Why your retirement won't be so bad

[MasterBlaster]

Well this is preaching to the choir here, but Scott Burns latest article suggests that you won't need 80% of your pre-retirement income during retirement...


Why your retirement won't be so bad - MSN Money

[Donzo]

I have been seeing more and more articles that discuss this fact -- 80% was put out there by the investment companies and supported by most in the industry and the investment magazines. This myth is finally being busted.

[Zoocat]

That would be true, if his assumptions were generally true. But there are some expenses that have gone up lately, health care and energy for example. Also, some of us have mortgages. And some of us live in areas of the country that have become really expensive.

To me, his article was really short sighted and aimed at those who have done everything right as far as preparing for retirement, and doesn't take into account the unexpected left punches that many have experienced along the way, foiling the best laid plans.

[MasterBlaster]

Oldbabe:

If nothing else, you won't have to pay payroll taxes and you won't have to save anymore. For me that represents a very sizable portion of my income. Add in the (perhaps) lower income taxes due to see that you really need quite a bit less.

From the article, healthcare was (to a large degree) provided by Medicare.

His point was and is valid.... That really you will need much less when you retire than what you made when you are working.

[ziggy29]

Quote:

Originally Posted by MasterBlaster Well this is preaching to the choir here, but Scott Burns latest article suggests that you won't need 80% of your pre-retirement income during retirement... Why your retirement won't be so bad - MSN Money

Depends on a few things, such as your lifestyle and your health. For many people it can be less than 50% of working income; for a few unfortunates it can be 100% or more. I think 80% was some sort of average-case recommendation erring on the side of conservatism, but YMMV so much here that it's almost useless.

If someone saves 30% of income for retirement there's a good chance -- unless they get chronically sick or travel a lot -- that they can live on half their working income with no loss in standard of living. You won't need the 30% saved for retirement, 7.65% for Social Security and Medicare (15.3% for self-employeds). Income taxes will be much lower, as will commuting expenses and probably wardrobe expenses. If you're home more you may eat out less because you have the time to prepare meals yourself. Some homeowners insurers cut retired people a break on premiums. Married retiree couples may not need two cars any more. And so on. And in the end, you have half the income with the same standard of living.

That is, of course, potentially somewhat offset by increased health care costs. And if you want an "expensive" life of leisure (lots of travel, golf, et cetera), you have to add some back in as well.

But I'd wager that for folks who adequately saved for retirement, the usual 80% recommendation would be sufficient for most retirees.

[slepyhed]

What about hedonism? Scott sort of left that out.

He seems to think that when the kids get out of college, your expenses go down. It seems to me that most folks stop paying tuition and instead start making Corvette payments, or Boat payments, or hot tub payments, or...

[novaman]

Just saw this article

Why your retirement won't be so bad - MSN Money


what do you guys think?

[OAG]

MasterBlaster already beat you to it on this article.

[SamHouston]

Quote:

Originally Posted by slepyhed What about hedonism? Scott sort of left that out. He seems to think that when the kids get out of college, your expenses go down. It seems to me that most folks stop paying tuition and instead start making Corvette payments, or Boat payments, or hot tub payments, or...

I suppose, though, that the difference is that those payments are discretionary rather than of the more mandatory type, a huge difference to a "spender" like me.

[dm]

My pre-retirement expenses were around 37.5% of my income. Thats the number I'm interested in. My income rose sharply the last five years, but instead of buying new toys I paid off my house and increased my savings.

Based on a 4% withdrawl rate we will have available 46% of our pre-retirement income not including SS. We should be able to live very well on that amount.

[slepyhed]

Quote:

Originally Posted by dm My pre-retirement expenses were around 37.5% of my income. Thats the number I'm interested in...

I think the reason for the enduring popularity of the x% of income method is that most folks can figure out their income, but few really have a grasp on their expenses.

[megacorp-firee]

IMO these are articles are misleading and dangerous. It looks like these types of articles are rationalizations to make the people who have NOT save enough to feel good about themselves. It's the trend these days... like constantly telling the kids that whatever they are doing 'it's a GREAT JOB ... ', even if they are terrible at it. This self esteem stuff is could really hurt people who are inclined to believe it. This is their financial futures that they are playing with. How would you like to wake up 5 years into your retirement after having spent at an '80% rate' only to find you need to start looking for that burger flipping job at Micky D's. Shame on them.

[unclemick]

Quote:

Originally Posted by slepyhed I think the reason for the enduring popularity of the x% of income method is that most folks can figure out their income, but few really have a grasp on their expenses.

Hmmm - been a while since this forum has a rock-em, sock-em thread on what it takes to bare bones ER budget in cold hard cash in the good old USA.

Dory36's ancient 33% That's my story waaaay back is what hooked on the forum.

Absolute low 12k/yr(only one year before she threatened to murdalize me) and a lot of 18-24k/yrs in the 1990's - no health insurance, paid up used cars, no house payment(1345 sq foot fish camp).

Expenses are tough - wouldn't be prudent to post current (3-4K) budget plus wild and frivolous trips. That's the penalty for really cheap in the 90's while the market did what it did - ie spend before you get tooo old.

Moral - know your core in current $(not %), what you can wiggle, and SWAG inflation growth. Mabbe tough - but most of us have more control over expenses than income - at least IMHO.

heh heh heh - go all you cheap bastards out there. .

[slepyhed]

Quote:

Originally Posted by unclemick ... Mabbe tough - but most of us have more control over expenses than income - at least IMHO.

Agreed, unclemick!

However, this brings up something I've been mulling over for the past few weeks. One of the phrases that comes up mostly when talking about rising property taxes is "folks living on a fixed income"

There is some kind of delusion out there that if you are working, you can earn as much (or as little) as you want. So if property taxes go up, somehow you'll just earn more money.

The reality is the opposite. In the working world, you don't get raises because your expenses go up. In fact now-a-days, folks rarely get raises even for doing a good job. The rule of thumb seems to be that folks get raises because they switch jobs or the employer thinks they might switch jobs for more pay.

As a matter of fact, working is even less attractive than "living on fixed income". You only get paid if you go to work. If you can't work, no pay.

I don't pity those "fixed income" livers. They will have to adjust their spending habits to deal with different expenses. I, as a worker, can only do the same, yet I still have to go to work! I can just imagine how far I'd get if I went to my boss and asked for a raise because my taxes went up.

[clifp]

Quote:

Originally Posted by slepyhed Agreed, unclemick! However, this brings up something I've been mulling over for the past few weeks. One of the phrases that comes up mostly when talking about rising property taxes is "folks living on a fixed income"

LOL

I just today sent in written testimony to the city council's meeting about property tax. Part of my arguement on why the council should lower the tax rates, is to protect retirees like me on fixed income, who have seen their property taxes double in the last three years.

I actually felt a tinge of guilt, (but hey it is politician we are dealing with so only tinge) because as you correctly point in fact my income is less fixed than a working person. Except for retiree who strictly depend on fixed pensions + SSN, I can increase my income relatively easily by taking on more risk.

I simply move my 5% CD and money market funds, into more risky dividend paying stocks like DSX or CSE with there 8 and 9% yield on Voila my income is increases. (Now obviously I am taking on a lot more risk that market tanks or the companies go out of business.)

But I don't think my risk is higher than a wage earning going into his boss and saying, "my property taxes double, my medical copays doubled, if I don't get a raise, I quit!"

[kcowan]

I think the fixed income notion relates to SS and pension income rather than the chance to work overtime at 1.5 times the hourly rate and then hope for the next promotion. There is no common view of retirees as portfolio managers, adjusting their risk profiles to match their expenses.

But the % of income is valid in the sense that a person earning $200k will have a different expense profile than one earning $50k. And while those earning $50k might be skeptical, the higher wage earners consider all their expenses essential as much as the lower one. While this is not strictly true, planners and politicans don't want to promote an image of retirement life in comparative poverty.

[MasterBlaster]

Using Dory's view that you only need 33 percent of your pre-retirement income. Well if SS picks up say 20 percent of the pre-retirement income then you might only need a nestegg to provide the remaining 13% of that pre-retirement income. At these levels your nest-egg need only be maybe 3.25 times (ie. 13%/.04SWR) of your pre-retirement income.

So to get there, a 50 year old with no savings need only save 13 % of their salary (assuming 5% annual growth) before they retire at 66 to get their required nestegg. If their company matches money in a 401k of maybe 4% then they only need save 9% of their income.

So, as the article points out, it's not as bad as it seems for many people.

[kcowan]

33% means a mobile home in Florida. Or course maybe the LBYM crowd here are very different, but we are talking about the great unwashed masses.

[tednvon]

Learned from these boards over last 5 years...

Our facts...pre retirement gross $120,000

Current...retired, cannot spend 4K clear a month no matter how hard I try...
We do all we want including rent a 4 br home in central Florida for 3 months, eat out when we want, still shop WalMart and the sales, but that was always the style, no change...

Both have small part time jobs, spouse at the golf course one day and I still officiate high school sports...about 7K a year total.

What we do not do is take expensive overseas trips, fly first class and we drive a 2002 Avalon and 1999 LXi Van...live in a 3/2 condo...
We do have med insurance, but will need to pay out of pocket for 2 years until Medicare...

We just don't pay as much in taxes and no longer max out all the 403b and SRA...WOW, that was a lot.

and, of course, kept debt under control and was able to retire with only a small mortgage...

That looks to me like we are somewhere around 35 to 40% of pre retirement gross....Thanks again to Dory, and all the gang here...


Ted

[kcowan]

Ted it sounds like your were well into LBYM when you worked full time. Excluding taxes and savings plans, what was your %age then?