyle - even if you anticipate a lower cost lifestyle in retirement. I work part-time as an consultant, but it's at my convenience. Don't see how you can really practice retirement in your 60's and try out free-time pleasures with your employer looking over your shoulder.

 

[W2R]

This is my fourth year of retirement, and I would not trade these retirement years for any amount of money.

Perhaps I would if I was starving and homeless, but I am not. I am not rich, but I have the essentials and a few extra dollars seem less precious to me than my free time.

 

[67walkon]

I tried that last year. Didn't work well. I took a cut in compensation for more time off aka retiree practice time. Most of the time, work heated up right when I wanted to go play practice retirement. So I'm really quitting as of April 1 this year. Practice? We're talking about practice? Don't need no practice!

 

[Andre1969]

I wonder if that article was trying to make another point, but ended up missing it? I've seen other articles that give similar scenarios, but the point they go after seems to be that the money you sock away for retirement in later years isn't as significant as the money you squirrel away earlier in your life, thanks to compounding.

I ran a couple scenarios with Firecalc. For both, I assumed I currently had $800,000, wanted $50K per year, and plotted it out to the year 2070, which is when I'll be 100. I also assumed SS of $15,000 per year starting in 2032 (age 62) and a Non-cola'd pension of $4000 per year, starting at age 65.

Well, if I work until I'm 50, sock away $25,000 per year (reasonable; if I max out my 401k and Roth, I'd actually put away a bit more), I have a 100% chance of making it.

But, if I work just two years longer, to age 52, but don't save any more towards retirement, I still have a 97.6% chance of making it. Going out at age 51 still yields a 92.9% success rate, although going out at 50 is a bit more iffy, at 88.1%

Or, if I still contribute, but cut back to $10,000 per year, I still have a 98.8% chance of making it at age 51, and a 96.4% chance of making it at age 50.


So, in the overall scheme of things, using the scenarios above, I'm almost there, regardless of whether I keep adding to my retirement or not. That money I had been putting into retirement could be used for splurging a bit in pre-retirement, without really affecting things too much.

 

[LOL!]

I thought the point was that these folks didn't gain anything by continuing to work. All those extra work years just increased their tax payments and nothing else.

 

[nvestysly]

I'm not sure I understand the point the WSJ is trying to make.

+1 - there is some interesting information here and it may be helpful to somebody - I hope it is helpful - but I gotta say... after 18+ months of retirement I hope I never go to work again! Earlier is definitely better than later.

However, (and maybe this is one point of the article) $500k in savings/investments may not be enough so you may need to work longer to bolster the nest egg.

 

[mystang52]

A while back I read an article (sorry, don't remember where or specifics). But IIRC it had an interesting approach for those who have a nest egg but not enough to retire. The suggestion was to stop 401K contributions, take the vacations etc one would want to take but keep working.
Presumably, the work income supported the lifestyle. Not contributing to 401K gave extra money without (i.e., for those 60 years old and up) having a major impact on overall nest egg. Yet, the original nest egg is preserved. I think that's what this article is echoing.

 

[SJ1_]

This is my fourth year of retirement, and I would not trade these retirement years for any amount of money. ...

+1

I hit the 1yr mark in 4 days!

 

[photoguy]

The maths make sense, but what is missing, in my view, is the life expectancy factor.

One thing that I found interesting was that author felt it was "better" to work ten more years instead of trying to cut expenses to live on 50K a year.

 

[NanoSour]

This is my fourth year of retirement, and I would not trade these retirement years for any amount of money.

Perhaps I would if I was starving and homeless, but I am not. I am not rich, but I have the essentials and a few extra dollars seem less precious to me than my free time.

You are, and have been, an inspiration

 

[martyp]

If you want to practice for retirement then practice by LBYM. Put together a retirement plan. Figure out how much money you will have to spend for your estimated years to live and the type of lifestyle you can afford to live on that income. Then live that lifestyle. At some point you will realize you are FI and then you know you can retire.