WSJ Retirement Section 12/11/06

[ZMAN]

I just joined and was prompted to write by the Wall Steet Journal section 12/11/06 on retirement. The frontpage story is entitled, "The Retirement Lies We Tell Ourselves". One of the "lies" is that we can live on less than 70-80% of pre-retirement income. On page R-4 of the section, the writer essentially tells us that we will need 100% of pre-retiremtn income and that we only get to drop to 80% if we were saving that other 20% for retirement. I am sure that there are a million strings on the topic. But for you veterans: What is the real story? I am still working, mid 50's, but doing some planning to get out.

 

[unclemick]

Hmmm - in my case 12% to 35% cause I was a really cheap bastard the first 12 years. Now trying to spend more -- about 110 - 130% of intial retirement in 1993 $ skipping any inflation adjustments.

Moral - I think each ER has to work up his/her estimate based on planned lifestyle.

Dory's ancient 33% That's My Story Post/thread convinced me to join this forum back in ?? 03.

heh heh heh

 

[REWahoo]

One of the "lies" is that we can live on less than 70-80% of pre-retirement income. On page R-4 of the section, the writer essentially tells us that we will need 100% of pre-retiremtn income and that we only get to drop to 80% if we were saving that other 20% for retirement. I am sure that there are a million strings on the topic. But for you veterans: What is the real story?

Welcome to the forum ZMAN.

There are folks here saving 60%...does that mean they only need 40% of their pre-retirement income to live on? The big lie is that you can determine anything about what % of your income will be needed for retirement if you leave expenses out of the equation. In my case we're living large on about 60% of what I grossed when I was a megacorp slave. Like Unclemick says, everyone's situation is different, so these so called rules of thumb are just what the WSJ called them: lies. But not for the reason they give you.

There have been dozens of threads here discussing this subject if you want to look for them.

 

[Rich_by_the_Bay]

Which brings up the age-old question: why base your decision on pre-FIRE earnings rather than expenses?

 

[ZMAN]

Indeed I have worked up expenses left and right, but then I see the detailed and confident article in the WSJ telling me less than 100% is a lie.

I think, am I being delusional living on less? Are these people just shills for the investment industry? Am I missing something in my calculations? Even healthcare. In my area a very good policy with a consumer reports highly rated carrier is currently about $10,000 per year.

 

[REWahoo]

Indeed I have worked up expenses left and right, but then I see the detailed and confident article in the WSJ telling me less than 100% is a lie.

Are these people just shills for the investment industry?

Ya think?

 

[rs0460a]

DW/me live happily, comfortable, and meet more than our expectations on 100% of our current net income.

Our retirement is set to have this same net income (add taxes for gross amount).

Simple, for us...

- Ron

 

[Dawg52]

Which brings up the age-old question: why base your decision on pre-FIRE earnings rather than expenses?

Expenses is the way to go. Everyone will have a different % to income number. My % will be closer to Unclemick's early numbers but the average person will be higher. Percentages are fun to discuss but thats about it.

 

[Martha]

Welcome Zman. I haven't read the article yet. I am tired of these percentage rules of thumb that make no sense on an individual basis. If I was making $300,000 when I retired I would not need $300,000 to live on, more like 20% of that amount. But if I made $30,000 I may need 100%. Also, expenses vary tremendously on an individual basis. Do you have a mortgage? What part of the country do you live in? Do you want to travel? Do you have college expenses for kids? Do you have retiree health benefits from work? Etc.

Assumptions are made about lifestyle that are not accurate especially for early retirees.

Instead, they would do more of a service by talking about what expenses will decrease and what may increase when you retire and what you can do to manage expenses. But unfortunately rules of thumb are appealing, even though they can be intellectually lazy.

 

[riskadverse]

Any article that quotes a percentage of pre-retirement income needed after retirement is written by a moron.

 

[unclemick]

Hmmm - we've had some threads in the past trying to match actual $ budgets with ER lifestyles. A much more challenging endevor. Anyone remember the old $50/day type threads?

Heh heh heh heh

 

[Nords]

Any article that quotes a percentage of pre-retirement income needed after retirement is written by a moron.

Make that "a working moron on deadline".

 

[grumpy]

We are living large on the same level of EXPENSES as before retirement. As others have said, this is only about 50% of our peak pre-retirement INCOME (we were big savers).

Grumpy

 

[Gumby]

The article correctly notes that you won't be saving for retirement, so that percentage comes off the pretirement income. But it ignores the fact that you also won't be paying 7% of your gross in social security and medicare and that your income tax rate is likely to drop substantially. And you likely will not have a mortgage.

For example, here is our situation

100% Gross Income

33% Taxes - FIT, SIT, FICA, Medicare (but not real estate)
4% Mortgage Principal & Interest
37% Savings (401k,403b,457,taxable)
2% Charitable gifts
24% Livin' Large

All I need to do in retirement is take the 24% and adjust it upward to offset taxes. If I assume an average of 10% in taxes, I need only about 27% of my preretirement income to have the same standard of living (29% if I continue the same level of charitable giving).

 

[LEX]

Taking retirement advice from the WSJ, Forbes, or any of the other house organs of the Institutional Money Complex is the fastest way to end up yet another Host for these Parasites. ER (at least for me) includes investing on your own. If you require hand holding, you are most likely to be taken to the cleaners by the broker holding your hand (and shaving your deals for their margins!). As they say in the securities business: for every trade, the broker makes money, the brokerage house makes money, and two out of three ain't bad!

 

[macdaddy]

I think travel would be the big budget breaker... some people love to travel, but some people just like sitting at home planting tulips.

 

[chris2008]

My two cents:
If you keep track of your expenses before you retire you do not need a rule of thumb:
You will know how much it takes you to carry on living in the same way as pre-retirement.
You will know how much of your work related cost will go away after retirement
You will be able to calculate know how much extra money to factor in realisically for your desired after-retirement lifestyle.

Looking at some retired and quite wealthy relatives I learned that the desire to travel and for expensive hobbies was reduced once they had the spare time to make it reality. Often the desire came from stress and daydreaming during corporate life and was replaced by the joy to spend time with friends and relatives, putter around the house and to prepare carefully for the trips they really wanted to take.

We are planning to live on after retirement from what we spend now over the year + inflation. In addition we are building a "fun and support cache" for hobbies and trips that go beyond our existing budget. Once our health and age does not allow to travel extensively or the desire goes away we will use this cache to buy us more help around the house.

 

[HFWR]

I think travel would be the big budget breaker... some people love to travel, but some people just like sitting at home planting tulips.

And not pushing up daisies...

 

[jackcjackson]

I would say that the 2 expenses that makeup a majority of my spending will be gone when I retire. 1. Retirement contributions. 2. I don't plan to carry a mortgage when I am retired.

Right now I live below my means and my mortgage, while modest, and retirement are easily my biggest expenses. I would say eliminating those would suggest I dont need 100% of my current expenses ( and nowhere near current income) to retire.

Not to mention most people have commuting and travel costs related to working,etc.

I don't like flashy stuff or taking expensive vacations. When I am older I will probably want to travel less, if anything.

 

[dumpster56]

They are wrong.

My situation. Had a home that had a 17000 mortgage real estate tax payment of 8000 a year. Total of 25,000. Two car payments that were needed to get our sorry butts to work everyday 100 mile round trip was 8000 a year and after 5 years the cars were well toast with 180,000 miles and needed to be replaced.

So the 100,000 salary did not go that far.

Now my mortgage is 3,000 a year and taxes are 3,000 a year my cars are new and paid off my pension is 33,000 a year and I will sub teach at schools I can use a bike to get to. My new home is nicer than my old place. MOVED from the crazy New Jersey to North Carolina.

So I will have 50,000 instead of 100,000 50% LESS and I have MORE MONEY after paying EVERYTHING from food to utilities!


Oh and in 8 years the wife gets her SS and in 10 I get mine an additional 20K on the low side thinking. So what are these guys smokin? Oh yea they want your 401 k MONEY!

 

[astromeria]

100% of working income may well be spent in retirement by the WSJ intended audience--the multiple home, luxury car, 4* travel class, likely with golden retirement benefits from executive jobs. I get more steamed when publications with a middle-upper middle class readership frighten 40-60somethings with unqualified nonsense that doesn't explain the difference between income and expenses--perhaps because so many people spend all of their income, no matter what it is.

 

[LEX]

The previous post was directly on point. All the finacial press is doing is marketing, presented as advice. Its all one big "infomercial" whether its print or electronic media. If one keeps a realistic and accurate budget, much of what we spend when working is making money to work, not working to make money. We locate in expensive areas to avoid costly commutes, but still pay too much on houses, have to buy new cars, usually ego driven choices, nice clothes, high cost two week 'vacations" that are three times more expensive than traveling on your own schedlue and budget when you retire, and in general, paying too much because your employer controls where you live, how much time you 'own' on your end to do what actually matters to you and your family. Most of us have money but little else in the way of personal control in this phase of life. So we use money, much more than we should, to buy the personal leverage that is required to offset the insane hours required by the job.

Once one retires, they still have needs, but if one knows what they truly needs, 30 - 40 K/year in a low cost part of the US, where housing is not based on commute distances, as you no longer need to live in the high cost commercial center, as well as a simpler approach that allows you to shop sales, avoid traveling in the high cost periods, and use time, rather than money, to leverage your life. The most important aspect of ER to me is the ability to pull time out of the daily barter with your former employer and now own this to dispose of anyway you want!

Ignore the media pundits that want your inventment account so they can rip you off with high fees, and use scare tactics and self serving misinformation that is really marketing to drive this point, make your own budget, and get your life back early from hock. Its not how long you live, its how you live that will ultimately matter.

 

[kcowan]

We are living large on the same level of EXPENSES as before retirement. As others have said, this is only about 50% of our peak pre-retirement INCOME (we were big savers).
Grumpy

In our case, we live on 18% and even that includes paying rent. I guess the moron that wrote the WSJ article did not speak to Grumpy and me...

 

[Mudd]

I completely agree that most magazines and papers are doing their part "marketing" rather than informing BUT,

I hardly think the writer, or any writer who writes like this is a moron. Check that, I believe these writers are writing for morons. I believe telling regular, normal everyday Americans that they need 70-80% of their salary for retirement is off. But I beleive it's too low for most people. Most people have no idea how to live below their means, have little or no debt, or delay gratification. Are you telling me they are going to cut back on their lifestyle once they retire? Highly doubtful. Thinking expenses will go down for these people is a dream. They'll want the same if not more to "enjoy" their retirement.

The guy in the office next to mine is currently cashing out his retirement funds, fees be darned to put a down payment on a house he clearly can't afford. Moronic to the nth degree. He will then be near 40 with no retirement savings, no college funds for 2 kids, 2 leased cars, etc. He couldn't ever live on 70% of his salary. No way, no how.

So even though I currently live on 60% of our salary, as do most of you(if not a lot less), the regular person is never going to be able to live on below 70%. To much "I want it now" in them. But they'll keep working while we have options.

I did quote somebody from this forum when after trying to enlighten my friend to no avail (after he asked me for advice)about taking money out of his retirement accounts by saying "Well at least you'll have to keep working, which will help my SS benefit down the road. He had that deer in lights look, but didn't disagree.

Mudd

 

[rs0460a]

100% of working income may well be spent in retirement by the WSJ intended audience--the multiple home, luxury car, 4* travel class, likely with golden retirement benefits from executive jobs.

Oh - so they targeted me . What's the problem

- Ron