How much should you save for retirement ?

[HitchHiker71]

So, what does everyone think you can generate in income for your retirement on say $1MM. Can you generate 4% to withdraw each year? Or if you generate 4% can you withdraw 6%?

I believe the general rule is 3-4% withdrawals per annum. There are aristocratic dividend income funds that typically generate between 4-6% per annum from stock dividends. There's some risk to principal with stock funds obviously - but if income is the primary concern - you may not care as much about the principal balance as long as the stock fund continues to pay out like dividends.

 

[PigsDad]

Singapore has one of the best retirement programs in the world.

I agree. Back in '99, my wife and I had the opportunity to live in Singapore for four months through our employer. I remember my co-workers there telling me about the CPF and how it could be used to purchase a home. And as I recall, they received extra "credits" for buying a home that was within a certain proximity of their parents (the government liked to keep families close). Everyone there really seemed to like the system.

Kurt

 

[Passepartout]

As one gets close to retirement (assuming they've put SOMETHING appropriate toward financing it), they'll do some back-of-the-envelope math and see approximately how much income they will have. Then they can decide (a) IF they can afford to stop collecting a paycheck or (b) what level of expenditure their lifestyle can support. Folded into this are additional considerations, like, how long is your (and your progenitors' average) lifespan? How much and to whom of your offspring do you want to pass 'stuff', and in what quantities? Charities? It may be continuing living with little difference from one's 'working life', other than more free time, to downsizing, minimizing expenditures or even the extreme of moving in with the kids or into subsidized communal housing.

Having more options is preferable to having less. And those decisions- some deliberate, and some not- are made fairly early in a person's working life.

Jim

 

[slip]

Good timing for this thread for me. I have been looking closely at where I am and I have been going over all the recommended totals. I have run all my numbers through Fidelity’s retirement calculators and expense calculators. A few months ago I started really seriously considering this to be my last year working. My wife retired almost 2 years ago when we moved to Hawaii but has not drawn anything from retirement yet.

I turn 58 in June and I have over 9 times my salary in my 401k. That’s what most recommend to have at 60 or 62 depending on which one you look at. We have already downsized and we own our condo we will retire to. We will drop one vehicle when we move to Molokai and our expenses will be minimal.

Our big pickup expense will be a large monthly healthcare premium. I originally planned to work until 60 or 62 so I am adding 2 to 4 more years on for that but my wife turns 62 this year so that premium will drop in three years when see takes Medicare at 65.

For me the key was starting early. I started fully funding my 401k to get the company match right away at 20 years old. As I got older I was able to increase my contributions past the company match and that is what adds up over time. I will have 37 years with the company next week and after going over everything I have decided to call it quits in January 2022. I’ll be a few months short of 38 years in then.

We each got our Social Security estimates. My wife will take hers at 63 and I will take mine at 62. We both have pensions also and we will both start taking those at 65.

It’s a hard decision to make because you always wonder if you have enough. To me having extra years in retirement is worth the extra couple years of Healthcare premiums. I actually just made my final decision a few weeks before this thread started, good timing.

 

[VacationForever]

Good timing for this thread for me. I have been looking closely at where I am and I have been going over all the recommended totals. I have run all my numbers through Fidelity’s retirement calculators and expense calculators. A few months ago I started really seriously considering this to be my last year working. My wife retired almost 2 years ago when we moved to Hawaii but has not drawn anything from retirement yet.

I turn 58 in June and I have over 9 times my salary in my 401k. That’s what most recommend to have at 60 or 62 depending on which one you look at. We have already downsized and we own our condo we will retire to. We will drop one vehicle when we move to Molokai and our expenses will be minimal.

Our big pickup expense will be a large monthly healthcare premium. I originally planned to work until 60 or 62 so I am adding 2 to 4 more years on for that but my wife turns 62 this year so that premium will drop in three years when see takes Medicare at 65.

For me the key was starting early. I started fully funding my 401k to get the company match right away at 20 years old. As I got older I was able to increase my contributions past the company match and that is what adds up over time. I will have 37 years with the company next week and after going over everything I have decided to call it quits in January 2022. I’ll be a few months short of 38 years in then.

We each got our Social Security estimates. My wife will take hers at 63 and I will take mine at 62. We both have pensions also and we will both start taking those at 65.

It’s a hard decision to make because you always wonder if you have enough. To me having extra years in retirement is worth the extra couple years of Healthcare premiums. I actually just made my final decision a few weeks before this thread started, good timing.

Congratulations on the decision to retire early next year! As you have pointed out, the key is to run those numbers over and over again. If the numbers look good, then go on and enjoy retirement as soon as you can.

I retired at 53 when my plan was to work until I turn 62. I am a worrier and the way I keep sane is to bucketize our savings. One huge chunk was/is very liquid which would partially fund us for about 10 years until all income streams would fund our retirement in full. I turned my IRA into deferred income annuities. We are paying for my private individual health insurance for 12 years until Medicare kicks in. We both do not have pension. I will draw on SS starting at 62 while my husband drew at 70. The rest of our savings are managed by a large wealth management firm. We would every now and again ask them to send us a small sum to make up for a shortfall for the year, when we did silly things like we bought a new car and hated it and then bought another new car a year later and ditched the first car. When I turn 65 which is 7 years away, the only planned annual withdrawal then should be my husband's RMD.

Along the way, we have done a few things that were not in our plan when we retired. One big ticket item is that we sold our condo and bought a single family home in January this year. Between the slightly higher cost of the "new" home, and the need to renovate the home, it sets us back about $300K. We decided to make use of the low interest rate and took on a 30-year mortgage instead of paying cash. Our goal is to make a full repayment in 5 years' time. I know that you own your condo in Molokai but at some point you both may decide on a bigger home. Curve balls do happen but as long as you have saved enough, curve balls should not throw you off your retirement lifestyle.

 

[slip]

Congratulations on the decision to retire early next year! As you have pointed out, the key is to run those numbers over and over again. If the numbers look good, then go on and enjoy retirement as soon as you can.

I retired at 53 when my plan was to work until I turn 62. I am a worrier and the way I keep sane is to bucketize our savings. One huge chunk was/is very liquid which would partially fund us for about 10 years until all income streams would fund our retirement in full. I turned my IRA into deferred income annuities. We are paying for my private individual health insurance for 12 years until Medicare kicks in. We both do not have pension. I will draw on SS starting at 62 while my husband drew at 70. The rest of our savings are managed by a large wealth management firm. We would every now and again ask them to send us a small sum to make up for a shortfall for the year, when we did silly things like we bought a new car and hated it and then bought another new car a year later and ditched the first car. When I turn 65 which is 7 years away, the only planned annual withdrawal then should be my husband's RMD.

Along the way, we have done a few things that were not in our plan when we retired. One big ticket item is that we sold our condo and bought a single family home in January this year. Between the slightly higher cost of the "new" home, and the need to renovate the home, it sets us back about $300K. We decided to make use of the low interest rate and took on a 30-year mortgage instead of paying cash. Our goal is to make a full repayment in 5 years' time. I know that you own your condo in Molokai but at some point you both may decide on a bigger home. Curve balls do happen but as long as you have saved enough, curve balls should not throw you off your retirement lifestyle.

Mahalo

Yes, you can never say never. I don’t see us in anything larger. Except we are going from our 450sq/ft apartment on Oahu to our 750sq/ft condo on Molokai. But who knows what the future holds.

We will be withdrawing more our first few years but after I turn 62 we will be down to withdrawing 4 to 5% a year which still leaves us a big chunk into our 90’s.

 

[CanuckTravlr]

As a retired CFP and CPA, CA, I obviously have some biases. "Rules-of-thumb", when dealing with something as important as your retirement income, are not particularly useful, and can be downright dangerous, IMO.

Savings based on multiples of current gross or net income at a particular age are somewhat irrelevant. It just isn't that simple! What you really need to figure out is what (in current dollars) you will need, in order to maintain your desired after-tax income in retirement, to support the lifestyle you need or desire. That is a very individual analysis. There is no cookie-cutter answer.

You then need to make conservative estimates of your investment yields and the inflation rates between now and retirement and the rate of inflation during retirement. Also keep in mind that the rate of inflation impact for seniors tends to be higher than for the general population.

Finally, the impact of taxes during your accumulation years and in retirement needs to be factored in. That is why I strongly recommend you find a good, knowledgeable, financial planner you can trust, to help do the calculations and provide guidance along the way.

 

[easyrider]

So, what does everyone think you can generate in income for your retirement on say $1MM. Can you generate 4% to withdraw each year? Or if you generate 4% can you withdraw 6%?

It would depend on many things but if you are starting with $1,000,000 to draw off off, a paid off home and have a decent SS check you are way ahead of most Americans. The average median worth of Americans at age 65 is about $250,000 which is mainly the equity in their home. It sounds like you will be able to pay alot of MF's, lol.

Bill

 

[slip]

As a retired CFP and CPA, CA, I obviously have some biases. "Rules-of-thumb", when dealing with something as important as your retirement income, are not particularly useful, and can be downright dangerous, IMO.

Savings based on multiples of current gross or net income at a particular age are somewhat irrelevant. It just isn't that simple! What you really need to figure out is what (in current dollars) you will need, in order to maintain your desired after-tax income in retirement, to support the lifestyle you need or desire. That is a very individual analysis. There is no cookie-cutter answer.

You then need to make conservative estimates of your investment yields and the inflation rates between now and retirement and the rate of inflation during retirement. Also keep in mind that the rate of inflation impact for seniors tends to be higher than for the general population.

Finally, the impact of taxes during your accumulation years and in retirement needs to be factored in. That is why I strongly recommend you find a good, knowledgeable, financial planner you can trust, to help do the calculations and provide guidance along the way.

This decision was definitely a strange decision to make. Those rules of thumb are just that and are not meant to be the basis of a final decision but they did help me to start thinking about when enough is enough. So maybe irrelevant in that sense but not useless.

I talked with everyone in my family that retired which is everyone but my one older sister, who actually has more saved that all the rest but she still doesn’t feel comfortable retiring. I also use Fidelity and after a while it comes down to how many people and professionals tell you it works before you make the decision.

Everyone’s situation is different for what they want from retirement so all you can do is collect as much info as you can and weigh all the advice but the final decision is going to come down to you.

 

[Big Matt]

6x25k = 150k (not enough)
6x1mi = 6mi (plenty)

It's a bad rule of thumb.

Save in retirement accounts (roth and tax deferred), post tax investments, and if you can swing it...rental properties. Don't buy a second home. Don't put anything on long term financing unless is it below 2%. Buy cars that cost no more than 25k new. Understand how to stop spending on things you don't really need. Both parents should be working if possible. This will put most people on a decent success path.

 

[joestein]

Lots of possibilities here really. Long term - there's no better way to lift people out of poverty than to create real wealth - willable wealth via individual retirement accounts. But, that won't start happening for decades - so we need to think long term when it comes to transitioning, and the sooner we get started the better. For one, a substantial portion of what we pay out from social security - actually has nothing to do with retirement plans. Here's the data on disability and survivorship benefits paid out:

View attachment 34318

Link to document: https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

So, over 25% of social security that is collected - pays out to disability and survivorship today. These programs need to be completely separate from any retirement program IMHO. The disability and survivorship programs were subsequently added to SS in 1956 - more than a decade after SS came into existence in other words. If we want to fund disability insurance for those that need it - that's just fine - but let's not conflate retirement savings with disability programs like we've been doing for the past almost 70 years now.

For the people who cannot save for retirement - that's exactly where an actual wealth building program comes out way ahead. Right now we all contribute 12.6% of our monies to SSI. That includes poor people BTW. Noone gets a break on paying SSI. Let's say someone makes 40k per year in today's dollars and pays into the system until the current retirement age of 67. 45 working years from today. In today's dollars, retiring at age 67 - SSI would pay this person $1644/month - or $19,728 annually. This was calculated using the SSI quick calculator here: https://www.ssa.gov/OACT/quickcalc/

Now let's assume the person had an individual retirement account, making the same 12.6% contributions, using a simple calculator here: https://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

This means a monthly contribution of $420/month for the same 45 years. Their retirement account, assuming 7% annual returns (not exactly aggressive here), would add up to almost exactly 1.5MM dollars. The person hasn't saved a dime of there own money in this scenario. Stick that 1.5MM into any number of different low risk investments making 3% per annum - that's $45,000 per year - without touching the principle even. That's more than double the retirement income. That's real wealth creation - as opposed to a tax redistribution system. If this person dies unexpectedly at any point - that money is willed to their estate and/or beneficiaries. That's life changing sums of money for everyone involved. Money we currently entrust to politicians who have squandered and wasted it away over the past 50 years, and left us with a bankrupt retirement redistribution program today. Fool me once, shame on you, fool me twice...

Now - let's deal with the disability and survivorship aspects. Since we're paying out about 25% of SSI today for elements that have nothing to do with retirement savings - we could simply create a flat 10% forced retirement contribution program per above, as opposed to 12.6% today - and then redirect the other 2.6% to programs designed to do nothing but fund disability and survivorship programs. Though survivorship programs would become much less necessary if we were to adopt a real wealth creating retirement program - since a surviving spouse would inherent the entire individual retirement account from the spouse that passed away, largely if not completely negating the need for any survivorship program in the first place.

This was just one of many examples out there on how to modernize social security to create real wealth over the long term - life changing wealth for every American. How do we get from point A to point B? Many someones much smarter than me have already thought up solutions. It's definitively possible - we just lack the political will to do it.

I just want to point out that SS is progressive. The first 12K of salary gets a 90% payout. It drops to 32% from 12K through 72K then it drops to 15% after that.

So, if we had separate accounts as you describe, the system would lose it's progressive nature.

 

[joestein]

It all depends. Patti and I both have good State Retirements. Whom ever dies first continues to collect the other person's retirement pay. We both are drawing Social Security. I also have Reserve Military Retirement. Our Medical is covered by Medicare and Military Retiree Medical.

I think that is great, however, most people today have no pension or retirement benefits.

The only thing that my wife and I get are 401K matches. My wife's firm is generous. My firm has a miserly maximum of $1K.

 

[joestein]

6x25k = 150k (not enough)
6x1mi = 6mi (plenty)

It's a bad rule of thumb.

Save in retirement accounts (roth and tax deferred), post tax investments, and if you can swing it...rental properties. Don't buy a second home. Don't put anything on long term financing unless is it below 2%. Buy cars that cost no more than 25k new. Understand how to stop spending on things you don't really need. Both parents should be working if possible. This will put most people on a decent success path.

That

I agree. Back in '99, my wife and I had the opportunity to live in Singapore for four months through our employer. I remember my co-workers there telling me about the CPF and how it could be used to purchase a home. And as I recall, they received extra "credits" for buying a home that was within a certain proximity of their parents (the government liked to keep families close). Everyone there really seemed to like the system.

Kurt

I am trying to get farther away from my MIL. Not closer.

 

[HitchHiker71]

I just want to point out that SS is progressive. The first 12K of salary gets a 90% payout. It drops to 32% from 12K through 72K then it drops to 15% after that.

So, if we had separate accounts as you describe, the system would lose it's progressive nature.

I'm not understanding what you're referring to here. Can you provide links to source material?

 

[joestein]

It would depend on many things but if you are starting with $1,000,000 to draw off off, a paid off home and have a decent SS check you are way ahead of most Americans. The average median worth of Americans at age 65 is about $250,000 which is mainly the equity in their home. It sounds like you will be able to pay alot of MF's, lol.

Bill

True. However, most Americans live far beyond their means. We do earn very good money, but we have always lived below our means.

Just a point:

Some of the staff who work for me were talking about buying expensive Air Jordan sneakers (well over $150). I buy my sneakers at Costco ($20 or so). I told them I wear Air Kirklands.
All kidding aside, I know they make 1/3 of what I make. But they are also buying Canadian Goose coats, leasing BMWs, etc.

 

[joestein]

I'm not understanding what you're referring to here. Can you provide links to source material?

Look at the steps on top of page 2.


Your Retirement Benefit: How It Is Figured (ssa.gov)

 

[HitchHiker71]

Look at the steps on top of page 2.


Your Retirement Benefit: How It Is Figured (ssa.gov)

I don't see how that matters though. The example I posted, shows that an actual individual retirement account, dwarfs whatever SS pays out via the current wealth redistribution program. Progression is only necessary when using a redistribution program - it's not needed when we're actually creating real long term willable retirement accounts using the same tax dollars collected - the only difference between the two programs is - the politicians cannot get their hands on monies put into individual retirement accounts (essentially stealing our hard earned money in the process). In my example, I chose to use someone only making 40k in today's dollars since there was an earlier concern regarding how we would help prop up the working poor over time. The numbers only get better the more you actually earn - favoring the individual retirement account program. The example I used was calculated right off the SSA website - which uses the same data in the link above to calculate the estimated future benefit in today's dollars.

 

[pedro47]

Save as much as you can. Just start early in savings for your retirement. Finally, Invest wisely.

The money you will need in retirement will depend on how you spend your dollars; while you are employ full time.

An another key point, start taking care of your body and mind early in your life. To avoid health issues in your retirement years.

You will never spend all of your retirement dollars. IMHO.

 

[joestein]

I don't see how that matters though. The example I posted, shows that an actual individual retirement account, dwarfs whatever SS pays out via the current wealth redistribution program. Progression is only necessary when using a redistribution program - it's not needed when we're actually creating real long term willable retirement accounts using the same tax dollars collected - the only difference between the two programs is - the politicians cannot get their hands on monies put into individual retirement accounts (essentially stealing our hard earned money in the process). In my example, I chose to use someone only making 40k in today's dollars since there was an earlier concern regarding how we would help prop up the working poor over time. The numbers only get better the more you actually earn - favoring the individual retirement account program. The example I used was calculated right off the SSA website - which uses the same data in the link above to calculate the estimated future benefit in today's dollars.

My point is that the system is currently progressive. To keep it that way, part of higher salaried persons money would have to go into lower salary accounts person.

I understand that you want to eliminate the progressiveness, but I think that everything the gov't has that progressiveness in mind.

 

[VacationForever]

6x25k = 150k (not enough)
6x1mi = 6mi (plenty)

It's a bad rule of thumb.

Save in retirement accounts (roth and tax deferred), post tax investments, and if you can swing it...rental properties. Don't buy a second home. Don't put anything on long term financing unless is it below 2%. Buy cars that cost no more than 25k new. Understand how to stop spending on things you don't really need. Both parents should be working if possible. This will put most people on a decent success path.

It is not about buying a $25K or $50K car, but rather whether one is spending within her/his means while still being able to save enough for retirement. It is not even whether one has saved $1m or $6m in retirement. The person who has $1m may be frugal or have a nice pension and does not need to tap into savings. The other person who has saved $6m may be used to living a luxurious lifestyle and blows through the $6m quickly. As long as expenditure is less than retirement income, the retiree is in good shape.

 

[bogey21]

I'm not talking about program changes that would impact seniors today, I'm talking about program changes that would gradually phase in that would keep the program for everyone over a certain age today, and then gradually move away from the current redistribution program, given the demographics no longer support any such program, and toward a program that actually encourages long term wealth creation for every US citizen. We can keep the essentials of the current program - which is really an annuity program at heart - without much effort - while also guaranteeing that those that pay into the current system - who may die unexpectedly early in their retirement - can will their accounts to their children and/or grandchildren (or whomever else they wish to give the money they worked their entire lives away to).

Back to modernizing Social Security. I can agree with something like this...

George

 

[am1]

My point is that the system is currently progressive. To keep it that way, part of higher salaried persons money would have to go into lower salary accounts person.

I understand that want to eliminate the progressiveness, but I think that everything the gov't has that progressiveness in mind.

Maybe it is the progressiveness that causes people not to save and spend beyond their means which leaves them worse off financially as well as other ways?

 

[easyrider]

I viewed a youtube clip that said about 81% of Americans at 60 years old have less than $5000 of savings. I started watching this guys channel back when we were deciding how and when we as a couple would take SS.

Bill

 

[joestein]

Maybe it is the progressiveness that causes people not to save and spend beyond their means which leaves them worse off financially as well as other ways?

I would think that is jealousy or need to keep up with the Jones. Probably the non stop facebook/twitter/etc. that is filled with so-called celebrity endorsements is also a big factor.

I can't imagine the gov't is the reason they live beyond their means.

 

[Big Matt]

It is not about buying a $25K or $50K car, but rather whether one is spending within her/his means while still being able to save enough for retirement. It is not even whether one has saved $1m or $6m in retirement. The person who has $1m may be frugal or have a nice pension and does not need to tap into savings. The other person who has saved $6m may be used to living a luxurious lifestyle and blows away the $6m quickly. As long as expenditure is less than retirement income, the retiree is in good shape.

I've been frugal my entire life and have saved wisely. The car thing is just something I've always adhered to. I'm not aware of many companies offering pensions any longer, so I substituted the retirement accounts in lieu of them. Completely agree on responsible spending and lifestyle. Most people who spend irresponsibly never get to 6 million in savings. They've blown it along the way. I live in an area where people drive Maseratis and don't have furniture in their homes. Image is everything as shallow as it may be.