House poor!

[KTP]

I wouldn't go too extreme on income replacement.

There is some advantage to having a bit less and retiring younger than being able to afford the best room on the cruise ship along with the highest quality Rascal and Oxygen tanks.

Also, when you see older people willing to pay $50K+ for a new drug that extends life 1 to 3 months, you start thinking about those years you were working in your mid to late 50s...

We will be happy with about 120% of our current spending, which is maybe 30% of our gross income. Probably means we will not get means tested entirely out of SS too.

[disneysteve]

We will be happy with about 120% of our current spending

Are you including future health care costs in that number? I think that is the big unknown for retirement planning. How much will we all be spending to stay alive?

I agree that 120% of current spending would be plenty. I just wonder what other costs, like health care, will eat into that.

[KTP]

Are you including future health care costs in that number? I think that is the big unknown for retirement planning. How much will we all be spending to stay alive?

I agree that 120% of current spending would be plenty. I just wonder what other costs, like health care, will eat into that.

My current calculations do include healthcare costs, based on the health care bill as it now stands. If it is changed over the next few years then we will have to adjust our saving goal a bit by increasing our portfolio size. I really do hope they at least keep the part about pre-existing conditions which would make it a lot easier to obtain insurance when we retire (especially before medicare kicks in). It looks right now like they want to keep healthcare insurance costs for a family at no more than 10% of income, so if we budget for a $60,000 withdrawal rate, set aside $6000 for healthcare insurance, and live off $50,000 (paying about $4000 in taxes) hopefully we will be ok.

A 3.5% SWR, which I am comfortable with, puts us at needing 1.7 million.

[LivingAlmostLarge]

KTP, how about this? I want 100% of our income now because I know that our incomes are going up probably since we're still pretty young. And yes we have our mortgage which will be paid off but I think that it's not unrealistic to think that in 25 years doubling what we live on now without a mortgage would be a nice rule of thumb?

[KTP]

KTP, how about this? I want 100% of our income now because I know that our incomes are going up probably since we're still pretty young. And yes we have our mortgage which will be paid off but I think that it's not unrealistic to think that in 25 years doubling what we live on now without a mortgage would be a nice rule of thumb?

Sure, but realize that doubling your gross income in retirement probably is not going to double your available income because you will most likely pay significantly more taxes than if you made do with less and retired earlier.

So say at $60,000 SWR you pay $4000 in tax and live off $56,000 and at $120,000 SWR you pay $20,000 in tax and live off $100K. I mean yes, obviously $100K > $56K, but it is not double. Also, you may get means tested out of SS and you certainly will not qualify for any type of healthcare subsidy.

But yes, I would go for the full 100% income except that it is so dang expensive to buy more life nowadays...

[LivingAlmostLarge]

for $120k you won't be paying SS on the withdrawal, and federal taxes will be $17595 assuming in 25 years income isn't adjusted for new tax brackets and they stay the same. Plus tapping part from a Roth is tax exempt.

My assumption for SS will likely be not means based (too many rich politicians) but rather age based. It'll raise the ages of drawing on SS.

Also I'm not sure I want to live on $56k.

[KTP]

for $120k you won't be paying SS on the withdrawal, and federal taxes will be $17595 assuming in 25 years income isn't adjusted for new tax brackets and they stay the same. Plus tapping part from a Roth is tax exempt.

My assumption for SS will likely be not means based (too many rich politicians) but rather age based. It'll raise the ages of drawing on SS.

Also I'm not sure I want to live on $56k.

I was just guessing at the taxes. It is possible that at 60K SWR you will pay no taxes at all especially if a portion of that is drawn from a Roth.

56K or 60K I think is enough for us and can always be supplemented with contract work if there is something special we want to buy. I guess it may not be enough for some. When I watch my dad (74) try to go hiking with us and struggling to do 1mph over roots and such I start to realize that we better start thinking about how to get out of the office in our early 50s instead of waiting until 65+. Right now we would reach 1.7 million at age 49ish by my calculations (with only a 3% real return on our investments).

[Hector]

Exactly the point I was trying to make. Yes, it sounds great to have $1 million in retirement but for a couple earning $500,000 in their late 40s, that isn't enough. When you add up the numbers given, they actually may have a negative net worth.

Looks like OP's net worth is around 2.5X yearly gross income. Why would it be negative net worth?

[thekid]

I'm not a regular contributor here, but do read often and find many of you to be a wealth of information.

However, whenever I see a thread like this I always tell myself that a key question is missing. That is defining the objective.

At least for me, it isn't simply saving as much as possible. It's a balancing act between the now and the future.

I don't know what the OP's objectives are. Further information on that would be quite usefull to give proper advice. What do you want out of your money? What are your retirement plans? Is it important for you to leave a large legacy to your children?

It's like we sometimes work backwards, like if saving money was an end in of itself. I think we have to start by clarifying our goals and work back to what we need to do now to achieve them.

I think this difference in approach may set me appart as less frugal than I feel many here could be, but I do appreciate the knowledge and analysis many of you bring forth.

Personally, my wife and I save maybe 20k$-30k$ a year on about 160k$ a year. We used to save alot more, but have considerably increased our expenses these last few years. Like I said, we could easily be much more frugal, but quite frankly we don't want to. We are in our early 30s, have about 120k$ in retirement savings, both have safe jobs with defined benefit pension plans, have a little over 300k$ in home equity (owe a little over 50k$ on a house worth some 375k$ on the conservative end) and about 80k$-100k$ in out of retirement savings and cash. Our net worth is in the mid 500s + the pension plans, we are 33 and 32 respectively.

From upbringing, we saved and pilled up. My parents made low wages and have a net worth of close to 1M$ and my wife's parent were high earners and have a net worth of 6M$+. We didn't live as frugally as them (my inlaws live in a house worth about 200k$ and drive an 8 year old civic), but we were fairly frugal.

To this day, I still budget everything we spend, but we've also greatly increased our spending. The last few years particularly, we've worked to think our spending habits through and decided that in our case, mor emphasis on the "now" was needed.

Don't know what the general opinion on that here is. How do you balance the now and future. To those that are particularly frugal, is it to leave a legacy to your children / to retire earlier or more comfortably? Why is that a priority over your many, many work years?

[disneysteve]

Looks like OP's net worth is around 2.5X yearly gross income. Why would it be negative net worth?

ETA: SEE CORRECTION BELOW

$1 million in retirement
$30,000 in liquid savings
$200,000 in home equity
---------------------------
$1,230,000 assets

$1,170,000 mortgage
$60,000 credit card debt
------------------------
$1,230,000 debt

It actually turns out exactly even - so a net worth of zero just based on these numbers.

[Hector]

.....

[thekid]

$1 million in retirement
$30,000 in liquid savings
$200,000 in home
---------------------------
$1,230,000 assets

$1,170,000 mortgage
$60,000 credit card debt
------------------------
$1,230,000 debt

It actually turns out exactly even - so a net worth of zero just based on these numbers.

If we are to exclude the mortgage, shouldn't we include the house's fair market value in the assets. The "equity" is already the "net worth" of the house.

The net worth is over a million, which only makes sense since they have positive equity on the house and 1M$ in savings to the CC's 60k$ debt.

It would be:

$1 million in retirement
$30,000 in liquid savings
$1.4M in home
---------------------------
$2,430,000 assets

$1,170,000 mortgage
$60,000 credit card debt
------------------------
$1,230,000 debt

Net worth: $1 200 000. Some 2.something times their income. Which isn't by any stretch great for their age and income level, but not disastrous either.

[jpg7n16]

Personally, my wife and I save maybe 20k$-30k$ a year on about 160k$ a year. We used to save alot more, but have considerably increased our expenses these last few years. Like I said, we could easily be much more frugal, but quite frankly we don't want to. We are in our early 30s, have about 120k$ in retirement savings, both have safe jobs with defined benefit pension plans, have a little over 300k$ in home equity (owe a little over 50k$ on a house worth some 375k$ on the conservative end) and about 80k$-100k$ in out of retirement savings and cash. Our net worth is in the mid 500s + the pension plans, we are 33 and 32 respectively.

I think this is fantastic for you. You're well on your way. Congrats!

But I'd like to do a little scenario to see where the OP truly is. I would like you to triple everything in your scenario (income, expenses, savings, home equity, everything) and then ask yourself...

10 years from now (mid 40's where the OP is) how would you feel with only: $1 million in a retirement account you can't access, $10k in cash, $200k equity in your home, and $1.2 million of debt you're paying off?

I agree with your Net worth calculation, and think DS's math post above is off. But $1.2 million of debt sure does put a strain on the cashflow picture each month.

Don't know what the general opinion on that here is. How do you balance the now and future. To those that are particularly frugal, is it to leave a legacy to your children / to retire earlier or more comfortably? Why is that a priority over your many, many work years?

That's what we're trying to help the OP find. Notice the advice hasn't been - 'you should cut back and live on the bare minimum in every category.' It's been - 'reign in your spending. Try cutting this back, reducing that, etc.'

ie. - you're out of balance by spending too much today and not planning for the future. Balance that out.


It seems like some of the posters are thinking 'gee - how could anyone say $4 million at retirement isn't enough? Do you know what I could do with $4 million??? That's a lot of money!' And just a few of us are considering just how much they spend in a year. $4 million goes bye bye quickly if you spend/tax $450k/year. (their $4 million is in a 401k which will be taxed on withdrawal, and their savings are about $50k out of around $500k including employer contributions)

Unless they have a goal of about 11 years in retirement, something's gotta change. And the easiest problem to fix here is the spending.


FWIW - I think OP has realized the spending was too high, and will be adjusting it down in the future. I look forward to hearing how the next few months pan out

GL NorthernCalGal!!

[thekid]

Excellent post, jpg. I enjoyed that.

I guess where I was coming from was asking what the OP's retirement plans were. Certainly, if they expect to maintain similar lifestyles it's not going to work. We don't even have to run numbers, it's apparant at face value. However, it could also be a conscious decision to "live it up" while younger (ie. the great bulk of your healthy years) and accept a "modest" income level upon retirement (they can retire comfortably by most standards on the expected 3-4M$ savings). Maybe it is what they want, maybe not.

Personally, I don't think I want to go to a much higher lifestyle than now. We have friends in worse situations than us buying luxury cars and yatchs and houses double the price of ours. We're fine. I find where we are at already quite comfortable and more seems off to me. We also have a family situation where there is family money and we want to build on that and pass it on to our children. If I was making triple my income, my "family legacy" building goal would come in first. But again, that's me. Others may have different plans, values and perspectives. As long as it is coherent and aligned with thought out objectives and the person assumes full responsibility for it, it's all good as far as I'm concerned. I wasn't (at least didn't mean) to question posters interventions on here. I find the interventions and knowledge level fantastic. It's just that, especially with high income earners/high savers/high net worth, the questioning of the objective should, I think, take a prime place in the discussion.

[disneysteve]

If we are to exclude the mortgage, shouldn't we include the house's fair market value in the assets. The "equity" is already the "net worth" of the house.

The net worth is over a million, which only makes sense since they have positive equity on the house and 1M$ in savings to the CC's 60k$ debt.

It would be:

$1 million in retirement
$30,000 in liquid savings
$1.4M in home
---------------------------
$2,430,000 assets

$1,170,000 mortgage
$60,000 credit card debt
------------------------
$1,230,000 debt

Net worth: $1 200 000.

I agree with your Net worth calculation, and think DS's math post above is off.

Sorry if I did that wrong. It should be assets minus liabilities. I counted the liability without counting the full value of the corresponding asset. Oops.