# Retirement Dissected



## pacodemountainside (Oct 8, 2012)

When 'Eight' Isn't Enough 

What's Your 'Magic' Retirement-Savings Number?

By KAREN BLUMENTHAL-WSJ

You are working hard to save for a decent retirement. So wouldn't it be nice to have a simple rule of thumb to measure whether you are saving enough?

Last month, Fidelity Investments, the nation's largest provider of 401(k) plans, tried to do just that, offering up "eight" as the magic number: Typical wage earners, it said, should aim to save at least eight times their final annual pay to be sure they can afford basic living expenses in retirement.

The financial-services company also offered benchmarks to measure your progress along the way. By age 35, your goal is to save an amount equal to your annual pay. By 45, you will want to have saved about three times your salary, rising to five times your salary by 55.

There is a catch, of course: Most of us aren't typical. And for above-average earners, those numbers might seem daunting—and be way too low. 

To come up with the formula, Fidelity had to make numerous assumptions. Its "typical" worker began saving 6% of his earnings at age 25, gradually increased that to 12% after six years and continued saving that amount each year until retiring at 67. (An additional employer match helped, too.) 

He earned about $40,000 in today's dollars initially and retired with annual pay just under $74,000. 

In addition, the savings grew 5.5% a year every year—or 3.2% after inflation—something that is impossible in the volatile real world, where investments soar one year and shrink another. 

Last, the model assumes the saver will start retirement by withdrawing about 5% of savings, a higher drawdown rate than the 4% usually recommended.

In reality, says Beth McHugh, Fidelity's vice president of market insight, the multiple you need to save "will vary."

While perhaps overly simplistic, Fidelity's attempt to quantify a magic number is a worthy exercise because it gets people thinking about savings and especially encourages young people to start saving early, says Steve Utkus of the Vanguard Center for Retirement Research, an arm of financial-services giant Vanguard Group. The center takes a different approach, urging savers to put away 12% to 15% of their income every year, including employer matches, to reach their retirement goals.

So how much should you save? Here's a guide to finding a magic number for your own situation:

• The more you make, the more you need to save, not just in dollars but as a multiple of your final salary. The reason: Social Security payments will provide a smaller percentage of your desired income than it will for Fidelity's typical worker, so you will have to provide more. 

Christopher Jones, chief investment officer of Financial Engines, which provides services to 401(k) participants, says someone making $150,000 a year at retirement might need 12 times his salary to maintain his standard of living.

The Center for Retirement Research at Boston College took a crack at the problem in 2010. It estimated that people making $150,000 to $200,000 needed to save three times their salary at age 45 and 10.3 times their final pay at age 65. 

Underscoring how much assumptions matter, the Boston College center used a higher real rate of return on investments than Fidelity's—4.5% versus 3.2%. The center found that retirees needed between four and 10 times their final pay, depending on whether their incomes were below or above average.

• If you plan to retire early, you will need to save more—and you might not have a choice in the matter. In another argument for saving while you are young and sticking with it, a survey earlier this year by the Employee Benefit Research Institute, an industry-funded nonprofit, found that half of retirees left work unexpectedly because of health reasons or layoffs.

• Your lifestyle matters. The Fidelity model assumes you need to replace 85% of your final pay--since you will save on payroll taxes, you won't need to add to your 401(k) and work-related expenses decline. But if you have been saving a lot and your house is paid off, you might be able to live on even less, which will reduce your savings burden. 

In addition, if you have been sending children to college and graduate school in your later years, you might find that retirement without those expenses is surprisingly cheap. 

• Other savings will help. If you have a pension plan, even a small one, it will reduce what you need to save. On the other hand, if you are a conservative investor who is unwilling to take some risk in the stock market, you will need a bigger magic number to compensate for a lower real return. 

Retirement experts suggest that once you are in your 50s, you should consult a financial planner or experiment with online calculators to figure out the number you need to support the retirement you want. You will have to do a lot of guesswork, estimating your final pay, inflation and investment returns. (You can estimate your Social Security income here.)

There are too many variables to accurately project the exact number. The best you can hope for is a high probability that you won't outlive your money.


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## DeniseM (Oct 8, 2012)

Very good info., but a gentle suggestion:  Please post a link, instead of posting copyright material.  

More info. - 





> Avoid posting copyrighted material
> Under modern copyright laws, anything you find on the internet is copyrighted, even when there is no posted copyright notice. Do not post copyrighted material without the express consent of the copyright owner. Short excerpts are permissible under the Fair Use provisions of copyright law. Rather than post an entire article, just post a short statement of what the article is about and give a link to the address where the complete article may be found.


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## pacodemountainside (Oct 8, 2012)

*Need Info*

Hey Denise:

Could you explain to an olde over the hill gang member  **** how to do this?

I have noted several posts that  say click on "in blue" and take one to the   original newspaper, magazine, etc. web site. Much more gooder than  control C/V as the pictures which enhance article are available.

Indeed,   over the last  couple weeks fellow TUGGERs  have   informed me how to  find tons of  "smileys"  and   using  "ALT" and numeric key board on right how to  find lots of  extra characters.

10/4 outta de back door on all four!


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## hypnotiq (Oct 8, 2012)

Just copy/paste the URL from the article you read. The URL is the address that is listed at the top of your browser.


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## bogey21 (Oct 8, 2012)

IMO we make this way too complicated.  My solution was to make sure I had enough money to buy simple annuities with some inflation protection that pay out the amount of cash that I think I will need (above and beyond my Social Security) each year in retirement.  Yes, I have two risks (but anything one does has some risks involved), inflation and the creditworthyness of the companies behind the annuities.  I retired in 2000.  So far, so good.  

George


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## Conan (Oct 8, 2012)

The hard part for me is estimating how much we'll actually spend in retirement. If you have that number you can subtract social security and divide what's left by .035 (because taking out no more than 3.5% of the pot each year will almost certainly provide enough of an inflation hedge as well as keeping you from running out of money).

So if you need $74,000 (and your social security covers $32,000), then $42,000/.035 = $1,200,000

If $60,000 is enough (and social security is $25,000), then the savings target is $1,000,000

But if you need $100,000 (and social security is $37,000), then the savings target is $1,800,000.

(For the Social Security piece, a lot depends on what age you plan to start collecting, whether you're single or a couple, and of course whether Congress and the next President keep the system as it is now.) And if your savings is in a pension or IRA, don't forget to leave room for income tax on every dollar you withdraw.

Using the same 3.5% figure (after-tax or tax-free yield), saving $20,000/year for 30 years gets you to $1,000,000. Or if you only have 20 years to save, it takes $35,000/year to accumulate the same $1,000,000.


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## Wyominguy (Oct 8, 2012)

*Some suggestions on Retirement*

All,

A number of years ago I purchased Ben Stein's book "Yes, You Can Still Retire Comfortably". See: http://www.stein-demuth.com/

It really woke me up to what I needed to do. Written in a pretty no nonsense manner it is an easy read. As a part of the book Stein posted an Excel spreadsheet online. I have used and modified this chart for years now. The download is free here:

http://www.stein-demuth.com/images/retirement_worksheet.xls

There are many, many great resources listed under the Links page here: http://www.stein-demuth.com/other pages/links.htm

Neil


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## Conan (Oct 8, 2012)

Wyominguy said:


> The download is free here:
> 
> http://www.stein-demuth.com/images/retirement_worksheet.xls
> 
> ...


 
The spreadsheet suggests multipliers (at age 65) of 31.3, 21.3 or 16.9 depending on how much safety you desire.

Dividing by .035 is the same as multiplying by 28.6 so it looks like we're in the same ballpark.


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## spencersmama (Oct 9, 2012)

Nice article, thanks for sharing.  I often watch Suze Orman and wonder when she says, "You don't have enough in retirement," how much one should have in retirement as a percentage of income at any given age.  I haven't seen anything else that states the numbers so specifically.  

I'm going to share this with my husband.  

Oh, and does "By KAREN BLUMENTHAL-WSJ" mean Karen owns at Westin, St. John?


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## Talent312 (Oct 10, 2012)

spencersmama said:


> Nice article, thanks for sharing.  I often watch Suze Orman...



IMHO, she's more an entertainer than a financial expert.
She mixes a few common sense ideas with examples of "how dumb can people be," and folks lap it up. But I rarely find her genuinely useful.


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## Passepartout (Oct 10, 2012)

Talent312 said:


> IMHO, she's more an entertainer than a financial expert.
> She mixes a few common sense ideas with examples of "how dumb can people be," and folks lap it up. But I rarely find her genuinely useful.



+1. This is exactly how we view (well, we don't actually 'view') Ms Orman. Mostly useless, and sometimes dangerous, financial information. Good for entertainment and little else.

'One size fits all' information is no substitute for personal research and advice from trusted advisors.

I DO see some value in the Fidelity 'yardstick' to give unsophisticated earners a clue of where they need to be at various stages of their life to prepare for retirement. Is there more to it? Sure. Are there variabilities? Yup. Every person's retirement needs are different from everybody else's, but having 8X annual income accumulated by age 67 will keep the vast majority of people out of the ramen noodle aisle in their Golden Years.


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## geekette (Oct 10, 2012)

Passepartout said:


> +1. This is exactly how we view (well, we don't actually 'view') Ms Ormond. Mostly useless, and sometimes dangerous, financial information. Good for entertainment and little else.
> 
> 'One size fits all' information is no substitute for personal research and advice from trusted advisors.



Agree, it is often one-size-fits-all.  Not a fan.  But, for someone with very little financial management experience or knowledge, at least it clues them in to things they may not think of on their own.  For that, she does serve a purpose for the masses.

I greatly offended someone a few years ago over this.  I was doing his taxes, and helping him figure out some other financial stuff and he asked what I thought of SO and I was honest that I didn't learn anything from her and found most everything canned and not appropriate for most people, and certainly not appropriate for my situation.  Someone that trusts her greatly is not going to be keen on such feedback.


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## Elan (Oct 10, 2012)

Suze Orman doesn't provide any more financial education than what I was taught in my Personal Finance class in high school.  

  WRT retirement, I've come to the conclusion that you do what you can in terms of saving, planning, etc., but ultimately you will adjust your lifestyle to fit your means, because for most of us there are too many variables out of our control (inflation, market, SS, health, etc) to guarantee much of anything.


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## geekette (Oct 10, 2012)

Elan said:


> Suze Orman doesn't provide any more financial education than what I was taught in my Personal Finance class in high school.
> 
> WRT retirement, I've come to the conclusion that you do what you can in terms of saving, planning, etc., *but ultimately you will adjust your lifestyle to fit your means, because for most of us there are too many variables out of our control* (inflation, market, SS, health, etc) to guarantee much of anything.



Right there with ya, Pal.  Sock it away and hope for the best, but with a target overall savings number in mind.  I only hope to be able to work long enough to hit it, and to be able to delay taking SS until I'm 70.

Goals are nice, but life has a way of forcing a re-assessment every so often.

Don't get hung up on percentages, numbers that are thrown out saying what you SHOULD have, SHOULD do, as ymmv.  Do the best you can, plan for the worst, hope for the best.


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## LisaH (Oct 10, 2012)

I wonder if the amount one should save at the age indicated in the article includes equity from primary resididance. My guess is it does not.  If so, my guess is majority of the Americans (me included) are under prepared for retirement using the recommended formula.


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## Elan (Oct 10, 2012)

LisaH said:


> I wonder if the amount one should save at the age indicated in the article includes equity from primary resididance. My guess is it does not.  If so, my guess is majority of the Americans (me included) are under prepared for retirement using the recommended formula.



  I would think it is not, as well.

  One would think any meaningful analysis of retirement would include home equity/debt.  But it's probably just lumped in to the "how much will I need to live" assessment (mortgage v. no mortgage).  To some extent, I consider my home equity my "ace in the hole" for retirement.  Hope to not have to tap it, but it's there if needed.


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## zinger1457 (Oct 10, 2012)

LisaH said:


> I wonder if the amount one should save at the age indicated in the article includes equity from primary resididance. My guess is it does not.  If so, my guess is majority of the Americans (me included) are under prepared for retirement using the recommended formula.



The primary residence is not included because it is not disposable income unless you take a reverse mortgage but that's usually what someone would do as a last resort.  The key to knowing what you'll need for retirement is to understand what your expenses in retirement will be and that can be vastly different than a certain percentage of your income.  My expenses in retirement are about 1/3 of what my income was before retiring and could be a lot less if I really wanted to cut back.  But you are right, most Americans don't save enough and really don't think about what they will need for retirement until it's too late.


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## Elan (Oct 10, 2012)

zinger1457 said:


> The primary residence is not included because it is not disposable income unless you take a reverse mortgage but that's usually what someone would do as a last resort.



  A lot of folks have larger homes (from having a family) that they will no longer need in retirement.  Two people probably don't need 3500sf (although at that point in our lives, having separate living areas might be desirable ).  In this case, selling off the current home and downsizing might capture 30 to 70 percent of their home equity in additional "savings".  This scenario is fairly common and shouldn't be ignored in a retirement plan.


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## geekette (Oct 10, 2012)

IMO, no major asset should be ignored.  While a house is not liquid, it is an asset.  It depends on the person as to what role it will play in retirement.  I plan to have mine paid off and live 'rent free' aside from taxes, until such time as I might need to tap the equity or downsize.  

I know I can't stay there without major reno if I become disabled, so there are many scenarios to consider.  

Things will become clearer in this "homestretch" of 20 years until retirement ...
and it might not come out to be 20, depending on so many things that I cannot know yet.


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## Rob&Carol Q (Oct 10, 2012)

my "Ace in the Hole"...assuming I don't up and die...is that my mortgage is paid in Nov 2019...I can actually see the daylight!

Even accounting for the never ending taxes and insurance, that's a roughly $1400/month pay raise!

Egads...never thought I would get this close!


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## bogey21 (Oct 10, 2012)

geekette said:


> IMO, no major asset should be ignored.  While a house is not liquid, it is an asset.  It depends on the person as to what role it will play in retirement.  I plan to have mine paid off and live 'rent free' aside from taxes, until such time as I might need to tap the equity or downsize.



My Son is 32 and many of his friends are about the same age.  What I try to impress on them is that the whole concept of retirement security is different today than when I was his age.  For example the availability of defined benefit pensions is raptidly disappearing.

My advice is to my Son and his friends is that when reaching retirement age they should have a non-encumbered (small) house, a low mileage car without payments, and no debt.  My pitch to my Son is that the above coupled with his 50% Marine Corps Disability Payment, Social Security, limited savings and part time jobs he should be able to live decently.

My advice as to the availability of adequate retiree Health Insurance is to stay informed as what is available will probably change many times over before he retires.

George


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## Talent312 (Oct 10, 2012)

Simple, one-size fits all formulas rarely account for most folks particular circumstances. I've develpoped my own spreadsheet to deal with our unique situation. My line-items look something like this:

Retirement Schedule 
Today's Date / Current Ages
Retirement Dates (Ages)
# Months Retirement: Me / Wife

Income Items
My Current Pay / Retirement Income (SS + Pension)
Wife's Current Pay / Retirement Income (SS)
Rental Income / Rental Income @Retirement
... Total Current Income / Retirement Income

Investments
Wife's Profit Sharing / Value at Retirement
Current Retirement Investments / Value at Retirement
Add'l Contributions B4 Retirement / Value at Retirement
... Total Value of Investments at Retirment

Income from Investments
Projected Yield (Income Distributed)
Projected Draw with 30 Yr. Spread, Moderate Gain) 	
... Total Planned Draw

RET. INCOME + DRAW
Current Income Lost
Percent of Current Income

.


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## pwrshift (Oct 10, 2012)

I would think there are some great online calculators to assist pre and post retirees in figuring out what they need for their future.  For example, here is a site for Canadians to look ahead:

http://www.retirementadvisor.ca/retadv/apps/tools/PreRet.jsp?toolsSubMenu=preRet

Brian


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## spencersmama (Oct 11, 2012)

Passepartout said:


> +1. This is exactly how we view (well, we don't actually 'view') Ms Orman. Mostly useless, and sometimes dangerous, financial information. Good for entertainment and little else.
> 
> 'One size fits all' information is no substitute for personal research and advice from trusted advisors.



Finding a "trusted" advisor is the issue.  I've probably sat down with 5 different financial advisors, and my impression from them is that they are looking for a way to pad their own pockets, not necessarily help me with my goals.  At least when you read a variety of financial books and articles, you gather info without having to worry if the authors are interested in making money from you.  



geekette said:


> Agree, it is often one-size-fits-all.  Not a fan.  But, for someone with very little financial management experience or knowledge, at least it clues them in to things they may not think of on their own.  For that, she does serve a purpose for the masses.



I was just using Suze Orman as an example.  I do enjoy watching her show, even if she is a bit theatrical.  My husband can't stand her, but I agree with the majority (but not all) of her advice.  I think the thing that makes her stand out from the other well-known financial advisors on tv is that she is very geared towards women - making sure they have credit in their own names and not co-signing loans or enabling others by giving money.  I know a lot of women that have issues with feeling like they are taking care of everyone, when in fact all they are doing is hurting themselves.  But, I did like seeing the concrete numbers for different ages to measure if I am in the ballpark.





Elan said:


> Suze Orman doesn't provide any more financial education than what I was taught in my Personal Finance class in high school.



The problem is that most people aren't taught about money.  Although personal finance is slowly gaining popularity in high schools, most high schools don't offer it as an elective.  My son is actually in a special finance program in the school he goes to now.  He has to take one class per year - personal finance, finance computing, macroeconomics/ microeconomics, and another business class I can't remember.  They also run a branch of a local credit union on campus.  There are probably 80 kids in the program in a school of about 2300 high school students.  And, it is the only school in the county to offer a finance class.

I really steered him toward doing this program.  I told him he was going to learn a lot of stuff in high school, and a lot of it he won't remember or ever use again, but everyone uses money every day.


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## MuranoJo (Oct 11, 2012)

Passepartout said:


> Are there variabilities? Yup. Every person's retirement needs are different from everybody else's, but having 8X annual income accumulated by age 67 will keep the vast majority of people out of the ramen noodle aisle in their Golden Years.



  Pretty good, thanks for the laugh.  (Although I hear there's a cookbook for ramen noodles, just in case.)

At any rate, I'm taking an early retirement offer from my company--soon to be out the door.  As much as we've planned ahead, saved in the 401k, other investments, hubby's pension, my small pension, eventually (we hope) SS, equity in our home, etc.,...for some reason, I am still nervous about the financials.  I think it's just fear of the unknown.  (And we are luckier than many our age, I am sure.)

And I hope and pray nothing happens to my retiree medical, as I'll need it for a number of years before I hit medicare.


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## hypnotiq (Oct 11, 2012)

My plan has always been $5M in all retirement accounts (401k, IRA, and Investment) w/no mortgage @ 55.  22 years left to go and on-track for target.

I do plan to consult occassionally if I get bored during the day. :hysterical:

As far as SS goes...Ive already written off the fact I'll likely never see a penny from it. 

No whammies! No whammies! No whammies!


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## radmoo (Oct 11, 2012)

spencersmama said:


> Nice article, thanks for sharing.  I often watch Suze Orman and wonder when she says, "You don't have enough in retirement," how much one should have in retirement as a percentage of income at any given age.  I haven't seen anything else that states the numbers so specifically.
> 
> I'm going to share this with my husband.
> 
> Oh, and does "By KAREN BLUMENTHAL-WSJ" mean Karen owns at Westin, St. John?



in this case, WSJ = Wall Street Journal


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## geekette (Oct 11, 2012)

spencersmama said:


> *Finding a "trusted" advisor is the issue.*  I've probably sat down with 5 different financial advisors, and my impression from them is that they are looking for a way to pad their own pockets, not necessarily help me with my goals.  At least when you read a variety of financial books and articles, you gather info without having to worry if the authors are interested in making money from you.
> 
> 
> 
> ...



I agree with so much of what you posted.  Usually zero fi ed in schools. Maybe most do it however their parents did, IF their parents even let them in on things (mine did not, I only knew that Dad made the money and Mom spent it).

Which is why I taught myself.  I set out to be sure I would be ok by myself and not end up old and poor (after finding out how sucky Young And Poor was...)  

My early self-ed started with Jane Bryant Quinn when she was a columnist (Suze is NO Jane!) and then her book, Making the Most of Your Money.  It helped me sketch out a plan.  Then several years of Kiplinger's subscription helped fill in many blanks.  

I had an interest in the stock market many MANY years before I had the money to invest but finally I could start DRIPS for very little per month (vs large upfront min for a stock broker at the time) and believe that, For Myself, dividend paying stocks are how this small investor can grow money without having to leak fees and expenses to others.  

I owned a couple mutual funds and will likely not so so again (fees and expenses eat so much of the profits) except in my 401k where I have no choice.  However, my rollover 401k [nestegg] is 90% in stocks and I have no plan to roll it to my current plan.  I probably will at some point to capture the compounding but I'm doing better at compounding dividends with it self-directed.  Rate of return on a monthly basis stomps my current 401k.

I don't follow trends, I follow my own plan, I revisit it, but so far have not tweaked it as 20 years into it, it's going well.  There is much I do that many would frown upon (I have taken loans from my 401k [where is a cheaper small short term loan?], I have no plans to exit stocks completely in retirement, I am mostly Buy and Hold, etc) but I am so far successful in managing my money and more importantly, growing it.  

When dividend investing fell out of favor, I stayed the course.  I'm not looking so foolish now that div stocks are back in favor.  Not that I care if people find my strategy 'old fashioned' since I have no problem visualizing myself as an old lady with a sock full of fat dividend checks at the check out vs pennies.  If I can't live off the divs, I still have stocks I can sell, and will have owned for 40 + years, so a lot of choice as to taking a gain or loss.  

This works For Me but likely few others as the "common wisdom" is to abandon stocks in retirement, but how could I replace the growth?  No, I won't be abandoning stocks as for me, that would increase the risk of outliving my money.  I have a lot of relatives that lived into their late 90s.  If I toss out all stocks at age 65 or 70, I don't see a way to overcome 20 years of inflation.

I do understand that numbers in general can be very difficult for some people as we are all wired differently.  However, I do believe that if a person wants to learn about soemthing, they can overcome lack of natural aptitude and grow a skill.

If that's not feasible for whatever reason, then a good FA can be handy, but it has to be the kind that is paid for advice vs products sold.  I decided to be my own FA and expect if I ever go sit down with a professional, they might be appalled at how much risk I am taking, try to steer me to mutual funds, cds, etc., but that would be appropriate for Their risk tolerance, Their fee tolerance while above all else, I am looking to avoid fees and commissions so that every earned dollar continues to work for me vs siphoning off to someone else.  I need growth and lots of it.  

I don't so much subscribe to the Magic Number stuff but have a goal in mind for milestone pre-retirement.  I am far from that number, but, I have another 20 years, and already put in 20 years on it.  I think that I am probably doing at least as well as others with my same general situation.  

I also run the numbers without ss.  While I generally think I'll get something out of it, I will not count on it.  Worst thing that could happen to me is for 401k/IRA pre-tax/deducts to disappear and mort int deduct disappearing.  that would probably be more than I could overcome in the 20 years I have left to sock it away with a day job.  

I don't actually think all that will happen, but since it's being discussed, I have to consider What Would I Do so that when/if it comes to pass, I already know how to shore things up in My Plan.

I think my point is, if you at least have A Plan that is tailored to YOU, your risk tolerance, timeline, wish lists, etc., you will be better off than someone chasing fads, making decisions based on flavor of the day or what your neighbor's dentist's assistant said her husband did ....  

Understand what you are doing, why your money is where it is, what it should be doing, what you are shooting for, and it is so much easier to stay the course. Giving your financial health a periodic checkup is a snap because you already know why you did what you did and you only ask:  is the reason I did this still valid or has something changed?

It doesn't matter if you cook up your own plan or get help in formulating it, just HAVE a plan, and revisit it as life goes along.


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## PigsDad (Oct 11, 2012)

Geekette, I have to say that your outlook on retirement saving is very similar to mine. We have been focusing on socking it away for a long time.  That makes us "weird" compared to so many I see around us, but that's ok.  We don't spend our money on keeping up with the Jones'.

One thing I haven't seen discussed here or in articles much is a good analysis on when to utilize Roth vs. tax-deferred contributions into retirement accounts.

My 401k offers a Roth contribution, where all contributions are taken after-tax.  The advantage is that money and all of its earnings are tax-free upon withdrawal during retirement.  I _*think *_the question of which is better breaks down to whether you think your tax rate will be higher or lower when you retire.  

But the other thing Roth contributions allow you to do is to effectively contribute more to your 401k each year (assuming you contribute the max allowed, $17K for 2012).  Think of it this way: a tax-free dollar in an account is is worth more (has more buying power) than a dollar that you first have to pay tax on before you spend.  On the opposite side, you have less $$ in the years you are contributing to the Roth 401k to save (outside the 401k), so the analysis is whether or not saving those $$ would make up for the higher value of your 401k in the future.  Not an easy analysis.  If anyone has pointers to this analysis, I'm all ears.

Bottom line, after contributing tax-deferred $$ into our retirement accounts for years, we are now making Roth contributions so that we will have a mix of tax-free and taxable $$ when we retire.  But it is a little painful what that does to our paycheck today. 

Kurt


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## csxjohn (Oct 11, 2012)

For what it's worth here is how I did it.

I decided that here I am today and at some unknown point in the future I am either going to die or not be able to enjoy life for one reason or another.

The longer I work, the closer I get to that unknown date in the future.

I decided that with the limited time I have left(again, unknown), do I want to work, or spend my time with my family and friends doing what I like?

I went the first day I was eligible.

My expenses have dropped dramatically, my house is paid and I have no bills other than taxes and timeshare MFs.

We have been able to live off my Railroad Retirement and my wife's Social Security without dipping into any of our IRAs or other savings.


We saw too many people say what they were going to do once they retired and had problems in health that prevented them from doing any of them.

We decided this was not going to happen to us.

So you can take all your formulas and planning and keep working until you get that magic number in your savings but who's to say you'll be able to enjoy it.

Of course this may not work for everyone but I've been retired 5 years now and have really been enjoying it.


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## ronparise (Oct 11, 2012)

When I was doing my most serious retirement planning a 10 yr treasury was yielding about 12% 

So the plan was to accumulate about a half a million dollars to generate an income of $50000

Flash forward to the present and those treasuries are at about 2% So to generate the same income I need about $2,500,000

Here I am at what most would consider retirement age and it turns out I didnt make it..

In my case and I suspect its the case with a lot of us baby boomers, retirement age, doesnt mean a thing. My retirement plan is to work until I drop. Ill be adjusting lifestyle to income. 

Have you seen the articles on how to live on social security? It seems to me that if the house is paid for; it can be done


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## hypnotiq (Oct 11, 2012)

PigsDad said:


> Geekette, I have to say that your outlook on retirement saving is very similar to mine. We have been focusing on socking it away for a long time.  That makes us "weird" compared to so many I see around us, but that's ok.  We don't spend our money on keeping up with the Jones'.
> 
> One thing I haven't seen discussed here or in articles much is a good analysis on when to utilize Roth vs. tax-deferred contributions into retirement accounts.
> 
> ...



I do a mix of both with the 401k. I do traditional up to my employers matching max and then I do another 6% into my Roth 401k.


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## spencersmama (Oct 11, 2012)

radmoo said:


> in this case, WSJ = Wall Street Journal



I thought so, but I frequent the Starwood forum, so the first thought that popped into my mind was, fellow TUGger!


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## spencersmama (Oct 11, 2012)

geekette said:


> I agree with so much of what you posted.  Usually zero fi ed in schools. Maybe most do it however their parents did, IF their parents even let them in on things (mine did not, I only knew that Dad made the money and Mom spent it).
> 
> Which is why I taught myself.  I set out to be sure I would be ok by myself and not end up old and poor (after finding out how sucky Young And Poor was...)



The young and poor comment made me laugh SOOOOOOOOOOO hard!  I totally agree.  My parents didn't know about retirement savings.  I remember when I was in high school and worked at part time job during the school year and full time plus part time during the summer, wanting to put money in a retirement plan.  But I had absolutely no idea how or what to do.  

Forget living vicariously through me - I might have to take you one the cruise.  I may have more in common with you than my husband!  :rofl:


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## spencersmama (Oct 11, 2012)

csxjohn said:


> We saw too many people say what they were going to do once they retired and had problems in health that prevented them from doing any of them.
> 
> We decided this was not going to happen to us.



This is a exactly why I take a great vacation each year. I look forward to retirement, but I'm not waiting to enjoy my life until then.  But it all comes down to a person's priorities in life.  I do maximize my retirement savings, but I couldn't care less about what kind of car I drive.  I drive a 12 year old mini-van, but as long as it runs and is safe, I'll keep it.  But I spend quite a bit of money on travel because I live to explore the world.


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## Passepartout (Oct 11, 2012)

spencersmama said:


> Finding a "trusted" advisor is the issue.  I've probably sat down with 5 different financial advisors, and my impression from them is that they are looking for a way to pad their own pockets, not necessarily help me with my goals.



Look in your area for a 'Fee only' financial advisor. You pay them for their time, not to sell you funds that they get a commission on or charge you a percentage of your 'assets under management'. You are the 'manager', not the advisor. You can get some good ideas from finance magazines, like Money, Barron's, the Journal, but remember, those glossy ads are paid for by investment firms with the same ulterior motive as an advisor selling you 'front-loaded' funds. 

From reading your posts subsequent to this, I think you have a better handle on living well, and saving to be able to continue to live well than the majority. You'll be fine even without charts and timetables.

Jim


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## spencersmama (Oct 11, 2012)

Passepartout said:


> From reading your posts subsequent to this, I think you have a better handle on living well, and saving to be able to continue to live well than the majority. You'll be fine even without charts and timetables.
> 
> Jim



That's sweet!  I hope so.  My ace in the hole is that my husband LOVES his job.  I wouldn't be surprised if he waits to retire until he is 80.


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## Talent312 (Oct 11, 2012)

geekette said:


> ... I have no plans to exit stocks completely in retirement... [T]he "common wisdom" is to abandon stocks in retirement, but how could I replace the growth?  No, I won't be abandoning stocks as for me, that would increase the risk of outliving my money.  I have a lot of relatives that lived into their late 90s.  If I toss out all stocks at age 65 or 70, I don't see a way to overcome 20 years of inflation...



The conventional wisdom used 2B that one should have a mix of equities (stocks) and fixed income (bonds or annuities) with the percentage of fix income equal to your age or thereabouts, depending on your risk tolerance. Of course, that didn't account for such a long period of yields being next to nothing, and as we know, the bond market will take a serious hit when interest rates start to rise.

Still, bonds can be a stabilizing influence in a portfolio. So, I decided to keep a portion of my portfolio in bonds, just not as much as conventional wisdom suggests. As we're close to retirement, I'm 50-50 stocks and bonds. I'm buying individual corporate bonds. That way, I'll get the face value back, even if the bond market tanks.


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## MuranoJo (Oct 12, 2012)

csxjohn said:


> I decided that with the limited time I have left(again, unknown), do I want to work, or spend my time with my family and friends doing what I like?
> 
> I went the first day I was eligible.
> 
> ...



Agree 100%.  One of my sisters is 3 years younger than I and she has repeatedly told me she is surprised I'm taking early retirement.  (Actually, I've gotten this from several friends as well.)  Yet others completely understand getting out as soon as you can, if you can afford it.

So we won't be living on High Street, but we'll be able to maintain a similar lifestyle per our analysis.

Geekette, I also subscribe to most of your investment strategy, except I still believe annuities have a place in a portfolio, when one is closer to or in retirement.  We still want the stocks and IRA for growth and inflation hedge.


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## geekette (Oct 12, 2012)

csx, I get the "no one knows how long..."   My father dropped dead a week before he and Mom were to break ground on their retirement home.

Spence'sMom, yes, we are alike!!  I will Live Now and see the world, in anticipation of being able to do it More Often, For Longer, In Better Style when I ditch the day job.  I don't live extravagantly (finally traded in my bought-new 13 yo car for a 4yo), but, no, I'm not waiting To Live.  that's why I took Mom to Alaska in 2006 - Let's Go while she is still mobile enough to enjoy it.  

I'm not a fan of annuities.  it started with my belief that I should only invest in things that I understand, and trust.  I don't trust annuities which is tied up in my basic mistrust of all things insurance.  I would rather control my money my way, taking more when I need it, taking out less when I need less, than have a fixed situation, especially where I have to give up a lump sum to get it!  I can't bear it, I'm sure I can do better growing my money myself.  Or would die before getting it all back.  Or ins co would go bust ...  I prefer to keep the money where I can access it to invest myself, change how it is invested if I need it to give me more income.  Annuities to me seem to be one-way roads and I need more flexibility.

In some ways my stock accounts make up for it, where I can turn on the spigot to get dividends in cash (have not done so) or let it ride to reinvest (the only way I've gone on it the past 10-15 years).  Yes, yes, stocks are risky, etc., but the big established companies are more stable and trustworthy than many ins co (there are of course some very fine Ins cos, I hold stock in Chubb and AFLAC).  

There is no way to know how many of the companies I hold will endure into my old age, but that risk I will take because I monitor "my companies" and should therefore be able to get out in time with some of my shirt if things begin going badly.  Maybe not, I'll accept that.  Most are dividend aristocrats, having been on the increasing dividend trail for decades.  

I do like Treasuries (eventually yields will come back, maybe) with varying durations, and have a few TIPS, even a real estate REIT, so I have some hedges and will add more when I'm older.  I'm not big on bonds so may likely never hold any individually, but they are in some of my ETFs in my self-directed accounts and in some of the mut funds in my 401k.   My friend whose taxes, etc., I do wants to buy munis so I might end up researching that on his behalf.  

I do wish I had the option of a Roth 401K!!!  And that I had started my Roth earlier.  My Roth is rather my own personal mutual fund, not quite 3 years old, about 35 holdings, where I have the REIT, the TIPS, the Treas ETFs and then 30ish div paying stocks.  I will spend down the 401k/IRA before ever touching the Roth (I hope, but there could be a need for tax free cash before the other accounts are exhausted).  I hope to eventually be able to fully fund my 401k and my IRAs (Roth + a traditional that is mostly last-minute tax deduction use).

I have no heirs, there is no one I need to leave money to, and I'm now divorced (had to give up some of my 401k in that), this is My Money to fund my old age.  There will be no inheritance for me (never expected one had Dad lived) and I don't plan to leave one.  If I've done this right, I'll be able to travel as much as I'd like to in whatever style suits me then.  If I have not done this right, I can blame myself only, and hope SS is around.  

My situation is unique to me, as everyone's is to them.  Use the percentages and calculators and such as generic guides to help you assess Your Own Plan.  But have Your Own Plan because what is generically accepted may or may not be appropriate for you.  Starting Somewhere is good no matter what, so if conventional wisdom helps get the ball rolling, then that's a good thing.

I love this stuff, it's my hobby.  If I had to pick a second career, I would LOVE to work for a stockbroker, doing all the corp research and such.  But I love my current job, and while it may allow me to retire earlier than expected (because they are generous and show financial appreciation to their employees) but I might not go before I'm really DONE with working.  I don't know if I'll still like showing up in 20 years, but it's my plan right now although the key goal in that is to delay taking SS until I'm 70.


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## pwrshift (Oct 12, 2012)

> I'm not a fan of annuities. it started with my belief that I should only invest in things that I understand, and trust. I don't trust annuities which is tied up in my basic mistrust of all things insurance. I would rather control my money my way, taking more when I need it, taking out less when I need less, than have a fixed situation, especially where I have to give up a lump sum to get it! I can't bear it, I'm sure I can do better growing my money myself. Or would die before getting it all back. Or ins co would go bust ... I prefer to keep the money where I can access it to invest myself, change how it is invested if I need it to give me more income. Annuities to me seem to be one-way roads and I need more flexibility.



I know how you feel about annuities because I too like to control my own destiny with playing the investment game.  However my partner is not investment savvy and if I pass before her or become incapable of managing it, I decided to put $500k of my estate into an joint ownership annuity with a $27,000/year lifetime payout guaranteed for 25 years...simply to have lifetime stability of monthly cash flow for both or either f us.  At present, current bond yields and GICs aren't attractive, but many that I have pay as much as 7.9% up to 2019.  The rest is in dividend achievers ranging from 3% to 6% that have a long time history of every year dividend increases.  I'm fearful of ETFs due to the control thing.  

I'm not yet retired, but overdue because of owning a business, but working out a succession plan now.  I should be able to sleep at night in comfort, but it didn't come without setting up my plan and working the plan for many years.

Brian


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## bogey21 (Oct 12, 2012)

Timing is not every thing but it is important.  Back in the mid 70s my company (about 100 employees) decided to withdraw their Pension Portfolio from their Pension Plan Manager and manage it internally. I was given the task.  I put the entire amount into GNMA Pass Thru Securities which are Full Faith and Credit of the US Government and also invested the Company's $10,000 monthly contribution to the Plan and the monthly Principle distributions in more  GNMAs.  We dissolved the Plan and distributed the balances to the employees in about 1983.  Interest rates had moved in our direction and the appreciation was unbelievable.

Right around the year 2000 I ran into an old friend (a retired veternarian) who was struggleing with his investments and Investment Advisor.  I told him the story and he transferred 100% of his (large) portfolio) into GNMAs.  Saw him the other day and he says it is the best thing he ever did.

Yes, there is interest rate risk with GNMAs but it is mitigated because every month you are investing the monthly principle distributions  from the mortgages at current rates.  The beauty of GNMAs is that they roll off principle monthly so if you need money to live on, you don't have to sell anything. And of course they are Full Faith and Credit of the US Government.

And no.  I don't have a penny of my money in GNMAs.  Kind of wish I did.

George

George


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## pwrshift (Oct 13, 2012)

Here's a link to a piece on GNMA securities you might find interesting.

http://www.youngresearch.com/authors/ejsmith/gnma-stands-apart/?awt_l=CWXZQ&awt_m=3mLX3WCqLOzlu1V





bogey21 said:


> Timing is not every thing but it is important. Back in the mid 70s my company (about 100 employees) decided to withdraw their Pension Portfolio from their Pension Plan Manager and manage it internally. I was given the task. I put the entire amount into *GNMA* Pass Thru Securities which are Full Faith and Credit of the US Government and also invested the Company's $10,000 monthly contribution to the Plan and the monthly Principle distributions in more *GNMAs*. We dissolved the Plan and distributed the balances to the employees in about 1983. Interest rates had moved in our direction and the appreciation was unbelievable.
> 
> Right around the year 2000 I ran into an old friend (a retired veternarian) who was struggleing with his investments and Investment Advisor. I told him the story and he transferred 100% of his (large) portfolio) into GNMAs. Saw him the other day and he says it is the best thing he ever did.
> 
> ...


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## DonnaD (Oct 14, 2012)

*Retirement Income security*

One thought might be to convert at least some of your retirement funds to a Roth IRA so that the income is tax free in retirement and can even be passed to your heirs tax free. We have purchased single family homes at a discount offering cash deal from a self-directed Roth IRA.  Look at Equity Trust Company website for more info. Prices are down, fewer people can qualify for loans so there are more renters needing homes so
	
	



```

```
 you will get rent plus appreciation over time all tax free. You can only count on about 8 to 9 months of rent per year to allow for expenses, taxes, repairs, reserves for roof, furnaces, etc.  Choose best school districts in your area and get houses with at least 3 bedrooms, 2 baths, a garage, so that you can draw good tenants.
We also downsized to a ranch style duplex we own outright so we are set up to live here til we die..no mortgage, lower utilities and expenses and we have income from other unit. 
Note: If you want to move to smaller house, do it while you have the endurance to handle all the decisions and hard work/
Now we can travel without concern  about a big house. It is liberating. We will spend 8 weeks of winter in Cancun this year and I am also excited to take a tour of Italy for about 3 weeks the end of this month. Our plan is working.


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## frankhi (Oct 18, 2012)

Everyone makes it so complicated.... you need about $18000 for each $100 of monthly income. If you need to generate $5000/mo on your own, then 50 X $18000 = $900000.... ( this is for a 20+ year retirement)


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## SmithOp (Oct 18, 2012)

frankhi said:


> Everyone makes it so complicated.... you need about $18000 for each $100 of monthly income. If you need to generate $5000/mo on your own, then 50 X $18000 = $900000.... ( this is for a 20+ year retirement)



The math is easy, it's figuring out the variables that makes it difficult.  How much do I really need per month, when to retire, how long will I need it, what happens if circumstances change?

For my own we have state govt pensions, SS, 401/457/Roth, and an annuity.  Instead of relying on diversifying one big pot of money I seem to have ended up with several diverse sources, can't say I really planned it this way it was just where our careers led us.


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## Passepartout (Oct 18, 2012)

frankhi said:


> Everyone makes it so complicated.... you need about $18000 for each $100 of monthly income. If you need to generate $5000/mo on your own, then 50 X $18000 = $900000.... ( this is for a 20+ year retirement)



Well, not to muddy the waters here, but you simplifying the equation.

I tend to disagree. I don't know what you are investing in today that will reliably throw off that much income without significant risk. My simple arithmetic shows that $900k in your example will generate a sustainable $36,000/yr with 4% withdrawal rate. SS (or other income/pension) of $2000/mo would be needed to generate the $5,000/mo your example requires.

Jim


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## Conan (Oct 18, 2012)

frankhi said:


> Everyone makes it so complicated.... you need about $18000 for each $100 of monthly income. If you need to generate $5000/mo on your own, then 50 X $18000 = $900000.... ( this is for a 20+ year retirement)



$900,000 will give you $60,000 per year for 20 years, if meanwhile your investments are growing at about 3%.  But that doesn't give you any inflation protection.  If the cost of living is also going up at the same 3%, then if your withdrawal needs increase at that rate, the money runs out after 16 years.

Also, if this is a fund that has to support a couple, one of them (starting at age 65) is likely to need the money for 25 years.  (And longer if the spouse who's likely to live longer is also younger than 65 at the start._

3% inflation and even 25 years means if the starting annuity is $5,000 per month then you need $1,400,000 in the bank at age 65, not $900,000.

So rather than $18,000 to generate $100/month to start with, I'd suggest setting the target at about $30,000 for $100/month.


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## geekette (Oct 18, 2012)

Most likely it will be another 20 years before I can determine how many bundles of hundreds I'll need monthly so I don't find this to simplify matters at all.   Maybe for those on the brink it's an easy yardstick but I don't even know what a gallon of milk will cost (will that consume $100 on its own???)

It would honestly be quite demotivating to think after each bucket of $18k into retirement plan "well, there's another 100 bucks for Old Me..." 

I'm underage enough that such a calc on my nestegg is FRIGHTENING although I know that I am well ahead of others my age and much time for growth and contributions.

Thanks, I'll stick with the "sock away all you can" plan for now.  for me, that's simpler.


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## Elan (Oct 18, 2012)

Here's a fun retirement calculator to play around with (for those that don't appreciate the over simplified math):

http://www.drcalculator.com/calc/retire.html


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## caribbeansun (Oct 19, 2012)

Was going to say essentially the same thing - fee for service should result in a better end result compared to commission based or even a fee based on a percentage of portfolio.  Fee for service has no vested interest in selling you something (if they do then leave and find another one).



Passepartout said:


> Look in your area for a 'Fee only' financial advisor. You pay them for their time, not to sell you funds that they get a commission on or charge you a percentage of your 'assets under management'. You are the 'manager', not the advisor. You can get some good ideas from finance magazines, like Money, Barron's, the Journal, but remember, those glossy ads are paid for by investment firms with the same ulterior motive as an advisor selling you 'front-loaded' funds.
> 
> From reading your posts subsequent to this, I think you have a better handle on living well, and saving to be able to continue to live well than the majority. You'll be fine even without charts and timetables.
> 
> Jim


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## pacodemountainside (Oct 20, 2012)

*Positive Spin On Social Security*

http://online.wsj.com/article/SB100...22164043676.html?mod=ITP_businessandfinance_4


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## PrairieGirl (Oct 20, 2012)

*We were just talking about this today at work....*

and I work at a credit union!

   [/QUOTE] The problem is that most people aren't taught about money.  most high schools don't offer it as an elective......
  I told him he was going to learn a lot of stuff in high school, and a lot of it he won't remember or ever use again, but everyone uses money every day.[/QUOTE]

This is SO true!  I used to go to the local school and run a one day class on balancing a checkbook (now they would probably ask me "a what?") how compound interest worked and basic budgeting.  I would love to have the time to continue to do this, but I just don't.

We ALL have an interest in our kids being educated in financial matters - but the schools leave it up to parents and unfortunately not all parents have the best money management skills to pass on.

While algebra IS a useful everyday math skill (really, ever tried to center a picture on a wall?),basic finance is waaaay more important than lots of the other classes, and SHOULD be taught in school.  IMHO.

Now, how to convince the educators?........


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## Fern Modena (Oct 20, 2012)

Another thing to think about...maybe you won't be staying in your current house/location when you retire.  It is possible that you will sell a house and move into a less expensive one.  Or that you might move to a less expensive area.  Sure, people do the opposite, but not as many.  You obviously need less money if you do this.

Only one caveat.  Don't move to be near your children, unless you like the area and are planning to have a life of your own independent of them.  Things change, children move due to jobs, and they have a life of their own besides.

JMHO, of course.  We moved after both of us retired, and never looked back.

Fern


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## spencersmama (Oct 22, 2012)

PrairieGirl said:


> Now, how to convince the educators?........



Unfortunately, educators have very little say in what is taught in public schools these days.  It is all decided in the government.


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