The Right Way to Think About the 4% Rule for Retirement Income

[Elan]

I have similar thoughts for managing my retirement (7-10 years away). Just doing some estimations, between my wife's and my SS benefit, that will account for ~40% of our expected living expenses. To me, that is plenty in the "annuity" category. We also have some farm and oil royalty income (from inheritance) for another ~20%. Given those factors, I feel we can be more invested in equities for our retirement investments (401k, IRAs) vs. someone who is completely relying on investment accounts, as these other sources of income provide a stability "buffer" for our retirement income needs. A good portion of those equity investments will be held for the dividend earnings.

What do you (the collective "you") think of this plan? Is it too risky? Am I missing something?

Kurt

I think your plan is fine. Just depends on your risk tolerance and whether you'll need or just want the potential extra $ that comes with added risk. I plan to be pretty conservative with my retirement accounts, because for me, the pain/stress of them getting hammered would far outweigh the joy of having a few extra dollars. Plus, I plan on supplementing my SS+retirement account income with savings (in some manner), so I hopefully won't need to maximize returns. I hope/plan to hit retirement with 8-10 years retirement expenses in non- 401K/IRA savings. If only I didn't have kids to get through college, I'd be there...

Hypothetically, if an ROI on your investments of say 5% provided a comfortable lifestyle (when added to SS and royalties), would you still want to shoot for 10% (to travel more, for instance) while incurring added risk?

 

[WinniWoman]

Some random thoughts on retirement planning: 1) I've seen the "80% of pre-retirement income" guideline kicked around, and that seems absurd to me. If I need 80% of my pre-retirement income to get by, I'll just shoot myself now. 2) Most retirement analyses don't mention home equity. When I'm retired, I won't need as big of house as I have now. My house is paid off, so I could sell it and buy something smaller and easier to maintain, in a similar location, and net around $200-250k in the process. That's not insignificant. 3) I'm always guilty of thinking of income going to zero in retirement, but one can always go mow greens at the muni or shake paint at HD a few hours a day, a few days a week. Just enough to generate some pocket change or get free greens fees while getting out of the house and staying socially active (away from old folks ). 4) There are other stay-at-home ways to generate income on a piecemeal basis. Things one enjoys doing, when they feel like doing it.

In short, the key to retirement for me will be adaptability. Live simply and don't do anything extravagant until it's justified. Kind of like I do now.

Our problem is even if we sell our home and get a smaller home or condo- they are more money than what we will get for our house- which is upgraded- meaning there's a good chance we have to live in something we will not be happy with because what we get NET after fees and so forth for our house is what we will have to buy something else.

I agree on living simply. We are all about simple.

 

[Luanne]

Our problem is even if we sell our home and get a smaller home or condo- they are more money than what we will get for our house- which is upgraded- meaning there's a good chance we have to live in something we will not be happy with because what we get NET after fees and so forth for our house is what we will have to buy something else.

I agree on living simply. We are all about simple.

That's one reason we moved out of the area where we were living when we retired. We wanted to downsize and a smaller place would have ended up costing us more.

 

[WinniWoman]

That's one reason we moved out of the area where we were living when we retired. We wanted to downsize and a smaller place would have ended up costing us more.

Our problem is where we want to move when we retire it is that way.

 

[VacationForever]

Our problem is where we want to move when we retire it is that way.

I thought you wanted to move close to your son? How is the housing prices there? Any state tax?

 

[bogey21]

That's how we determined we really could afford to move into a CCRC sometime in the not too distant future. I hope there is enough leftover so that Delta Rescue and my high school could each get $50K. High school may end up being disappointed because before we decided to "spend all the money on ourselves", I had designated them beneficiary of my estate.

For those considering the CCRC route (I live in one) try to get a contract that guarantees that they will not throw you out if you have a non-intentional reversal in your financial wherewithal and can't cover your monthly fees. My contract guarantees this in black and white.

George

 

[VacationForever]

For those considering the CCRC route (I live in one) try to get a contract that guarantees that they will not throw you out if you have a non-intentional reversal in your financial wherewithal and can't cover your monthly fees. My contract guarantees this in black and white.

George

At what age did you buy/move into yours? With the contract, are you saying that if you run out of money to pay your monthly dues, you get services for free?

 

[vacationhopeful]

IMHO, today's world is a mobile society. Planning to live near a single family member is more likely to NOT WORK OUT for the older generation. The single family member is NOT a support system; situations can change for both the younger & older parties.

Remember where YOU were when 25yo or 35yo ... did your parent(s) eat twice a week at YOUR dinner table? Did you take Mom or Dad to doctor's appointments or pay their bills when you were 35yo with kids in elementary/middle school ... and you had a fulltime job? Did Mom or Dad offer to watch your sick 10yo with the flu ... fearing for their health at age 70+?

 

[lizap]

IMHO, today's world is a mobile society. Planning to live near a single family member is more likely to NOT WORK OUT for the older generation. The single family member is NOT a support system; situations can change for both the younger & older parties.

Remember where YOU were when 25yo or 35yo ... did your parent(s) eat twice a week at YOUR dinner table? Did you take Mom or Dad to doctor's appointments or pay their bills when you were 35yo with kids in elementary/middle school ... and you had a fulltime job? Did Mom or Dad offer to watch your sick 10yo with the flu ... fearing for their health at age 70+?

When our parents were in their 70s and our daughter was around 5, they moved to the same town we lived in. I remember how wonderful it was to have them in the same town. We tried to give them their space and not ask too much of them.

 

[WinniWoman]

I thought you wanted to move close to your son? How is the housing prices there? Any state tax?

That is correct- New Hampshire. Housing prices and property taxes are high. No state tax, though there are some politicians there trying to institute one.

No sales tax either there. But the housing leaves a lot to be desired in our price category (well under $300,00). I am hard pressed even just looking on line to see much that gets me excited except for homes/condos in the $450,000 +++range. Forgetaboutit!

The house we have here- if it were in a place like the NY Metropolitan area, for example- would probably be over a million dollars (though that to me would be way overpriced for what it is)! LOL!

In better times, our house probably could sell here for at least $300,000 or maybe a bit more(paid $208,000 for it in 1987. Lots of upgrades and well maintained and clean), but we've been here for 30 years and nothing has changed. Heck- the 10.5 acres of land it sits on alone has to be worth a lot- at least $100,000. Sigh....

 

[WinniWoman]

IMHO, today's world is a mobile society. Planning to live near a single family member is more likely to NOT WORK OUT for the older generation. The single family member is NOT a support system; situations can change for both the younger & older parties.

Remember where YOU were when 25yo or 35yo ... did your parent(s) eat twice a week at YOUR dinner table? Did you take Mom or Dad to doctor's appointments or pay their bills when you were 35yo with kids in elementary/middle school ... and you had a fulltime job? Did Mom or Dad offer to watch your sick 10yo with the flu ... fearing for their health at age 70+?

That is true to a point, but also living nearby your parents makes things easier for the younger person as well. I know when my son was little and I needed a babysitter due to being sick, one of my parents would drive the hour up to my house- they were in their 70's- and watch him. Or- my husband would take him the hour down to them if he wasn't sick.My parents would also come up to help us with some things at the house and we would go to their house to do the same.

My parents thought of moving to Florida or at least being snowbirds, but quickly decided against it because they did not want to be away so from their children and grandchildren.

When my parents became ill, I was just an hour away, and it was still very hard because I was working. I can't imagine how more stressful it would have been if they lived very far away!

Living nearby the only person who might care about and help you a bit when you are in your old age is about the best plan you can make. No one else will ever care about you as much as a good, responsible family member that loves you. I do realize that this isn't the case in some families and that is unfortunate.



As we say in Italian- FAMILIA!

 

[WinniWoman]

At what age did you buy/move into yours? With the contract, are you saying that if you run out of money to pay your monthly dues, you get services for free?

I have read this in some CCC literature and was even told this when we went on a tour of one. It is true.

 

[bogey21]

At what age did you buy/move into yours? With the contract, are you saying that if you run out of money to pay your monthly dues, you get services for free?

I bought in at age 65. At that time you paid your deposit (In my case $65,000) and if you moved out (or died) after 3 months, it was theirs to keep. The contract stated very clearly in bold black and white that if I fell on hard times and couldn't pay some or all of my monthly fees (and hadn't intentionally dissipated my assets), they would cover them. Later they formed a Charitable Foundation with which to do this.

Since I moved in they built 2 new towers and sell them differently. In the new towers the front end fee is substantially higher, something in the range of $600,000 to $900,000 but depending on the option you choose if you die or move out, between 60% and 90% of the front end fees are returned as soon as they get someone new to take the unit and spring for a new front end fee. I'm guessing that with this arrangement if you can't pay your fees, they will take care of them but will deduct the fees they advanced from the amount to be returned when you die or move out.

George

 

[clifffaith]

At what age did you buy/move into yours? With the contract, are you saying that if you run out of money to pay your monthly dues, you get services for free?

The CCRC in Carlsbad where we are on the waiting list mentioned this, as well as the facility in our own neighborhood (which I rejected as not being an "adventure"). Comments in both cases were a joke about blowing your money in Las Vegas, and a more serious comment about giving your money away when a grandchild came begging that he needed capital to start a new business--they would not be inclined to have you live for free in those instances. Other than that they are committed to caring for you (and of course in these two cases there would have been a buy in of over $300K when one first moves in).

 

[geekette]

Although I like my work, I don't like some of the restrictions of my job, but more importantly, I have so many other interests that I feel like I don't/won't have time to pursue them all. I am relatively certain I'll be far more busy in retirement than I am holding down an 8-5, and that's not even thinking about any travel. That's why I'm prioritizing earlier retirement over lavish retirement lifestyle. Again, there's no one answer that suits everyone.

exactly. I only work because I have to, there are a lot of other things I would prefer to do with my time. I'm lucky to do something interesting and tolerable, but that could describe a tv show so I don't feel I would be missing out by exiting at my earliest opportunity.

I am also more into early retirement than piling up money I may never need. My needs are simple and sanity tops the list. some jobs are not compatible with that and some are simply free standing stress machines. As soon as I can slap the badge down and walk out, I will, towards my own idea of Happy.

 

[Talent312]

I am also more into early retirement than piling up money I may never need. My needs are simple and sanity tops the list.

Eggsactly why I retired at 62.
My experience with it: Everyday is a Saturday. It's like an endless weekend.
.

 

[vacationhopeful]

As a single person with a few closeby family members, my work is mostly with my regular source of "people to people" daily contact. As I am selfemployed with 1 co-conspiriter (another selfemployed contractor type)... we could write a TV series. Cops, elected officials, thieves, state judges, contractor dudes, government employees and real life street people would all be the "real people with names changed to protect the guilty and truly slimey".

Now, if the ecomony EVER improves, I will cash out. I KNOW I could adjust to a regular lifestyle.

 

[VacationForever]

I am one of the sick ones who love working. When we sold the business in 2016 it put me out of a job. Because I have so much time on my hands I am always putting together travel plans. Whenever I think about looking for a job I know I won't be able to find employment since I am going to be away so much. I said if Amazon opens up a second HQ in our city, I would apply to go work for them. Well, the shortlist is out and we did not make the list. I still have an occasional fantasy about going back to work...

 

[geekette]

I still have an occasional fantasy about going back to work...

Ew. My fantasies run more towards the pleasurable tho I will admit to a few centered on revenge...

 

[PigsDad]

Now, if the ecomony EVER improves, I will cash out.

We have been in a bull market for 8 straight years. Unemployment is at the lowest level in more than a decade. Housing has recovered. Interest rates are low. There is hardly any inflation. How much more "improvement" do you need?

These are the "good old days" that people will be talking about decades from now, IMO. Personally, I have seen my retirement accounts double in the last 4 years. I don't expect that to ever happen again in my lifetime.

Sure, there are still some challenges out there, but implying that the economy has not improved is just crazy!

Kurt