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Author: dozer183e Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75375  
Subject: Retirement savings benchmark Date: 1/18/2013 12:42 AM
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Not sure if this is the right board for this, but at least some here should have a thought on this. Interesting article about people tapping into 401(k)s early for emergency matters. http://www.nbcnews.com/business/more-americans-raiding-401-k...
But there is quote about saving for retirement in there:

...Experts also advise that at age 35, you should have at least a year's salary in your 401(k) or IRA. By age 45, three years' salary. And by retirement at age 67, you should have at least eight times your salary socked away.</>

Just wondering what you all thought about that rule of thumb.

Dozer
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Author: fredinseoul Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71260 of 75375
Subject: Re: Retirement savings benchmark Date: 1/18/2013 1:19 AM
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I've seen this recommendation before too. In my case, this actually builds to the amount that I usually arrive at to produce the dividends/income I would like to not touch the principal while I use the money.

One of the things that this recommendation does address that others don't is that your savings grow much more in the later years than in the beginning. I saved 10% and got the match of my salary for most of the last 20 years, but have just built to 2X salary. However, in the last year, I earned more in interest than I contributed for the first three years. Momentum is starting to build for me, finally.

Many plans seem to suggest that you need to save so much and have such an amount by age 27 or you will never retire. I don't find them to be realistic in addressing the growth that kicks in later. Of course, having lived through the .com crash and the housing crash, I realize you may not get the growth, but size of account matters.

fredinseoul

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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: 71261 of 75375
Subject: Re: Retirement savings benchmark Date: 1/18/2013 1:20 AM
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dozer183e asks,

Not sure if this is the right board for this, but at least some here should have a thought on this. Interesting article about people tapping into 401(k)s early for emergency matters. http://www.nbcnews.com/business/more-americans-raiding-401-k......
But there is quote about saving for retirement in there:

...Experts also advise that at age 35, you should have at least a year's salary in your 401(k) or IRA. By age 45, three years' salary. And by retirement at age 67, you should have at least eight times your salary socked away.</>

Just wondering what you all thought about that rule of thumb.

</snip>


A lot of people use the 4% rule, which means you need a portfolio 25 times the size of your annual retirement withdrawal.

Eight times your salary only works if you can live on 1/3 of your income (plus Social Security and pension.) When I retired back in 1994, I was living on 1/4 of my last year's salary.

intercst

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71262 of 75375
Subject: Re: Retirement savings benchmark Date: 1/18/2013 9:40 AM
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I'm not a fan of rules of thumb. My plans for retirement depended on what age I thought I would want to be able retire and what I wanted to do in retirement.

One rule I did have for myself was to never pass up a matching penny.

If married, it's a good idea to model retiring married as well as modeling what happens if only one of you makes it to retirement.

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Author: pauleckler 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: 71264 of 75375
Subject: Re: Retirement savings benchmark Date: 1/18/2013 5:23 PM
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...Experts also advise that at age 35, you should have at least a year's salary in your 401(k) or IRA. By age 45, three years' salary. And by retirement at age 67, you should have at least eight times your salary socked away.

If you put 6% of salary into your 401K and your company matches dollar for dollar, in 6 years you should have 72% of a years pay in your 401K, and investment returns can take you close to 100%.

So yes, a year's pay at age 35 is very possible. And those who plan to retire on their 401K should do at least that well, and maxing the plan at 15% or even more is even better.

Young people often are in the lower salary brackets and have many other needs for the funds. Fully funding a retirement plan is often difficult.

Still if you have less than one years salary in your 401k at 35, what have you been doing with your money. 6% is easy. Where has your money gone?

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71265 of 75375
Subject: Re: Retirement savings benchmark Date: 1/18/2013 9:27 PM
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My plan is to live off the dividends without touching the principle. One million dollars at an average 4% dividend throws off $40,000 a year. If the portfolio is comprised of dividend growth stocks, then that dividend increases each year at a rate greater than inflation. So, next year, you'd get a raise, and so on. Likewise, $2 million throws off $80,000 a year. So, if you know how much you need to live on, you can figure out the total you'd have to have to throw off that yearly retirement income. You can retire when you hit that number. :-)

The key (for me) is to NOT hit the principle if you can avoid it because it will reduce your dividend income and the principle acts as a nice safety net in case you have a health emergency. I'm also ignoring any stock appreciation/depreciation...

Save early, save often....

I pay no attention to rules of thumb. They say the first million is the hardest, but the second million happens very quickly because of the big numbers involved. I record our retirement totals each month in a spreadsheet and can use that spreadsheet to forecast fairly accurately into the future. I can see where we should roughly be at certain milestones in the future and the spreadsheet confirms the first million is the hardest and the second million will happen rapidly. And retirement will happen soon after. :-)

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71266 of 75375
Subject: Re: Retirement savings benchmark Date: 1/19/2013 12:19 PM
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My plan is to live off the dividends without touching the principle. One million dollars at an average 4% dividend throws off $40,000 a year. If the portfolio is comprised of dividend growth stocks, then that dividend increases each year at a rate greater than inflation. So, next year, you'd get a raise, and so on.

This begins my 13th year of income investing for retirement, and I'm still not old enough yet to start Social Security. This method works great if it is done correctly.

Rules of thumb can be close or they can be off by 100%. The total savings one needs at the first year of retirement will depend on the following major variables (there are likely many more minor variables):
- required annual household income
- Social Security benefit(s)
- Any legacy (money left at end of life) the retiree wishes to plan for
- Years in retirement (life expectancy)
- Expected average annual rate of return
- future lump sum needs (example: purchase a second home)
- existance of a pension

So a couple working for a state government and set to draw generous pensions (lets assume that for now) and will retire at SS FRA, with modest income requirement because their house is paid off and no debt, may only require 4X final year salary. Another couple with no pension, high annual income requirement and wishing to retire at 55 may require 15X final annual salary.

As relatively simple 'rules of thumb' go, the best approximation I've found is the 'adjusted annuity factor', which is calculated as follows:

1. Final year houehold gross income, subtract expenses houehold will no longer have (FICA tax, retirement plan contributions, professional costs)
2. Subtract Social Security and any pension benefits
3. Add any new costs, such as health insurance premiums
4. Multiply this by the adjusted annuity factor below correstponding to the number of years one expects to be in retirement (this factor assumes an average annual inflation adjusted rate of return of 3%)

15.....11.9
20.....14.9
25.....17.4
30.....19.6
35.....21.5

So if final household adjusted income need is $30,000/yr and the retiree is 64 and plans to live to 94, the savings need would be 30,000 X 19.6 = $588,000.

BruceM

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71267 of 75375
Subject: Re: Retirement savings benchmark Date: 1/19/2013 5:31 PM
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So a couple working for a state government and set to draw generous pensions

They must not live in Florida, LOL!

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71268 of 75375
Subject: Re: Retirement savings benchmark Date: 1/19/2013 10:22 PM
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<<So a couple working for a state government and set to draw generous pensions>>

Must not live in SC either.

Donna

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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: 71269 of 75375
Subject: Re: Retirement savings benchmark Date: 1/20/2013 7:00 PM
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As I've never worked anywhere that had any sort of pension and will have to fund my retirement from my savings, I consider any pension to be generous just because it exists and is that much less you have to save to provide for your own retirement.

But I've also heard many people who do have pensions complain that they are small, and I've always figured it was more than the $0 I will get from the pension I don't have.

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Author: MacNugget Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71270 of 75375
Subject: Re: Retirement savings benchmark Date: 1/20/2013 9:17 PM
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But I've also heard many people who do have pensions complain that they are small, and I've always figured it was more than the $0 I will get from the pension I don't have.

I don't think I know anyone my age (42) who has a pension. To my ear they're like bakelite or rotary phones -- not something that exists in modern society.

While I'm sure that's a very skewed and inaccurate perspective in reality, it is my experience.

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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: 71271 of 75375
Subject: Re: Retirement savings benchmark Date: 1/20/2013 9:45 PM
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MacNugget writes,

<<But I've also heard many people who do have pensions complain that they are small, and I've always figured it was more than the $0 I will get from the pension I don't have.>>

I don't think I know anyone my age (42) who has a pension. To my ear they're like bakelite or rotary phones -- not something that exists in modern society.

While I'm sure that's a very skewed and inaccurate perspective in reality, it is my experience.

</snip>


Nationwide, about 42% of private-sector workers have some kind of defined-benefit pension coverage. Of course, virtually all Gov't workers have pension coverage.

http://crr.bc.edu/wp-content/uploads/2012/09/IB_12-16.pdf

intercst

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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: 71272 of 75375
Subject: Re: Retirement savings benchmark Date: 1/20/2013 10:01 PM
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Nationwide, about 42% of private-sector workers have some kind of defined-benefit pension coverage. Of course, virtually all Gov't workers have pension coverage.

http://crr.bc.edu/wp-content/uploads/2012/09/IB_12-16.pdf

</snip>


Whoops, I miss read that report -- it's 42% have some kind of "Retirement Plan", only 18% of private-sector workers have defined-benefit pensions.

http://www.epi.org/blog/private-sector-pension-coverage-decl...

intercst

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Author: pauleckler 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: 71273 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 12:20 AM
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I've also heard many people who do have pensions complain that they are small

Most defined benefit pension plans are designed to pay 70 to 80% of gross pay after deducting full retirement Social Security payments usually after 30 years service.

Small pension usually means you retired early or with less than 30 yrs service.

Of course companies find the cost of defined benefit pensions prohibitive--especially when interest rates are low, and when govt regs require big payments to the pension plan to make up for declines in the stock market. This hurts earnings in an unpredictable way.

So more and more companies go to defined contribution plans (ie 401k plans ideally with generous matching provisions) to stabilize their contributions. But this means your 401k plan must perform well, and if not you may not be able to retire.

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71274 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 9:45 AM
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Most defined benefit pension plans are designed to pay 70 to 80% of gross pay after deducting full retirement Social Security payments usually after 30 years service.

Small pension usually means you retired early or with less than 30 yrs service.


In Florida, 48% max. after working 30 years min....and no COLA...

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Author: pauleckler 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: 71275 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 2:06 PM
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In Florida, 48% max. after working 30 years min....and no COLA...

Yep. If you earn $50K per year, that's $4167/mo gross pay. 70% is 2916/mo. Social Security reduces that by abt $1200/mo. Net is 1717/mo. That is 41% of gross.

But that is a pretty good pension. After all you should be in a lower tax bracket and deductions for pension and 401K are no longer needed. Plus you are no longer saving for retirement.

Many can live quite well on such a pension. (Of course, we would all like to have more.)

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71276 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 3:35 PM
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Yep. If you earn $50K per year, that's $4167/mo gross pay. 70% is 2916/mo. Social Security reduces that by abt $1200/mo. Net is 1717/mo. That is 41% of gross.

Less than 1% of State of Florida Employees would get that. Try more like final average salary of $50,000 after working 30 years, 48% is $24,000 or about $2,000 a month with no cost of living increase in retirement ever. Then make adjustments and SS will be greatly reduced over current levels. It has to if it is to remain solvent. Nowhere near as rosy as you're making it out to be. And $50,000 is still well over the median salary of State of Florida employees. Most make less than that and have had no pay raise, not even cost of living, in 8 years....you're way off base on this one.

Now Federal employees are a different story... :-)

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71277 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 5:34 PM
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Less than 1% of State of Florida Employees would get that. Try more like final average salary of $50,000 after working 30 years, 48% is $24,000 or about $2,000 a month with no cost of living increase in retirement ever. Then make adjustments and SS will be greatly reduced over current levels. It has to if it is to remain solvent. Nowhere near as rosy as you're making it out to be. And $50,000 is still well over the median salary of State of Florida employees. Most make less than that and have had no pay raise, not even cost of living, in 8 years....you're way off base on this one.

Sounds like most State of Florida employees should be looking for other jobs. Seriously, if one is not happy with both their current compensation and their potential future pension compensation, then they should be looking for a job that provides them with the compensation they would be happy with.

Of course, as someone who has always been employed by the private sector, and whose entire pension income in retirement will be about $200/month (also with no COLA), and whose SS is just as likely to be greatly reduced from current levels, I look at funding retirement from:

$2000/mo pension (before adjustments, no COLA) plus greatly reduced SS plus income from personal retirement savings

vs.

$200/mo pension (before adjustments, no COLA) plus greatly reduced SS plus income from personal retirement savings

and still can't see much of a reason for the State of Florida employee to complain, as I will have to provide a significantly larger portion of my retirement income from my own savings than the State of Florida employee will.

AJ

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71278 of 75375
Subject: Re: Retirement savings benchmark Date: 1/21/2013 7:22 PM
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Sounds like most State of Florida employees should be looking for other jobs. Seriously, if one is not happy with both their current compensation and their potential future pension compensation, then they should be looking for a job that provides them with the compensation they would be happy with.

Of course, as someone who has always been employed by the private sector, and whose entire pension income in retirement will be about $200/month (also with no COLA), and whose SS is just as likely to be greatly reduced from current levels, I look at funding retirement from:

$2000/mo pension (before adjustments, no COLA) plus greatly reduced SS plus income from personal retirement savings

vs.

$200/mo pension (before adjustments, no COLA) plus greatly reduced SS plus income from personal retirement savings

and still can't see much of a reason for the State of Florida employee to complain, as I will have to provide a significantly larger portion of my retirement income from my own savings than the State of Florida employee will.


So, you don't have access to a 401K? I never said State of Florida employees are unhappy. But, don't make them out as getting fat, dumb, and happy off the taxpayers either. They are the lowest (or second lowest) paid State employees in the nation and the pension is ranked about the same insofar as the benefits received. If you are so unhappy, maybe you should take your own advice.

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71290 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 2:35 AM
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So, you don't have access to a 401K?

I do have access to a 401(k) plan - that, along with IRAs and taxable accounts is what makes up the 'personal retirement savings' because that's funded mostly by me. (Yes, at times, but not always, I have gotten a match on my 401(k) - but over the years, it's been maybe 10% - 15% of the total contributions to my personal retirement savings.)

I never said State of Florida employees are unhappy.

With all the statements about how bad the pensions are, that's certainly the impression that I was given, although you never actually came right out and said they are unhappy.

But, don't make them out as getting fat, dumb, and happy off the taxpayers either. They are the lowest (or second lowest) paid State employees in the nation and the pension is ranked about the same insofar as the benefits received.

The point is, they get a pension. Over 80% of private sector workers won't. And in my case, being one of the few who will actually get a pension, it will be a very small part of my retirement income - maybe enough to go out to eat a few times each month.

If you are so unhappy, maybe you should take your own advice.

Actually, I'm happy that I don't have to count on taxpayers to fund a large portion of my retirement, because I think that many of the governmental organizations that have promised these pensions are going to have a difficult time meeting their obligations. I'm not counting on SS either - if I get anything from that, it will be a bonus.

But multiple posts complaining about how bad the promised pension benefits are seemed like carping to me, especially since whatever 'little' pension will be received is vastly greater than what most private sector employees will get.

AJ

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71291 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 7:35 AM
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If you earn $50K per year, that's $4167/mo gross pay. 70% is 2916/mo. Social Security reduces that by abt $1200/mo. Net is 1717/mo. That is 41% of gross.

Not sure I understand what this means... In my own case, I can figure 33,480/year SS. And I also figure about $33,000 pension. But, in planning, I've always just added the two together -- but is it correct that SS actually reduces the pension?

culcha

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71292 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 9:15 AM
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In my own case, I can figure 33,480/year SS.

How do you figure that amount? That's $2790/mo. But SSA says "a worker retiring at age 66 in 2012, the [maximum] amount is $2,513." To get that amount, you'd have had to hit the SS max income virtually every year of your working life.

Unless, perhaps, you are planning to wait until age 70 to get a higher payout, but then you should also take into account all the years that your payout was $0, so your *average* payout would be much lower.

Also, "Social Security benefits are much more modest than many people realize. In June 2012, the average Social Security retirement benefit was $1,234 a month, or about $14,800 a year".

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71293 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 10:04 AM
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How do you figure that amount? That's $2790/mo. But SSA says "a worker retiring at age 66 in 2012, the [maximum] amount is $2,513." To get that amount, you'd have had to hit the SS max income virtually every year of your working life.

It could be the combined SS for a two person household.

PSU

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71294 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 1:58 PM
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<<In my own case, I can figure 33,480/year SS.>>

How do you figure that amount? That's $2790/mo. But SSA says "a worker retiring at age 66 in 2012, the [maximum] amount is $2,513." To get that amount, you'd have had to hit the SS max income virtually every year of your working life.

I'm planning on retiring when I hit 70. (Not there yet, but somehow I get closer and closer without even trying). The last letter I got from the SSA says the benefit would be $2790 a month, so that's what I'm figuring on. (Seems high to me though -- I'm NOT a high earner!)

culcha

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Author: pauleckler 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: 71295 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 3:00 PM
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If you earn $50K per year, that's $4167/mo gross pay. 70% is 2916/mo. Social Security reduces that by abt $1200/mo. Net is 1717/mo. That is 41% of gross.

Not sure I understand what this means... In my own case, I can figure 33,480/year SS. And I also figure about $33,000 pension. But, in planning, I've always just added the two together -- but is it correct that SS actually reduces the pension?

culcha


No, Social Security does not reduce your pension.

My figures are the ones companies use when they make their defined pension benefit plan. They try to replace 70 to 80% of your gross pay from the sum of your pension benefit and your Social Security payments. My figures show how that 70% of gross becomes an actual 41% of your pay.

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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: 71296 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 3:01 PM
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culcha writes,

How do you figure that amount? That's $2790/mo. But SSA says "a worker retiring at age 66 in 2012, the [maximum] amount is $2,513." To get that amount, you'd have had to hit the SS max income virtually every year of your working life.

I'm planning on retiring when I hit 70. (Not there yet, but somehow I get closer and closer without even trying). The last letter I got from the SSA says the benefit would be $2790 a month, so that's what I'm figuring on. (Seems high to me though -- I'm NOT a high earner!)

</snip>


For 2013, the maximum Social Security benefit at age 70 for a worker who paid max FICA since age 22 is $3,350/month.

http://www.ssa.gov/oact/cola/examplemax.html

intercst

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71297 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 3:22 PM
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intercst: "For 2013, the maximum Social Security benefit at age 70 for a worker who paid max FICA since age 22 is $3,350/month.

http://www.ssa.gov/oact/cola/examplemax.html "


I see the chart, but fail to see what age 22 has to do with anything. SS benefits are based on best 35 years of earnings, so those retiring at 62 would have needed to paid maximum FICA since age 27; those retiring at 65 would have needed to paid maximum FICA since age 30, and those retiring at age 70 have needed to paid maximum FICA since age 35; the other earlier years would be irrelevant.

"Your actual earnings are adjusted or “indexed” to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or “primary insurance amount” (PIA). This is how much you would receive at your full retirement age — 65 or older, depending on your date of birth."

http://www.ssa.gov/pubs/10070.html

Paying maximum FICA for more than 35 years does not increase SS benefits.

Regards, JAFO

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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: 71298 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 3:59 PM
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JAFO31 writes,

Paying maximum FICA for more than 35 years does not increase SS benefits.

That's true. The other interesting thing about Social Security is that a Maximum FICA worker gets very little credit for about the last half of his earnings and FICA taxes paid.

http://retireearlyhomepage.com/betterdeal.html

There are two bend points in the Social Security formula for calculating your monthly benefit. For 2012, you get a 90% credit for your first $749 in average indexed monthly earnings (AIME) subject to FICA, a 32% credit for AIME between $749 and $4,517 per month, and a 15% credit for everything over $4,517. Someone who paid the maximum FICA tax for the past 35 years and retired in 2012 at age 62 would have average indexed monthly earnings of a bit more than $8,000. To keep your benefit within the second bend point where you get a 32% credit on your earnings, your FICA wages would have to average about 57% of the maximum FICA wage over the past 35 years. To stay within the first bend point where you get a 90% credit, you'd have to earn less than 10% of the maximum FICA wage over 35 years -- a near-poverty level wage.

</snip>


intercst

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71299 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 5:28 PM
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intercst:

JAFO31 writes - <<<Paying maximum FICA for more than 35 years does not increase SS benefits.>>>

"That's true. The other interesting thing about Social Security is that a Maximum FICA worker gets very little credit for about the last half of his earnings and FICA taxes paid.

http://retireearlyhomepage.com/betterdeal.html

There are two bend points in the Social Security formula for calculating your monthly benefit. For 2012, you get a 90% credit for your first $749 in average indexed monthly earnings (AIME) subject to FICA, a 32% credit for AIME between $749 and $4,517 per month, and a 15% credit for everything over $4,517. Someone who paid the maximum FICA tax for the past 35 years and retired in 2012 at age 62 would have average indexed monthly earnings of a bit more than $8,000. To keep your benefit within the second bend point where you get a 32% credit on your earnings, your FICA wages would have to average about 57% of the maximum FICA wage over the past 35 years. To stay within the first bend point where you get a 90% credit, you'd have to earn less than 10% of the maximum FICA wage over 35 years -- a near-poverty level wage."


Thanks. I was aware of the inflcation points, from prior reserach but not current AIME amounts because they are indexed and I had not looked at the numbers for several (or more) years.

Social Security is expected to replace about 40 percent of pre-retirement earnings of average earners; 80 percent for the lowest earners; and 27 percent for those at the maximum taxable wage base of $80,400 [2001], according to the Social Security Administration.

http://cbs.marketwatch.com/news/story.asp?siteid=mktw&di...

"The benefit formula is a three step formula based on AIME (Average Indexed Monthly Earnings). The annual earnings on which this average earnings figure is based have the same caps as were used on the tax side. The formula for the benefit is then 90% of the first $x of AIME plus 32% of the next $y of AIME plus 15% of the balance of AIME. x and y are indexed yearly."

http://boards.fool.com/quotthe-benefit-formula-uses-ss-taxed... (Christian Folls board - 2004]

Regards, JAFO

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Author: ferjen Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71300 of 75375
Subject: Re: Retirement savings benchmark Date: 1/22/2013 6:14 PM
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The point is, they get a pension. Over 80% of private sector workers won't. And in my case, being one of the few who will actually get a pension, it will be a very small part of my retirement income - maybe enough to go out to eat a few times each month.

Ahh, but the private sector compensation is considerably higher. This is the tradeoff for State of Florida employees. I know that in my profession, for instance, the compensation on the private side is more than 50% above that of the comparable State of Florida employee. It's all relative.

Actually, I'm happy that I don't have to count on taxpayers to fund a large portion of my retirement, because I think that many of the governmental organizations that have promised these pensions are going to have a difficult time meeting their obligations. I'm not counting on SS either - if I get anything from that, it will be a bonus.

Agreed and kudos. Great minds think alike.

But multiple posts complaining about how bad the promised pension benefits are seemed like carping to me, especially since whatever 'little' pension will be received is vastly greater than what most private sector employees will get.

Not carping, just setting the record straight. A poster suggested government employees were getting fat, dumb, and happy off of the taxpayers. I agree with this for Federal employees and for many States. But, I happen to know Florida does NOT fit that description. State of Florida employees are not unionized and have no power to seek benefits comparable to Federal employees or employees of other states, particularly unionized states. As a worker in Florida, I am glad that Florida is a right to work state as I view unions as extortionist. And as I stated above, the 'little' pension that State of Florida employees receive (and new employees will not receive as of when Rick Scott took over) was effectively paid for by the (deferred) salaries those employees did not receive while they were working. And those pensions would still put said employees below the poverty level. Not all government employees are takers. Most do the work because they like to serve the public.

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