Retirement without a safety net

[Aus_E_Expat]

My question is how many people on this board have been comfortable enough to retire without any safety net to catch them?

By way of background, I have plenty of my own savings to be able to retire comfortably and it is reasonably diversified (shares, funds, real estate, cash) but I have no rights to any pensions (either private or government) as I have been self employed almost all of my working life.

If I hit real rock bottom, I could apply for unemployment and eventually old age pension but I am certainly not hoping to get in that position.

I ask the question as it seems many people on this board anticipate receiving a pension or social security as part of their retirement income stream. As I have no such entitlement, I feel a bit like retirement may be like being on the high wire without a safety net.

 

[Newventurer]

While I have the govt safety net (SS), I get to worry what changes will take place that are different than what I planned for, at least you won't have that worry .

 

[razztazz]

If you have enough money and you own the pot why the worrying about safety nets?

I have a small pension. I do not consider it a big deal or all that safe since it is subject to being fiddled with. If I had the money up front I would be immune.

My social security will also be extremely small. Just a little sweetener if I live long enough. As we all know there are factions looking to reduce or end it. If I had the money in my pocket, wouldn't have to worry about it.

I supplement the pension with my private funding. Do I worry about it? Would be lying if I said "no", but at least I know it's there and it's mine and there is not a committee somewhere looking to change it or end it.

 

[NW-Bound]

When I first seriously thought about ER, I was planning on living on my stash only, because I assumed that our SS would not be that much. And FIRECalc said that we would be OK. And I pulled the trigger without SS consideration.

It was only afterwards that I bothered to check to see how much our SS would be, and found out that it was not bad. Though I ER'ed, I nearly always maxed out on the SS tax limit when I worked, so my SS will be close to the max benefit.

Our eventual SS will be only 1/2 of what we are spending now, but we can live fine on that. But if we deplete our stash, then when I croak, my wife would be down to just one SS, and that would be harder.

But whatever economic conditions to cause our stash to disappear would cause a lot of hardship to a lot of people, and we would not be alone. Misery loves company. Party on!

 

[zinger1457]

If you have adequate personal savings to retire comfortably I think many here would consider that the best safety net available, you have control over your own destiny. Pension plans are far from a certainty and the social security system will eventually need some changes to stay solvent.

 

[bingybear]

but I have no rights to any pensions (either private or government) as I have been self employed almost all of my working life.

If I hit real rock bottom, I could apply for unemployment and eventually old age pension but I am certainly not hoping to get in that position.

I'm a little lost by your introduction. You could get an old age pension ... is this not SS? Being self employed... did you not pay SS tax, both portions? Or did you do this by only collecting capital gains and never took income?
I personally don't like the term entitlement for SS as I've paid into it all my working life. But that is my personal view.
I should have access to SS, but no other pension. Medicare should also be available based on current law.
Did you set up you income being self employed in such a way that you bypassed SS and Medicare in your retirement? If so, I hope you saved the additional to cover these too.

 

[target2019]

It's not clear if you are expat US or AUS.

 

[Aus_E_Expat]

I'm a little lost by your introduction. You could get an old age pension ... is this not SS? Being self employed... did you not pay SS tax, both portions? Or did you do this by only collecting capital gains and never took income?
I personally don't like the term entitlement for SS as I've paid into it all my working life. But that is my personal view.
I should have access to SS, but no other pension. Medicare should also be available based on current law.
Did you set up you income being self employed in such a way that you bypassed SS and Medicare in your retirement? If so, I hope you saved the additional to cover these too.

As a short explanation, I am not American, but most of the posters on this board are so many refer to social security or some pension.

I have an Australian passport but most of my working life has been spent outside Australia. That means if I return to Australia I am entitled to free medical (universal health care) for the rest of my life but I am not entitled to any form of pension or welfare, unless I lost all my assets and savings and was basically destitute.

I don't want to end up destitute so I need to rely totally on my own assets and savings for my retirement.

 

[Meadbh]

I am not American either. I have no safety net other than future partial CPP and OAS (which will almost certainly be clawed back).

People in the US may not realize that SS is generous compared to similar programs in other countries.

Anyway, I feel financially secure because I have educated myself to the best of my ability and have done my best to insure against financial risks, for example, by selecting frugal parents who left me an inheritance, choosing a high income profession, living frugally in a country with universal healthcare, planning, allocating, modeling and managing my assets, reducing fees, diversifying to create multiple income streams, insuring against likely catastrophic risks (disability while working, LTC in ER) and regularly monitoring results.

 

[target2019]

As a short explanation, I am not American, but most of the posters on this board are so many refer to social security or some pension.



I have an Australian passport but most of my working life has been spent outside Australia. That means if I return to Australia I am entitled to free medical (universal health care) for the rest of my life but I am not entitled to any form of pension or welfare, unless I lost all my assets and savings and was basically destitute.



I don't want to end up destitute so I need to rely totally on my own assets and savings for my retirement.

I don't have hard statistics to back this up, but most US citizens on this board have social security and/or pension. I have paid in to SS as an employee and as a self-employed individual.

 

[bingybear]

As a short explanation, I am not American, but most of the posters on this board are so many refer to social security or some pension.

Sorry I did not realize you were not American... I worked as an expat for several years... but paid into my SS/Medicare while I was overseas too keep accruing benefits.

I think from an American perspective, your health benefit is worth more than what SS provides economically. I don't know how complete your medical benefit is compared to medicare. We have to pay for extensions to the basic medicare... parts B, D...which are means tested for costs.

From my perspective ... just like noted on most posts... use Firecalc... you are still looking for a high likelihood of success. I often calculate ignoring SS. Medicare is some thing really hard to replace. As we age, the expected cost of medical goes exponential.... eventually one can not afford it.

 

[traineeinvestor]

With no pension, state benefits etc. to fall back on I have to rely on my own savings to fund a retirement period that could last for around 50 years. I basically monitored expenses for several years, assumed we would spend (or be forced to spend) about 20% more in retirement, that we would not work part time and that the children would be on the payroll indefinitely. So far we are spending only slightly more in retirement, are both working part time and hope that our daughters will leave the nest at some stage. We diversify our investments but mostly real estate and equities.

The thought of being without employment income was a bit scary, no matter what Firecalc and my own spreadsheet are telling me, so I took a very part time consultant's position as a transitional measure. From a "sleep at night" perspective, after about 18 months of retirement, I no longer feel any need to keep the consultancy, but I enjoy it so will probably keep it going for the time being.

 

[NW-Bound]

People in the US may not realize that SS is generous compared to similar programs in other countries...

Is it? I know many people with low income jobs who get less than $1K/month from SS.

And a while back, out of curiosity, I looked at Australian means-tested pension for indigent people, which, if my memory serves, paid around $2K/month.

 

[Aus_E_Expat]

NW Bound - the maximum rate of old age pension for an Australian couple is A$2,790 per month (approx US$2,135 per month) or for a single person is A$1850 per month (approx US$1,416 per month). To get the full amount you need to have no other income but you can own your own home (which could be worth $2m or more).

A full pension also entitles you to a lot of other government benefits.

 

[steelyman]

I personally don't like the term entitlement for SS as I've paid into it all my working life.

A problem with that term/word is that it has multiple definitions. It can be used to fit to one's agenda.

 

[sheehs1]

My question is how many people on this board have been comfortable enough to retire without any safety net to catch them?

By way of background, I have plenty of my own savings to be able to retire comfortably and it is reasonably diversified (shares, funds, real estate, cash) but I have no rights to any pensions (either private or government) as I have been self employed almost all of my working life.

If I hit real rock bottom, I could apply for unemployment and eventually old age pension but I am certainly not hoping to get in that position.

I ask the question as it seems many people on this board anticipate receiving a pension or social security as part of their retirement income stream. As I have no such entitlement, I feel a bit like retirement may be like being on the high wire without a safety net.

Perhaps a small clarification. For those of us who receive Social Security, keep in mind it is a benefit most of us paid into all of our working lives thru taxation out of each paycheck for decades.

I am sure for some, had they had a choice, they would have preferred not to have those deductions taken out during their 20's, 30's and early 40's. Now, we are grateful it was imposed on us. However as another poster indicated, changes may be in our future…but it still should be "something".

I daresay most here will still fund most of their retirement needs thru their savings but we be grateful for any amount of Social Security we get…that isn't taxed in the future due to high passive income.

But more to your point. I think most here would also say their savings IS their safety net. It's mine.

 

[petershk]

As a short explanation, I am not American, but most of the posters on this board are so many refer to social security or some pension.

I have an Australian passport but most of my working life has been spent outside Australia. That means if I return to Australia I am entitled to free medical (universal health care) for the rest of my life but I am not entitled to any form of pension or welfare, unless I lost all my assets and savings and was basically destitute.

I don't want to end up destitute so I need to rely totally on my own assets and savings for my retirement.

I'm almost 40 and am looking to ER in the next couple years. I'm married and have two very young kids. So... there is no SS for quite a long time and thus it's a similar situation (minus being able to move somewhere with universal health care) .

The answer is that my family and I can live on less than 3% withdrawal rate at our current burn rate as measured over the past 2 years. And... if "bad things" happen we could drop our cost of living about 30-40% by moving away from a very expensive area.

So I think:
1) If you have a low withdrawal rate
2) If you have flexible spending needs

that is your safety net.

For psychological safety I will probably keep 2-3 years of cash so that I don't do crazy things if/when some kind of financial meltdown happens.

Now... if we have a zombie apocalypse type meltdown, the low rate and flexible spending won't save me... but my guess is neither will social security .

 

[purplesky]

As a short explanation, I am not American, but most of the posters on this board are so many refer to social security or some pension.

I have an Australian passport but most of my working life has been spent outside Australia. That means if I return to Australia I am entitled to free medical (universal health care) for the rest of my life but I am not entitled to any form of pension or welfare, unless I lost all my assets and savings and was basically destitute.

I don't want to end up destitute so I need to rely totally on my own assets and savings for my retirement.

Here in the states its the same deal. If you run out of money in old age then you will qualify for government assistance.

Life will suck but you will have a roof and some soup.

Why not create your own pension with your cash to avoid hitting rock bottom and having to go back down under.

 

[Lucantes]

As an American working overseas (19 years so far) I have not paid into SS during that time so my expected benefits are very minimal (just what was paid in during my time in the USAF) and I do not factor anything from it into my FIRE calculations (my wife will also receive a very small pension from the UK which we do not factor into calculations).
What my wife and I have earned and saved is what our safety net is, and I am okay with that as it puts us in control (well at least "in control" of what we can control).

 

[NW-Bound]

After SS, my ultimate safety net is a van down by the river. Open space, clean air, nice scenery, good company...

Come on people. Many people in 3rd world countries would not dream of owning a van parked by the river bank. What's there to be afraid of?

 

[scrabbler1]

Even though I have been living solely off the non-retirement portion of my portfolio for the last 6 years and will continue to do so for another 8 years, I have 3 sources of additional income, or as I put it, my "reinforcements" arriving starting 8 years from now. I suppose I could call them my "safety net." Those "reinforcements" include unfettered access to my IRA, my frozen company pension, and Social Security.


I have run Fidelity's RIP program a few times over the years (I am a client) and each time the revenue line zooms upward at a far steeper angle compared to the expense line, meaning that the projected surplus of retirement income from all sources over projected expenses grows and grows and grows as the reinforcements kick in.

 

[Meadbh]

I am not American either. I have no safety net other than future partial CPP and OAS (which will almost certainly be clawed back).

People in the US may not realize that SS is generous compared to similar programs in other countries.

Is it? I know many people with low income jobs who get less than $1K/month from SS.

And a while back, out of curiosity, I looked at Australian means-tested pension for indigent people, which, if my memory serves, paid around $2K/month.

I'm expecting something of the order of $350 (CDN) per month, in today's dollars, starting at 65. I can apply as early as 60 but that means taking a significant cut.

 

[purplesky]

After SS, my ultimate safety net is a van down by the river. Open space, clean air, nice scenery, good company...

Come on people. Many people in 3rd world countries would not dream of owning a van parked by the river bank. What's there to be afraid of?

The more I think about the van down by the river the more I like it.

In Colorado or Oregon or maybe Utah. Close to snowboarding.

 

[Sunset]

I'm expecting something of the order of $350 (CDN) per month, in today's dollars, starting at 65. I can apply as early as 60 but that means taking a significant cut.

Yes, the maximum amount in 2013 was $1,012.50, pretty low by US standards. Although Canadians can also get a supplement of OAS worth about $500/mo.

However, in Canada health care is free. When on SS in the US , it costs about $2,000 taken directly from SS payments, then you have to buy various other supplemental parts, some are optional.

I know folks that are not near the max SS, and they pay in total a range of 5 to 8 thousand for health insurance.

That takes some of the bloom off SS compared to CPP, but still SS is more generous, even ignoring exchange rates.

For SS in 2015, your maximum benefit would be $2,663 at FRA.

 

[NW-Bound]

What is the Canadian tax rate to fund this?

For people unfamiliar with the US SS tax, it is 12.4%, 1/2 paid by employer 1/2 by employee, levied on earned income up to $118,500 for 2015. And there's also Medicare tax of 2.9%, split between employer and employee. This Medicare tax has no income limit. Then, there's additional Medicare tax for high earners of more than $200K. On top of that, there's federal income tax, and state income tax for most states.