Retirement Income Question?

[l2ridehd]

Maybe this has been discussed before, but if so I missed it. Financial and retirement planners and most retirement calculators tell you that you will need about 70% of pre-retirement income when you retire. Now I would suspect that would very depending on what your working life income was. If you made 50K a year you probably need more like 90% and if you made 2 million a year then it would be more like 20% or some variation of that. Tax brackets and medical costs also play a huge part in the actual number.

When you look at all sources of retirement income, pensions, social security, investment income, 401K income and anything else you might have, what % is that of your last 3 year average income?

I have always been very fortunate and made an excellent income and will also have an excellent retirement income that will exceed what I believe my expenses will be by a significant margin. However when I consider the suggested 70% of pre-retirement income, I fall way short. I will be more in the 40-45% range. Now obviously you will all stop saving and start using the savings at a rate of somewhere between 3 and 4%, and hopefully your expenses will drop as well, but even still, when I look at current working income less savings for retirement vs actual projected retirement income, I still don't get even close to the 70% target.

Where does your percentage fall? No need for real numbers, just the % of your last 3 working years average will be a good indicator. Thanks.

[Army Guy]

Ok, I feel ashamed to respond after doing the math but you asked the question. Being retired Army and the wife retired Civil Service, we will actually make $500 more every month in retirement then when we worked and that is just our pensions not even counting our IRA's, etc.
So 100% + for us.

Army Guy

[Tom Hannon]

My best friend is a financial planner. I think most of these so called experts spend too much time smoking funny cigerettes. According to him and most planners, we would need 2 million dollars behind us before the thought of retirement. HEY! WE worked all our lives. It is time to play. And if I run out of money when I'm 98 years old...will it matter? Retire and enjoy it. If everyone listened to these planners, The Villages would have ten thousand people living here. Reire, live and enjoy.

[bandsdavis]

We are retiring at the end of February, and I had not calculated the % of income before/after retirement, but I have done a significant amount of work on the actual budget (income from various sources and expected expenses over time). As a result of your post, I decided to calculate the income % and guess what, it's exactly 70%! I guess we'll be OK! I did find that in doing the calculation, a lot of assumptions needed to be made, such as should I calculate the % using gross (pretax) value or net (post tax) value. I decided on the net because that's what we will have to spend. Then I had to decide how to treat things like 401K investments (I calculated my pre-retirement number before 401K deductions) and medical plan deductions (excluded them from both pre- and post-retirement calcs, essentially "grossing up" income to pre-medical plan income). I'm sure there are a number of "correct" ways to do the calculation, but thanks for making me think about it. It makes me even more anxious to get through the next 7 weeks!

B.

[CTgolfer]

I'm a numbers person. However, when actually calculating what we would need to live on after retirement, I ignored % and put together what our Essential expenses would be, what our Discretionary expenses would be, and added a buffer. That's what you need, and that has nothing to do with a %. Our Essential expenses are pretty common: Utilities, cable, all insurances, property taxes, telephone, groceries, gasoline, mortgage, Federal income tax. Discretionary expenses would cover your dining out and other activities you enjoy (golf, etc.). What I find to be the largest Essential expense is insurance (health, auto/golf, life, house, umbrella, long-term care).

[Ohiogirl]

I tend to agree more with CT golfer - do the math for you. And something many of us may not have is a mortgage or any other debt. Changes things big time.

[eyegirl]

my wife and i dipped our feet a year ago and went from full time to part time. the easist way is to use a program such as Quicken. all incomes and expenses are there. use everything. go back a year, or 2, and if you didnt categorize correctly, you can add up EVERY expense, every debit. divide by 12,= monthly living. then decide how much things will change in FL. prop tax, utilities, etc. is golf more or less than where you may live now? also figure after x amount of time, you may need a new A/C, a roof, a car, a hot water heater, etc. will you need to self insure? we will. go to bing, type florida blue cross, pick a plan. then add that in. ( you may need to sit for that number). almost all financial planners say do NOT withdraw more than 4% annually from your nest egg. look at the incomes, the expenses, and then call a mover...and be on your way

[Bill-n-Brillo]

As Ohiogirl mentioned, the amount of debt a person might have.....or not have.....skews the "70%" number dramatically. Retirement will generally force a change in living habits for most people, unless you've got a great pension and/or tons of savings and investments socked away. You start thinking more about 'necessities' versus 'blatant frivolous spending' and so on. Those who don't might run into issues on down the road at some point.

So just work the numbers based on your own scenario and go with it! :)

Bill

[spk7951]

We worked with a financial advisor and estimated a list of essential expenses and also discretionary expenses. Even with no mortgage he came out around 70% of working income. We then set up a yearly budget and so far have been able to stay in budget each year which has us living a very comfortable retirement at less than the 70% our advisor had arrived at.

[cybrgeezer]

I think there are as many ways of looking at this as there are people doing it -- including those having their hand out for your savings.

I like CT golfer's thinking.

I hadn't tried a three-year average and in most industries these past three years, the numbers are skewed by layoffs, pay cuts and making full-timers only part-time.

After I talked to Social Secutity in November, set it up with Medicare Part B and 15% for income taxes deducted, I looked at my take-home from all guaranteed sources vs. my take-home during the last almost two years (actually about 21 months, since I was cut down to part-time) and found my after-tax retirement income will be 97% of my former take-home income. That, and the knowledge that I was able to get by with plenty to spare on that lowered working income, gave me the confidence I would be OK in retirement.

Echoing some others' comments, though, it wouldn't/couldn't have happened without being totally debt-free, including paying off the house. No credit card balances (last time a balance lasted more than 1 month: 1991), no car payment (bought the last two for cash) and no mortgage (paid off 13 months ago) make the future look doable.

Add in a $0 premium Medicare Advantage plan and I entered retirement after leaving the office last Friday night with a good outlook.

Hope I'm right!

[Russ_Boston]

I'm a numbers person. However, when actually calculating what we would need to live on after retirement, I ignored % and put together what our Essential expenses would be, what our Discretionary expenses would be, and added a buffer. That's what you need, and that has nothing to do with a %. Our Essential expenses are pretty common: Utilities, cable, all insurances, property taxes, telephone, groceries, gasoline, mortgage, Federal income tax. Discretionary expenses would cover your dining out and other activities you enjoy (golf, etc.). What I find to be the largest Essential expense is insurance (health, auto/golf, life, house, umbrella, long-term care).


Even though I'm going to work while in TV, this is exactly the way I'm planning it.

Figure out what we need and move forward. I would guess that I'll need about 50% of our current income which is going to be higher than my income when I work as an RN in TV and my wife either doesn't work or just works for 'fun' money. I wouldn't move if I didn't think it would work long-term.

But I agree that a blanket 70% isn't valid for many, many people.

[rjm1cc]

You might be interest in this book (from another post)
This book if free for a few days and maybe of interest. Go to the books on the left side and click download. Next page is for a free down load until Jan 10th. It will touch on the 4% rule which comes out to be 3.8% to my reading of the book.

http://www.retirementoptimizer.com/

70%, 80% and over 100% are all numbers that come up. You need to make up a budget.
Costs will probably increase in the medical expense area and some taxes such as social security will decrease or end.

Then add in spending to fill in your free time. This could get you over the 100% mark because you are not going to TV to sit and watch TV.

From you description I can see a budget of 33% for basic living expense (except income tax), and another 33% for eating out, vacations, charity etc. This includes income taxes.

[batman911]

I believe the key words in that 70% statement are "to maintain your current life style". I know we would not need that much since we are big savers and live simply on only a small part of our current income. I believe the statement should be: "You need 70% of what you currently spend monthly to maintain your current life style." That figure will also change if you are moving from a higher/lower cost of living area to TV. The best estimate would be to add all the known manditory expenses in TV after you retire and then add in a larger amount (recommend $1K per month) for unplanned expenses. Your entertainment/dining expenses can be adjusted up or down based on remaining funds.

[rjm1cc]

From your comments I would look to postponing social security until age 70. You will get an additional 8% for each year you do not collect. However, one spouce should probabl start collecting at full retirement age or maybe 62. Just wanted to tell you to do some research on when to start collecting SS. The postponemnet is a way to get a low cost inflation adjusted annuity.

[chuckinca]

About 35%

Our combined gross income was around $200K, figure we can get by with $70K.

If our income had been $100K we would still need the $70K in retirement and it would be 70% as noted above.



.

[BobKat1]

After 6 1/2 years of retirement, we still don't know what we need to live on! It varies annually depending on any major purchases, the amount of travel etc.

We've always lived within or even below our means and continue to do so in retirement. The big difference makers for us are no mortgage, no car payments and no debt. We've been using a good financial planner for 3 1/2 years and survived the recession in pretty good shape.

I agree the 4% per year withdrawal limit is a good starting point.

Good luck...

[Taj44]

After 6 1/2 years of retirement, we still don't know what we need to live on! It varies annually depending on any major purchases, the amount of travel etc.

We've always lived within or even below our means and continue to do so in retirement. The big difference makers for us are no mortgage, no car payments and no debt. We've been using a good financial planner for 3 1/2 years and survived the recession in pretty good shape.

I agree the 4% per year withdrawal limit is a good starting point.

Good luck...

We're in the same boat as you, although we've done our own financial planning. We have no debt at all. Our income consists of 2 pensions, one social security and income from investments, and is running about 72% of what it was during working years. And when the other social security kicks in we'll be probably 80-90% of pre-retirement income. We're finding that, as in the working years, we just don't spend it all. Sometimes your lifestyle will change in that you have more free time, so you'll travel more and use more money for entertainment and possibly health related expenses, so your needs are more than 70% of pre-retirement income. Really depends on your lifestyle and pre-retirement income level, and "wants" vs. "needs". We see some people living what we call pretty extravagantly, and we've never had that desire. Of course, we think nothing of taking huge vacations and traveling all over the globe, while other people have no interest in that either. Everyone's spending habits are different.

[Hal :-)]

About 35%

Our combined gross income was around $200K, figure we can get by with $70K.

If our income had been $100K we would still need the $70K in retirement and it would be 70% as noted above..

Good answer. The 70% rule is a bogus ROT. l2ridehd answered his own question with the comment about 20% for 2 million a year. That percentage is a highly variable metric that can only be derived after calculating what you need in retirement and then doing the arithmetic.

[chuckinca]

Good answer. The 70% rule is a bogus ROT.


Tony:

I believe ROT = Rule of Thumb



Chuck

[uujudy]

And remember, you won't have to pay your country club dues anymore. :laugh:

[whartonjelly]

I am tired of worrying whether or not we can survive on our simple social security income and still buy a courtyard villa. So watch out. We may just camp out in your back yards !!

[Tom Hannon]

I am tired of worrying whether or not we can survive on our simple social security income and still buy a courtyard villa. So watch out. We may just camp out in your back yards !!

Don't worry. As long as you keep spending in control and you don't run into a bunch of monthly bills you should be fine.

[aljetmet]

My best friend is a financial planner. I think most of these so called experts spend too much time smoking funny cigerettes. According to him and most planners, we would need 2 million dollars behind us before the thought of retirement. HEY! WE worked all our lives. It is time to play. And if I run out of money when I'm 98 years old...will it matter? Retire and enjoy it. If everyone listened to these planners, The Villages would have ten thousand people living here. Reire, live and enjoy.

Wow $2 million that's a lot. @ 4% that's $80K per year very sweet.
Say $1 Million @ 4% plus SS plus any pension should be enough for TV especially if you have a little mortgage.

Found this on Yahoo finance how to keep your $1 Million. Just an excerpt.

Smoother ride

Why not go 100% into stocks? Bear markets can last a long time; nevertheless, two spouses retiring at 65 and spending 5% of their portfolio each year will have a two-thirds chance of their money lasting until they die (assuming the actuarial average ages of death) if they put all their cash into stocks, but their money has only a one-half chance of lasting if it is distributed 20-80.

Here, however, is the catch: A 60-40 stock-bond portfolio does almost precisely as well as an all-stock portfolio, and the ride is a good deal less thrilling. Bernstein's research finds that an ideal combination for retirees is a 60-40 portfolio with a drawdown of 4% a year. That gives the couple an 85% chance of having their money last till death.

If the couple retire at age 55, then spending should be around 3.4% of assets. Retirement at 70 means a couple could be comfortable spending at a 4.5% rate; at 85, the rate could go to 7%.