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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 62968  
Subject: Are You Saving Too Much for Retirement? Date: 2/1/2007 11:10 PM
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http://www.nytimes.com/2007/01/27/business/27money.html?_r=1&hp&ex=1169960400&en=d8d920a17d2e1b81&ei=5094&partner=homepage&oref=slogin

The starting point for most retirement plans is the so-called replacement rate. It says an American needs an annual income in retirement equal to 75 percent to 86 percent of what he or she earned in the final year of employment. Someone making $100,000 would typically plan for about $85,000 a year in retirement.

Coupling that with a second industry rule of thumb that says retirees should spend no more than about 4 percent of their assets each year to make them last, a typical couple with that level of income should enter retirement with at least $2.1 million in assets, including 401(k)s, I.R.A.'s, stocks and bonds, real estate, cash value life insurance, pensions and Social Security benefits.

Not so, says Mr. Kotlikoff. It may be simple, but he argues it is more important to look at how people spend their income while working to determine how much they will need when retired.

Mr. Kotlikoff's calculations showed that Fidelity's online calculators typically set the target of assets needed to cover spending in retirement 36.4 percent too high. Vanguard's was 53.1 percent too high. A calculator offered by TIAA-CREF, one of the largest managers of retirement savings, was 78 higher than his calculation.

</snip>


Here's a review I did of Prof. Kotlikoff's program ESPlanner last year.

http://www.retireearlyhomepage.com/esplanner.html

intercst

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 126 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 7:05 AM
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We're retired and living mostly on Social Security, except that I pull some money from my IRA (We leave hers alone) occasionally when we need soem for major things -- a trip, prepaying the whole year's oil bill, etc.

It comes to maybe 35-40 percent of our former "working" income -- tops. And we live pretty well, too, like going out to eat almost every day, etc.

That 4 percent thing makes me laugh, too. Why 4 percent, precisely? Suppose you pull FIVE percent -- or more -- but are able to earn SIX percent or more at the same time by buying or selling stocks within the IRA? Hell, I typically make 12 to 14 percent each year within my IRA, and just try to keep the balance in there above a certain target point, regardless.

And you pay NO taxes on profits made within an IRA, either -- only when you withdraw money, and then at probably a pretty low rate! (We've paid ZERO state or federal income taxes for the past two years, even though I have pulled several thousand bucks from my IRA each year.)

People need to use their heads and their calculators, and do what works for THEM -- not what some Schwab or Fidelity character tells them to do.

My opinion.

Vermonter



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Author: lizmonster Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 128 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 7:32 AM
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Why 4 percent, precisely?

AFAIK (and I will admit I haven't read the info myself, although DH has), analyzing data over a long period of time (something like 100 years - intercst, I apologize for butchering your research!) reveals that - no matter how lousy the economy was in any particular year - 4% would have been a safe rate at which to withdraw money from one's savings to ensure that one did not approach $0 (in 40 years, I think?). Certainly it's a conservative approach, but if you're not overly optimistic about the economy (we're not), it can help you sleep at night.

People need to use their heads and their calculators, and do what works for THEM

Well, yes, of course - but people also need to be relatively comfortable that their money is not going to run out. Since you and your wife are living largely on social security, it's definitely less of an issue for you. We've got 9-13 years to go before retirement, and we're not counting on SS existing at all. In order for us to be able to retire and actually relax, we want to save enough to make that 4% safe withdrawal rate workable.

And if we end up leaving a big chunk to our kids? That's actually OK with us. We're not planning on depriving ourselves in retirement either way.

-lizmonster

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Author: RetiredVermonter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 137 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 10:31 AM
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lizmonster:

You've obviously thought this through well -- and I applaud you for doing so. I hope SS will be there for you, but, as you say, who knows? We've tried to plan for its eventual diminishment, too, of course.

Point is that people need to really think about retirement -- their planned needs, wishes and so on -- REALISTICALLY, and not based on someone else's ideas as to what they will necessarily want or need.

I salute you for doing your own thinking.

Good luck.

Vermonter

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Author: lizmonster Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 138 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 10:38 AM
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Point is that people need to really think about retirement -- their planned needs, wishes and so on -- REALISTICALLY, and not based on someone else's ideas as to what they will necessarily want or need.

I agree. But I don't think the 4% SWR is pushing anything unrealistic on anybody - the principle is not concerned with how much you save for retirement, or what you choose to spend it on; it's just a simple, conservative rule of thumb to calculate how much you ought to save based on your projected expenses.

Our projected expenses are a LOT less than our current income, and our plans for retirement would be considered terribly dull and restrictive by a lot of people. Therefore the total amount we're planning to save will look small to a lot of folks. But we used the 4% SWR to come up with the total.

-lizmonster

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Author: tedhimself Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 139 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 10:41 AM
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As has been pointed out, the amount of money varies for everyone. DW and I have not seen any decrease in our spending since we retired. That was 11 years ago for me and 8 years ago for her. Perhaps that's because we have always lived fairly frugally, but it's also because we love to travel, We use a tour company and go overseas for about two weeks each year. Medical issues enter into the mix also. I just spent about $4,000 on hearing aids as just one example.
Ted

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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 145 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 11:20 AM
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I just spent about $4,000 on hearing aids as just one example.



Holy cow! Are those things that expensive?

AM
....AngelSpouse could sure use one for his one nearly deaf ear...

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Author: kaudrey Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 148 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 11:36 AM
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Point is that people need to really think about retirement -- their planned needs, wishes and so on -- REALISTICALLY, and not based on someone else's ideas as to what they will necessarily want or need.

-----

I'm in the planning/saving stages too, and my "projections" spreadsheet allows for several stages of retirement, which makes my SWR vary over time. I plan to retire 5 years before I can get my pension, so my SWR is about 7% for 5 years. Then, when I start getting my pension, it falls down to about 3% and stays there until SS (which I estimate at 1/2 of what their projections tell me).

My expenses are projected based on what I spend now, assumes the mortgage is paid off, high health care costs, and a separate travel budget. I plan to travel alot those first 10 years!

Karen

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Author: tedhimself Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 149 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 11:37 AM
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I just spent about $4,000 on hearing aids as just one example.



Holy cow! Are those things that expensive?


You can spend a little less or quite a bit more for two of them. They contain a huge amount a computational ability in a very tiny space, and can change what they do based on the ambient sound and the direction from which the sound comes.

Ted

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 158 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 12:16 PM
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I just spent about $4,000 on hearing aids as just one example.



Holy cow! Are those things that expensive?



I moved up to digital technology when I bought my two new hearing aids last January, and they were $5000, so this is about right. I have a plan to replace them every 5 years, but I haven't tended to do that yet.

This is an additional expense that's included in our retirement budget for my planning purposes.

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Author: FoolYap Big funky green star, 20000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 172 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 12:44 PM
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Our projected expenses are a LOT less than our current income, and our plans for retirement would be considered terribly dull and restrictive by a lot of people. Therefore the total amount we're planning to save will look small to a lot of folks. But we used the 4% SWR to come up with the total.

Right, and it's worth mentioning that it (the total) is currently a sort of guidepost to steer by, not an absolute certainty. Our major non-discretionary expenses in retirement are likely to be (in some order possibly not exactly like this):

1. health care costs
2. real estate taxes
3. utilities (heat, power)

All three of those are impossible to predict out into the future, except that all three are likely to go up. :-P

We can twiddle the utilities cost, a little, by virtue of cutting & splitting our own firewood for as long as I'm physically able to do that, but I consider utilities more or less a non-discretionary expense just the same.

Health-care we have no control over, aside from doing our best to remain physically fit. But, being diabetic, I'm going to be expensive in this category. Just is. Sigh.

Real-estate taxes are what they are, since neither of us desires to move. :-)

So, we may find ourselves needing to adjust our annual "we can live on this" amount upwards, which may result in us needing to work and save longer.

But at least we're likely to get early warnings. All three of the above are unlikely to be stable between now and retirement, only to zoom together all at the same time. We monitor our investment totals, and our monthly budget, and we'll probably have plenty of time to react.

Plus, our retirement income is not predicated on Social Security. I expect that we will still each get something from the program, but we don't include that in our planning. If we get it, it's gravy.

Plus, even though most of my own investments are currently very conservative (I know yours are not as zany :), my assumptions on our total investment growth are at least as conservative.

So, I think we're pretty good shape. We're lucky, in that I think our spending-desires are modest. Neither of desires to travel, and neither of us has particularly expensive hobbies.

I think the keystone to all this is knowing how much income you need per year to live in a style you will be happy with. Many people have no idea. Many we talk to don't even want to ask themselves the question, because they're afraid the answer means they can never afford to retire. Thus, they don't plan, and are likely to fulfill their own prophesy. Sad.

--FY

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Author: crassfool Big funky green star, 20000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 206 of 62968
Subject: Re: Are You Saving Too Much for Retirement? Date: 2/2/2007 4:20 PM
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I've been (involuntarily) retired for most of 3 and a half years, and we've been living on my wife's salary, a bit more than half my last salary.

However, a year ago we made the last house payment, a couple of months ago we made the last college tuition payment for our daughter, and this year I'll start taking Social Security. So it's kinda complicated. The main downside is that our largest asset, our house, is somewhat dilapidated. When my company axed me, we were just about to start spending money to make up for a few years' deferred maintenance, and by now it's worse.

crassfool

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