Are your 401(k)/ESOP rates maxed out, or will they rise over the coming years as well? My spouse's permissible TSP contributions are still rising annually, and so are IRA contributions.
Yes to all.
Speaking of IRAs, are you contributing to one?
Contributing to two (my Roth and my wife's traditional), but on an opportunistic basis. I don't assume any ongoing contributions.
Is that both a 3% rise in spending AND a 3% rate of inflation? Why does spending rise 3%?
Sorry, I wasn't clear. I assume my spending will increase at 3% per year because of inflation; in other words I assume my spending will remain essentially constant in real terms.
Inflation has been pretty tame lately. But it can make a big difference over five or six decades of retirement if the average rate is changed from 3% to 3.5%. Not that I have a clue which will reflect reality, although I suspect they're both better than the CPI and its ilk.
Yup, assumptions make a big difference, particularly assumptions about inflation and investment rate of returns; particularly over the ~20 years I have to project forward.
I haven't checked the College Board numbers lately, but I thought that over the last decade or so college costs were rising more along the lines of 6%.
Lately you hear numbers between 5 and 7%, but the longer term historical average per the College Board is the 3.61% I use. This was the number in their report last year. Every year I reshoot the college numbers by taking the College Board averages for the current year and project forward for inflation.
I think 6-7% before-tax equity returns are more realistic. But I'm only quoting Warren Buffett on this one. Or I could mangle Will Rogers and recommend only investing in stocks that accumulate at least 10.7% annually.
My philosophy is to find the longest range historical average from an unbiased and reputable source and use those numbers. As noted above, I use the College Board for college costs. The 10.7% is what I understand Ibbotson & Associates have cited historically. In 2000 I was ridiculed for having too low of an expected rate of return; now people think I'm too optimistic. I've read what Buffett and Bogle think. I think they're wrong (or possibly sandbagging in the case of Buffett).
If there's no SS, then the COLA probably isn't worth much. Hey, I bet it's worthless!
Yeah, whoops again. The SS COLA is used because I assume SS will be there over the next 15 years or so, and I include SS in my life insurance plan to the extent SS says my wife will get money if I kick the bucket. I assume no SS for retirement purposes.
I think that spending in retirement rises more often than it drops. If you're the type of person who spends money on their entertainment, then it's going to go up. If you're the kind of person who finally has time to realize all their frugal desires, then it might still go up as you spend capital to save more by the payback. (I never had time to shop for photovoltaic solar systems before I retired!) But eventually, at least a few years after retirement, it'll drop.
Good luck on not helping out the in-laws...
Thanks, and thanks for all your comments.
malakito