Retirement without a safety net

[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]

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Originally Posted by 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.

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Originally Posted by NW-Bound 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]

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Originally Posted by 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?

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]

Quote:

Originally Posted by Meadbh 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.

[Meadbh]

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Originally Posted by 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.

Contribution rates for CPP (Canada Pension Plan), Federal and Provincial income taxes are below. The OAS (Old Age Supplement) is a small amount paid irrespective of employment, but it is clawed back if total taxable income (including investments) is over $71,000 or so. In addition, some Provinces charge healthcare premiums, whereas others pay for healthcare out of general tax revenues. As an example, below I have inserted the healthcare (MSP) premiums for BC, where I live.

Contributions to the Canada Pension Plan - Service Canada

Canadian income tax rates for Individuals - current and previous years

MSP - Premiums

http://www.taxplanningguide.ca/tax-p...-oas-clawback/

[EastWest Gal]

Quote:

Originally Posted by Sunset 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.

Medicare part A is free if you or your spouse paid into it. Parts B and D are not. When my dad was alive they were taken out of SS and cost about $200/month. I pay about $9000/yr for health insurance through healthcare.gov, no subsidies. I have trouble understanding why people on Medicare are paying that much for health insurance.

And as it has been pointed out, healthcare is not free in Canada. It is however, less costly.


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[ArkTinkerer]

Plan on RE this year and I worry. I suspect most here do as well.

The two things that make me confident enough to retire:

1. I have some rental property. No mater what, people need a place to live. Mine are in a college town which, in my opinion, makes them an even safer investment.

2. Funds in diversified mix of companies. Sure, they could drop in value but if it was that drastic everyone else would be in the same boat.


Unless there is almost an extinction level event, those properties will continue to bring in funds at some level. A communist or socialist takeover might do in all my investments as well but that is also unlikely. I have farmland south of here where I could grow/hunt my own food if needed. Bottom line is I've made all the reasonable steps I can to handle even rather unlikely events. If bad times come, I can't say I'd be any better off if I was working for someone else anyway.

[Andre1969]

My only safety net is Social Security. I had a small pension, but back in December I took a buyout offer and figured I'd chance it myself. I'll admit I'm a little apprehensive about being totally responsible for my own retirement. However, at the same time, pension programs can get altered, and so can SS.

I ran two sets of numbers through FireCalc when planning for my retirement. The first set assumes full SS benefits, while the second set assumes nothing at all. Probably a bit pessimistic, but I figured I'd go for the worst case. In just about every scenario I ran, taking SS out of the equation only moved my retirement out 1-2 years. For instance, if I want to retire with a >95% chance of living off of $50K per year, FireCalc says I can go out at 48 if I also get SS at 62. However, with no SS, I have to work until I'm 49 if I want that >95% chance.

So, in the overall scheme of things, my "safety net" doesn't change things too much. And, if I wtill wanted to retire at 48, I'd have to scale back to $45K per year if I wanted that >95% chance of success.

[MichaelB]

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Originally Posted by Aus_E_Expat 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.

Most of us choose and design our personal and individual safety net. By this I mean, once we start thinking about and planning for retirement, we begin making the trade-off between work, savings, and retirement. We can choose "one more year" to have a safer financial picture, a higher rate of planned withdrawal with a corresponding riskier financial outlook, or something in-between. Those of us without pensions or entitlements (to use your term) are no worse off than those with large pensions, our savings can be easily converted to annuities.

[Chuckanut]

I worked and planned to make sure I had a safety net. It's not an accident.

My safety net is how I divided up my sources of income: 1/3 personal investments, 1/3 pension, 1/3 social security. I can live on any two, though without some of the nicer things of life.

Over a period of 30+ years I made decisions that resulted in this safety net. The good fairy did not bonk me on the head with her wand and make me one of the lucky ones with multiple sources of income. A lot of 'goodies' were sacrificed to get there.

I am sure many here did the same.

[Meadbh]

Quote:

Originally Posted by Chuckanut I worked and planned to make sure I had a safety net. It's not an accident. My safety net is how I divided up my sources of income: 1/3 personal investments, 1/3 pension, 1/3 social security. I can live on any two, though without some of the nicer things of life. Over a period of 30+ years I made decisions that resulted in this safety net. The good fairy did not bonk me on the head with her wand and make me one of the lucky ones with multiple sources of income. A lot of 'goodies' were sacrificed to get there. I am sure many here did the same.

My safety net is

0% pension
5% social security (approximately)
95% personal investments.

I did not realize until I was well into my training that there would be no pension in my career track. I wish I had known more about that earlier. Anyhow, finding that out was like a swift kick in the pants.

[NW-Bound]

Quote:

Originally Posted by Meadbh Contributions to the Canada Pension Plan - Service Canada

Thanks for the info. CPP has both lower tax rate and maximum amount than US SS. In 2013, the max tax (employer+employee total) was $4712. In contrast, the US SS max tax for (employer+employee) was $14,578 in 2014.

I hope this makes you feel better about CPP benefits being lower than US SS. And then, Canada has that OAS.

[Chuckanut]

Quote:

Originally Posted by Meadbh My safety net is 0% pension 5% social security (approximately) 95% personal investments. I did not realize until I was well into my training that there would be no pension in my career track. I wish I had known more about that earlier. Anyhow, finding that out was like a swift kick in the pants.

IMHO, given the recent attacks on pensions already earned and the inability of our elected officials to reform SS while there is time to do it with less pain, I think having more in personal investments is a good idea.

Monitor and adjust.

[MichaelB]

One additional thought on this subject. Often, the things we fear most are not the things that represent the greatest risk, while the real threats to our financial well-being are not on our radar screen.

For those of us with savings based retirement incomes, the real risk is doing something stupid with the portfolio, followed by financial abuse by family members when we are older and suffering from cognitive decline. Add poor health and combined these are far more important and also far more likely to affect us in a negative way.

It's easy to convert part of the portfolio into an annuity. So easy that few of us do so.

[walkinwood]

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Originally Posted by bingybear ... just like noted on most posts... use Firecalc... you are still looking for a high likelihood of success.

I would not recommend using firecalc without close examination of the investment history it uses. Your investment characteristics and inflation history may not match it at all.

[freebird5825]

Quote:

Originally Posted by Chuckanut I worked and planned to make sure I had a safety net. It's not an accident. My safety net is how I divided up my sources of income: 1/3 personal investments, 1/3 pension, 1/3 social security. I can live on any two, though without some of the nicer things of life. Over a period of 30+ years I made decisions that resulted in this safety net. The good fairy did not bonk me on the head with her wand and make me one of the lucky ones with multiple sources of income. A lot of 'goodies' were sacrificed to get there. I am sure many here did the same.

Put me in that group also.
I have govt pensions (1 survivor, 1 my own), my investment portfolio, and an annuity (converted TSP savings at 5.25% rate in July 2007). None of the individual components are large, but the bills get paid and sleep is good.
I am eligible for SS for my w*rk record only. What it will be in 6 years when I am eligible at 62 is anyone's guess. There is no huge advantage to me to wait until my FRA because there is no spousal benefit involved in my equation.

Mr B has his own pension, some savings, some stocks, and is eligible for SS now. He has chosen to wait until his FRA to apply.

We are each other's safety net.

[jim584672]

Reinforcements:
9.5 years to unfettered access to 401k/IRA money.
Pension (non-cola), can start at 55, or latest at 65, plan to wait to 65.
Social Security, plan to wait to 70, think of it as longevity insurance.
If needed, sale of paid off residence.

Planning becomes much easier when you know you only have to get to a certain age, like 59.5 or 65, then your reinforcements kick in.

[nuke_diver]

No safety net used in my calculations.

I have paid into SS but am not a US citizen so while I should get it future rules could change that and since I have worked here only part of my life I won't get the max benefit so in all my calcs I ignored it. If I get it in 12 or so years it will be simply some extra spending money

As a Canadian I think I get something but again since I didn't contribute for my whole working career this is treated the same as SS and it will (if there is anything) be even less. I would prefer to move back to Canada since the health care costs is an order of magnitude lower than here but DW is US citizen and is not inclined to cold weather so not sure it will ever be something I can convince her to do

[Meadbh]

Quote:

Originally Posted by NW-Bound Thanks for the info. CPP has both lower tax rate and maximum amount than US SS. In 2013, the max tax (employer+employee total) was $4712. In contrast, the US SS max tax for (employer+employee) was $14,578 in 2014. I hope this makes you feel better about CPP benefits being lower than US SS. And then, Canada has that OAS.

Yes, it does make me feel better. You hear a lot about Canadian taxes being higher than those in the U.S., but when you look at the big picture, that's not necessarily true.