Two things this morning besides the gratuitous dog picture; retirement planning and a tourney update.Barron's had an article that questions the assumption that people should plan on needing 80% (I thought it was more like 70%?) of their pre-retirement income after they retire.
This is something I have written about several times, the first time was more than two years ago.
After sorting out expenses that are likely to go up after retirement and the ones likely to go down I think most people would find that overall their total outlays would go down.
As far as how much you need to save; I have recently stumbled across a couple of different people that came up with a similar notions. One said that for every $1000 you spend per month you need $230,000 and the other person came up, I think, with $240,000. One of the two was Paul Farrell and I'm sorry I don't recall the other.
Applying this to real people; Joellyn and I spend just under $3000 per month (this includes travel, does not include what we save, we have no mortgage and just one car payment). Other than the car payment and what we now save our expenses are not likely to go down too much, we obviously live modestly on purpose. This implies we need $720,000 in today's dollars. Assuming 3% annual inflation our expenses would double in 24 years and so our nest egg would need to be worth $1,440,000 in 24 years. Here I am just using the rule of 72.
If equities double every ten years, which assumes returns on the low side, the numbers have a chance of working out.
I tend to be conservative when it comes to planning so I am not counting on Social Security which would cover a lot of our need. I am planning to work for as long as my mind will continue to function.
If your life is simple (I realize ours is peculiarly simple) then the planning can be simple. Things like working in your career longer, eBaying away your crap (or in our case my in-laws crap), doing a new job in retirement or anything else you've read about that retired people do for money serves to reduce the stress on your portfolio. The numbers above assume a roughly 5% draw down. Anything you can do that could bring that down to something like 3% should be explored in my opinion.
If you don't want to hire help with planning you do need to work out these numbers for your situation and no what you are facing. Also not discussed here are surprises like health issues, financially having to bail out an adult child or anything else you can think of.
The NCAA tourney certainly kicked it up a notch yesterday with plenty of overtime and close games. On a personal note my wife has been much more tolerant of all the hoops this year. Hmm, I wonder what's coming round the corner.
12 comments:
One problem is thinking of inflation as a constant 3%. Even if CPI (or whatever gauge you want to use) reads 3% every year, your consumption patterns will invariably pick and choose some goods/services where rising prices are below the average inflation, and some that are above average.
When you're young, you get to enjoy buying things made in China, maybe some inexpensive dinners out at a local restaurant, and similar goods.
When you get older, you have all the "stuff" you need, and all you really care about is your quality of life -- which you deal with through health care spending (and probably some trips and stuff for the grandkids).
Guess what has consistently had rising prices above the average inflation rate? Health care.
All these generic "you need 80% of your current income to retire" salvos miss the big picture (whether sponsored by Random Roger or not). When you get older your spending patterns change, and your preferences do too. You start to get hit by the ugly side of the inflation imbalances.
I'm in the same boat as you -- I'm young and have low living costs. However, I have also seen how quickly health care prices are rising for our parents... and the trend is not about to reverse itself or be blessed by some "productivity miracle" in the health care space.
-Jason G.
My wife is not an NCAA fan. There is a tourney bracket pool in her office that she really had no interest in partaking in, but I nudged her saying: 1) it's a good morale/team-building exercise 2) luck does just as well as skill in these things and 3) I'll pay your entry fee (a whopping $10). She filled out her own bracket and joined.
Now this weekend she's next to me on the coach with her bracket and a highlighter, yelling at the TV as Washington St goes down in double overtime.
Awesome.
Although I hope to continue "working" into my retirement years, I'm not counting on that income in my retirement planning. I've read a number of surveys that suggest that many folks are counting on that as a major source of income (along with their SS checks I suppose).
Twenty years from now I don't want to be in a situation where I have to work in order to make ends meet. Attitudes change - I might find an interest or hobby to pursue full time that doesn't generate much if any income. Also, I don't want to find myself in the poor house if I'm disabled and can't work.
Roger, did the Barron's article say 80% is too much or not enough?
I think that too many people worry about retirement while in the present they spend and debt their way into oblivion -never connecting the dots along the way.
Then they will demand government classification as a victim in retirement.
We may very well get national health care and other schemes. Anything for votes,amigo.But at what price? Maybe our medical personnel and ambulance chasing attorney-types will be worthy recipients of price controls.
MattyP congrats on converting a new fan, not easy to do. I have been working on Joellyn since the 1992 tourney (our first one together); no dice.
TomK, Barron's general conclusion was 80% is too much. Your ar living on less than that now as you pay taxed, a mortgage and save for retirement.
As far as working... I believe in being willing if you are able...even if you save properly. I am not saying full time in a job you dislike but something. I have written several times about my neighbor who is 75, the best physical speciman for a 75 year old man I have ever met (he is an active firefighter) who makes money doing backhoe work. He basically makes $60 per hour playing in the dirt on his toy.
It is possible there is some equivalent within the things that interest you that could evolve into a vocation.
The chance of relieving your portfolio of 25% of what it needs to do could be huge if there is no stock market growth when you are ages 65-70.
The statistics have shown that a 4% withdrawal rate has a high 90s % success rate for retirees. Based on that, I'd say a 25x expense rate as a retirement pool would be a good target to shoot for, and to evaluate the situation once you manage that figure.
Roger.
By my calculations, by the time your wife loves the hoops, your nest egg should be sufficient for retirement.
This is of course a much more scientific approach than the Barron's article.
Oh ya, and GO PITT!
I didn't tell my wife about this, but I will share it with you.
My goal is to have plenty of money until my 112th birthday, at which time I will be shot be a jealous husband.
T, that is the best retirement plan i have ever heard.
The "save $230k for every $1k/month" was from Charles Schwab via a Paul Farrell article.
Who cares about retirement!....look at those two sweet little snoozin' faces.
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