OT: Money/Retirement Question

[michnittlion]

Hey folks. Off-topic question, but I'm still relatively young (late 30s), I don't have an actual financial advisor but I am diligent about being smart with my $ on my own.

One thing that strikes me about the "retirement calculators" I see are how they all say "you should plan to replace 85-90% of your money in your retirement years." Here's the question: is that percentage really realistic? Shouldn't it be A LOT lower? For those who are retired, what is the ballpark % of money you spend as compared to your later-working years?

The way I figure it --- once I retire, I already lose the "putting 20% of my income away into my 401(k) and other retirement savings vehicles." Plus, my house should be paid off well before then. So that's a significant amount of $$$ I would NOT need to replace.

Anyway, just curious on thoughts. Sometimes I'm dubious of people in the retirement industry --- whether they actually are advising people to OVER-save. That may be good for people with barely anything saved, but my 401(k) account is currently funded at 6x the average for people my age. I know that 6x is "good but not incredible incredible great", but I just find it hard to believe that even maxing out my 401(k), I'm STILL projected to be under-saving by many of these calculators.

 

[sluggo72]

one thing you forgot, for many people the first few years in retirement they may actually spend more!! the reason is they will probably travel a lot more now that they have the time (there have been studies done that indicate this) Plus later there are medical expenses that will continually come. that said, I don't see that 85-90% number to often, I see more like 75%. You can't have too much money in retirement unless of course you want a different career as a Wal Mart greeter !!!

 

[BigTimeBig]

Hey folks. Off-topic question, but I'm still relatively young (late 30s), I don't have an actual financial advisor but I am diligent about being smart with my $ on my own.

One thing that strikes me about the "retirement calculators" I see are how they all say "you should plan to replace 85-90% of your money in your retirement years." Here's the question: is that percentage really realistic? Shouldn't it be A LOT lower? For those who are retired, what is the ballpark % of money you spend as compared to your later-working years?

The way I figure it --- once I retire, I already lose the "putting 20% of my income away into my 401(k) and other retirement savings vehicles." Plus, my house should be paid off well before then. So that's a significant amount of $$$ I would NOT need to replace.

Anyway, just curious on thoughts. Sometimes I'm dubious of people in the retirement industry --- whether they actually are advising people to OVER-save. That may be good for people with barely anything saved, but my 401(k) account is currently funded at 6x the average for people my age. I know that 6x is "good but not incredible incredible great", but I just find it hard to believe that even maxing out my 401(k), I'm STILL projected to be under-saving by many of these calculators.

Well the real question is how do you plan to spend your retirement? Do you want to travel the world or sit around reading and gardening? Is what you plan to do in retirement different than what to you currently do?

 

[michnittlion]

Well the real question is how do you plan to spend your retirement? Do you want to travel the world or sit around reading and gardening? Is what you plan to do in retirement different than what to you currently do?

I travel a good bit NOW --- weekends or excursions that require a plane ride, not just hopping in the car, and cost about $1.5-$2K apiece --- on a once-per-month basis on average. Those trips are primarily domestic vs. global, admittedly, but I don't see my travel going up that much. Besides, by the time I get to 85 or so, that'll just naturally slow down, the body will break down.

 

[royboy]

Well the real question is how do you plan to spend your retirement? Do you want to travel the world or sit around reading and gardening? Is what you plan to do in retirement different than what to you currently do?

Yes, a fairly simple starting point:

Would you be okay with your lifestyle on today's take-home pay?
From there, what income sources (Social Security, pension, dividends and interest) would provide a base income and what withdrawal rate from investments would provide a comfortable but sustainable source for lifestyle expenses?

There's more to it -- many people under-estimate medical expenses in retirement, or don't adequately factor in major expenditures like a new vehicle or major home repairs.

But the question of "will I have enough money" is not the only question....you may be one for whom the question is "am I spending enough"? And, that's not a terrible problem to have.

 

[dmdpsu]

Hey folks. Off-topic question, but I'm still relatively young (late 30s), I don't have an actual financial advisor but I am diligent about being smart with my $ on my own.

One thing that strikes me about the "retirement calculators" I see are how they all say "you should plan to replace 85-90% of your money in your retirement years." Here's the question: is that percentage really realistic? Shouldn't it be A LOT lower? For those who are retired, what is the ballpark % of money you spend as compared to your later-working years?

The way I figure it --- once I retire, I already lose the "putting 20% of my income away into my 401(k) and other retirement savings vehicles." Plus, my house should be paid off well before then. So that's a significant amount of $$$ I would NOT need to replace.

Anyway, just curious on thoughts. Sometimes I'm dubious of people in the retirement industry --- whether they actually are advising people to OVER-save. That may be good for people with barely anything saved, but my 401(k) account is currently funded at 6x the average for people my age. I know that 6x is "good but not incredible incredible great", but I just find it hard to believe that even maxing out my 401(k), I'm STILL projected to be under-saving by many of these calculators.

As a CPA, I advise people all the time. Save, save, save. You won't regret it. Few actually do it. Always live below your means. As you get older you can loosen up a bit and really enjoy yourself without guilt, because you will have built up a strong foundation of savings. Invest in the stock market outside of your 401K. It is the key to being happy long term. You will never know how much money you will need in the future, so it is best to be prepared to the fullest.

 

[palehorse]

There is something worse than dying before you spend all your money..... living past the point when you spend all your money. Don't cut it close. Over save. If you eventually find you have too much saved, I'm sure you can figure some way to manage that burden.

 

[PhillipintheValley]

I just looked at my retirement again. My retirement advisor recommends 70%-75% of current income for maintaining your current lifestyle. 80-85% if you go big in retirement. 60-65% if you're going to live simply in retirement.

 

[ru109]

Are you married and do you have any kids? You might be saving like a bandit now but if you are planning on having kids and helping or paying for their college that could cut back on what you are saving currently.

 

[SoParkLion]

As a CPA, I advise people all the time. Save, save, save. You won't regret it. Few actually do it. Always live below your means. As you get older you can loosen up a bit and really enjoy yourself without guilt, because you will have built up a strong foundation of savings. Invest in the stock market outside of your 401K. It is the key to being happy long term. You will never know how much money you will need in the future, so it is best to be prepared to the fullest.

Sorry, but the stock market is NOT the key to long term happiness.

 

[bdgan]

Hey folks. Off-topic question, but I'm still relatively young (late 30s), I don't have an actual financial advisor but I am diligent about being smart with my $ on my own.

One thing that strikes me about the "retirement calculators" I see are how they all say "you should plan to replace 85-90% of your money in your retirement years." Here's the question: is that percentage really realistic? Shouldn't it be A LOT lower? For those who are retired, what is the ballpark % of money you spend as compared to your later-working years?

The way I figure it --- once I retire, I already lose the "putting 20% of my income away into my 401(k) and other retirement savings vehicles." Plus, my house should be paid off well before then. So that's a significant amount of $$$ I would NOT need to replace.

Anyway, just curious on thoughts. Sometimes I'm dubious of people in the retirement industry --- whether they actually are advising people to OVER-save. That may be good for people with barely anything saved, but my 401(k) account is currently funded at 6x the average for people my age. I know that 6x is "good but not incredible incredible great", but I just find it hard to believe that even maxing out my 401(k), I'm STILL projected to be under-saving by many of these calculators.

Lots of things to consider. Do you plan to retire early? If so you better have a lot of money for healthcare. Do you plan to travel more? Own a separate winter/vacation home? Those things make a big difference on how much you'll need.

Putting 20% into your 401k is a great start regardless. Keep doing that and you won't have a problem.

 

[NJPSU]

It's not just about retirement, it's about financial indepence(aka FU money). The quicker you reach FI, the quicker you can do whatever the heck you want. (Whatever you decide that is).

It's nice to walk into the office knowing you dont really need the money.

Saving for "retirement" is a dying concept, it's all about financial independence.

 

[sluggo72]

Sorry, but the stock market is NOT the key to long term happiness.

why do you say this??

 

[nits74]

Hey folks. Off-topic question, but I'm still relatively young (late 30s), I don't have an actual financial advisor but I am diligent about being smart with my $ on my own.

One thing that strikes me about the "retirement calculators" I see are how they all say "you should plan to replace 85-90% of your money in your retirement years." Here's the question: is that percentage really realistic? Shouldn't it be A LOT lower? For those who are retired, what is the ballpark % of money you spend as compared to your later-working years?

The way I figure it --- once I retire, I already lose the "putting 20% of my income away into my 401(k) and other retirement savings vehicles." Plus, my house should be paid off well before then. So that's a significant amount of $$$ I would NOT need to replace.

Anyway, just curious on thoughts. Sometimes I'm dubious of people in the retirement industry --- whether they actually are advising people to OVER-save. That may be good for people with barely anything saved, but my 401(k) account is currently funded at 6x the average for people my age. I know that 6x is "good but not incredible incredible great", but I just find it hard to believe that even maxing out my 401(k), I'm STILL projected to be under-saving by many of these calculators.

Mich, I retired relatively early and from a financial perspective I would say that dmd offers the best advice. Save as much as you can and live below your means. It will make a huge difference by the time you hit your mid 50's and will give you peace of mind. This simple but good advice is particularly important if you want to retire early.

 

[michnittlion]

Mich, I retired relatively early and from a financial perspective I would say that dmd offers the best advice. Save as much as you can and live below your means. It will make a huge difference by the time you hit your mid 50's and will give you peace of mind. This simple but good advice is particularly important if you want to retire early.

Yeah, I get the "save, save, save" mantra, but I don't know. And I also know the old saying "we plan, God laughs" (though that phrase, to me, has always implied a rather mean-spirited God).

But I doubt I'm ever getting re-married. I don't have children, I do have a nephew & a niece who I'd like to help out, I get seriously bored if I sit around for long, and I (at least for now) truly enjoy working. Maybe my perspective will change, but I sort of want to work as long as I can.

More $ is always better than less $, but I'm honestly kind of stunned most of these on-line calculators are telling me (always saving 20%+, doing well income-wise, minimal debts, live in a fairly low-cost area, et cetera) that I'm still not saving enough. Honestly, how the hell is everyone else going to do then?

 

[bdgan]

Yeah, I get the "save, save, save" mantra, but I don't know. And I also know the old saying "we plan, God laughs" (though that phrase, to me, has always implied a rather mean-spirited God).

But I doubt I'm ever getting re-married. I don't have children, I do have a nephew & a niece who I'd like to help out, I get seriously bored if I sit around for long, and I (at least for now) truly enjoy working. Maybe my perspective will change, but I sort of want to work as long as I can.

More $ is always better than less $, but I'm honestly kind of stunned most of these on-line calculators are telling me (always saving 20%+, doing well income-wise, minimal debts, live in a fairly low-cost area, et cetera) that I'm still not saving enough. Honestly, how the hell is everyone else going to do then?

20% is almost always enough unless you're trying to catch up from years of failing to save. Do a budget estimating your annual expenses in retirement. 20x your annual expenses should provide a comfortable retirement. Less than that if you have a defined benefit pension.

Some advice:
1. Nobody cares about your money as much as you. Use a paid advisor if necessary but make a point to understand your investments and his fees.
2. Pay yourself first. Dave Ramsey has an expression "live like nobody else so that later on in life you can live like nobody else".
3. Paying off debt is a great investment, especially credit cards.

 

[Op2]

I think the "You'll need X% of your pre-retirement income" is far too simplistic. I think it's better just to carefully consider each aspect of your life and what it costs now and then try to imagine how things will change when you retire. But think about it many times (which you have time to do anyway) to make sure you consider all possibilities. The work life of some people either causes or prevents spending in certain areas and when they retire that will change.

Also, consider this. When you're working you're tying up 40-ish hours per week in which you're bringing in money but you can't spend money (other than maybe lunch out). When you retire those 40 hours stop bringing money in and can be used in many ways, including spending money. If you really do enjoy simple pleasures around the house then you won't spend much but if you're one of those people that's got to be doing stuff to enjoy yourself then remember that doing stuff usually entails spending money.

Also, if you're young and healthy then you may just forget about health care costs but when you're retired I assume (I'm not there yet) that they're a regular part of your budget.

 

[Ct. Lion]

Yeah, I get the "save, save, save" mantra, but I don't know. And I also know the old saying "we plan, God laughs" (though that phrase, to me, has always implied a rather mean-spirited God).

But I doubt I'm ever getting re-married. I don't have children, I do have a nephew & a niece who I'd like to help out, I get seriously bored if I sit around for long, and I (at least for now) truly enjoy working. Maybe my perspective will change, but I sort of want to work as long as I can.

More $ is always better than less $, but I'm honestly kind of stunned most of these on-line calculators are telling me (always saving 20%+, doing well income-wise, minimal debts, live in a fairly low-cost area, et cetera) that I'm still not saving enough. Honestly, how the hell is everyone else going to do then?

I retired in 2000 at age 56 from a company with a decent pension which I could collect on immediately. I took Social Security at age 62 and I get a small stipend from the VA for a service connected disability from my tour in Vietnam. This provides a cash flow equal to about 2/3 of my working era W2 without having to use any of my saved investment monies in my IRAs and 401K.
My wife has her own Social Security, her own IRAs, and works part time as a hospice nurse. That is more than enough to maintain our lifestyle.
But, I retired with no debt of any kind. No mortgage, no credit card debt, no car loans and all of my children's college debt paid off.
Other key ingredient, my children were financially supporting themselves within a year of graduation from college and both have paid for their graduate degrees.
I started saving in my 20s, put 20% of my gross income away in IRAs, 401ks, stock option plans and invested whatever leftover cash in the stock market. I also funded my wife's IRAs and my kids have Roth IRAs that they funded with yearly gifts from us. This money continues to grow and is only used for big purchases like a wedding or a new car so I have sufficient cash reserves.
Helping is the fact I didn't live an expensive lifestyle.
Surprises were the cost of medical coverage before Medicare kicked in. The retirement medical package escalated from $150 bucks a month contribution at age 56 to over $800 bucks a month at age 64. This I did not anticipate. With Medicare it is about $200 bucks a month now.
I have always managed my own money and follow investment issues closely. I have no problem simply going to cash to protect principal. I use self directed accounts at multiple discount brokers.
This was my formula and it worked with some surprises to overcome.
With your situation of having no children and willing to pay attention to saving and investing the way you are, I see no reason why you won't succeed at your goals of retiring comfortably. Most of the working population comes no where near saving 20% of their gross and too often whatever they save doesn't even start until mid life so I think you are doing great.

 

[Metal Mike]

I have been retired for over 2 years and when planning for retirement I used the 75% standard. I had no debt when retired. Owned my home and a vacation home, 3 cars and had all the toys I wanted. We travel some but not every month, about 2 times a year. Looking back the 75% was a bit high for me, I am spending about 60% of pre-retirement income doing what I want. I now spend more on leisure activities like golf, hobbies and entertainment, but less on clothes, gas and lunch. I have a military retirement, that has a cost of living adjustment which helps. Because of my military retirement I have low-cost medical coverage. In addition I have VA medical coverage. So this may be why I am spending less than other people. Best thing I did was for 1 year I tracked all expenses. This showed me where my money was going. I was able to estimate which expenses would go up, go down or stay the same.

 

[JBDLion]

Does the 20% savings rate I see thrown around include company match? I'm 29 and have been withholding 10% from the start plus an additional 6% company 401k match and 2% pension (that will increase with age/service up to 5%). I seem to be well ahead of most recommended benchmarks and I don't know anyone else my age actually withholding 10%, let alone 20%, so I was just wondering.

 

[michnittlion]

Does the 20% savings rate I see thrown around include company match? I'm 29 and have been withholding 10% from the start plus an additional 6% company 401k match and 2% pension (that will increase with age/service up to 5%). I seem to be well ahead of most recommended benchmarks and I don't know anyone else my age actually withholding 10%, let alone 20%, so I was just wondering.

Those 20% benchmarks never do seem to include the company match. They probably should, though you do gotta be aware of your company's vesting schedule. I know I never include it myself when I do my own calculations.

401(k) company matches did seem to be a lot better 5-10 years ago vs. what they are now. You're doing pretty damn good with a 6% match. My current company is a 50% match on anything up to 6% (e.g., it maxes at 3%), plus you have to be there 3 years to vest ANY of it. Not sure I'm going to make that time-span ..........