Article- Retirement on Hold- Americans Short
- Thread starter novaman
- Start date
nun
Thinks s/he gets paid by the post
- Joined
- Feb 17, 2006
- Messages
- 4,872
The agenda sounds like a good one.
kyounge1956
Thinks s/he gets paid by the post
- Joined
- Sep 11, 2008
- Messages
- 2,171
Has anyone else looked at Retirement USA's specific proposals? I noticed that the first in the list is the Ghilarducci plan, which was discussed on this forum some time ago. I've never liked that specific idea, and only had time to skim over the others, but some do sound interesting, including some they decided not to present at their conference.
Texas Proud
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- May 16, 2005
- Messages
- 17,268
I don't disagree that agenda sounds like it is good.... but you lose some creditability when you come up with a big number and say you are being conservative... with a 3% return... they said if you used TIPS, it would be worse...
The 'lie' is that funds use a higher number... even as high as 7.5%... that would reduce the shortfall a lot and be more in line with what is likely...
W2R
Moderator Emeritus
I wonder if they are using the old assumptions that one has to have a retirement income equalling 80% of one's working income, in order to retire.
Yes, we are squeezed by the market difficulties and housing crash. But I know that some of us were expecting a lot of difficulties to arise and we are managing to cope with these potential obstacles.
Yes, we are squeezed by the market difficulties and housing crash. But I know that some of us were expecting a lot of difficulties to arise and we are managing to cope with these potential obstacles.
Here's what they say.
Target replacement rates are less than 100 percent because retired households typically pay lower taxes, are no longer saving for retirement, and have somewhat lower expenses than younger households. The targets vary depending on household type (single male, single female, married with two earners, and married with one earner), income group (low, middle, and high), defined benefit pension coverage, and home ownership.
Sounds like the old 80% concept to me.
To me the question is.. what % are typical retirees able to replace today (or recent history) and how does that compare to a new forecast.
If for example most retirees have only been able to replace 50% and we think it should be 80% you'll already come up with a huge shortfall (the sky is falling) despite the fact that people got by just fine in the recent past.
If people used to be able to replace 50% and now, because of poor market returns and reductions in defined benefit plans, most people can replace 40% or 45% - that's what I want to know.
rescueme
Thinks s/he gets paid by the post
Ok, I'll give you an actual plan vs. reality, if you want to know what one couple did in preparing for retirement.
In our 20-30's my DW/me did not consider retiring till our mid-60's, when full SS was available (for us, was 65 but changed to 66 as we aged).
In 1982 (my DW/me were the same age - 34), we became aware of a new fangled thing called an IRA, and we decided (well actually me; I had to drag my DW into the "future") to start contributing ($2k each, at the time).
BTW, 1982 was the first year that folks (e.g. us) that had a pension plan could contribute to an IRA. Those who never had a pension plan could contribute starting in 1975. So we did get in at "the beginning", for our limitation.
By the mid-80's, 401(k)'s had come in to play. That's also the time that our respective pension plans were eliminated for the "superior" 401(k); for my wife, it was the 403(b) plan, since she worked for a non-profit at the time.
By the time we reached our mid-40's, we started looking at increasing account values (really not much, but it was to us) and we started thinking about the "good times" we would have in retirement with our holdings.
By our late 40's, I started playing around with some on-line tools to do simple forecasts to see what we could expect as far as expected expenses vs. possible income from our investments.
That is when I first heard about the "80% solution"; that you needed 80% of your pre-retirement income in retirement.
After running the numbers over a few years, I came to the realization that the statement made little sense.
We had more/fewer expenses over the years (e.g. note/mortgage, car loans, education expenses for our son, etc.) but I could not correlate our current lifestyle to the future (in retirement).
What we did was sit down and lay out what we wanted in retirement. That consisted with several goals, and assumptions.
First of all, we wanted to build our "terminal home" (e.g. retirement home) and ensure it was paid for before we retired.
Second, we wanted to pursue our (actually my DW's) "passion" for travel. She always feared that if she waited till retirement, her health would not allow her to do the travel she wanted to do. Of course, even though it was not my passion, I would be going with her so those additional expenses had to be calculated.
We also save/invested around 33% of our gross income for retirement. No, we started back in 1982 with only around 4-5%, but we increased our savings/investments every year that we each received salary increases. What that actually meant for our retirement years is that we knew that we could live the life we wanted to live, on much less than we currently had as gross income.
We also (before retirement) did not have to be concerned about current expenses in our working years (such as education expenses for our son).
By our mid-50's, we had met our goal of living the life we wished, and being completely debt free.
For us, the calculation for what we would need as far as income in retirement was very simple. We lived the life we wished (e.g. much travel and being debt free) before we retired. Our goal for retirement was 100% of our net salary. We would of course have to add in taxes due. We knew that taxes would be less since we paid over 4% in state/local income tax that would not be paid on retirement income.
We made the plan and set our retirement date for early 2007, when we would both turn 59.
I was first up; I retired. My DW was next up; she did not (not emotionally ready, and still wo*ks today). However, the reality is that she can retire any day she wishes.
A long post, but just to show our thoughts on approaching retirement.
To summarize our goals:
- Enter retirement debt free.
- Live the life we wanted before retirement. Don't fall in the trap of "when I retire I will..."
- Plan on spending 100% of our pre-retirement net income.
It worked (and still works) for us....
Automatika
Recycles dryer sheets
Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
They aren't being as simplistic as 80%. I believe the factors are in Table 6 on page 10 here: http://crr.bc.edu/images/stories/NRRI_Files/NRRI.pdf
I think you've got a great point on current retirees. I'd like to know what percent actual retirees today are replacing, as measured by their incomes not only just before retirement but also 30 years earlier. Are we saying that retirees will have lower replacement rates in the future, or simply less than an "ideal" amount?
I also have a problem with the method they use on target replacement rates. I can't find any place where they adjust for children. Telling a couple with two kids at home that they need to save in order to replace everything except taxes, savings, and work-related expenses is a little silly. They don't have to replace the money they are currently spending on the kids. (of course, maybe they need to plan for the 20-something moving back in .... but that's another issue)
rescueme
Thinks s/he gets paid by the post
You're forgetting what is being spent for kids/grandkids in the future.
We've met more than our share of folks while traveling telling their stories about how they had to help out their "adult children" due to divorce or money problems.
Even with no problem with their kids, many spent a lot taking their grandchildren on trips (e.g. Disney) and paying for cruises for the entire family (e.g. three generations).
Having children can be a lifelong expense and you do need to plan for it if you want to include all possible expenses...
