Amount needed vs Amount wanted for retirement

[amarowsky]

Can you expand on that? What about standard retirement planning advice do you think makes people gluttons?

most don't need MillionS. that's all. The rest of your mentions are accurate.

[Like2Plan]

The safe withdrawal rate that some people use is 4%, although lately with the low interest rates some folks have hedged their bets and lowered it (like 3%). That 4% withdrawal rate equates to 40k per 1 million. There are further considerations if that is pre-tax (but, perhaps you are already considering taxes in your expenses?) .

Even if you were 60 right now, there would be an inflation factor to consider over 10 years (between 60-70). (So, your expenses would go up to maintain the same lifestyle.) You have to make an assumption as to what the inflation factor would be.

Then, your earnings will continue to grow (assuming it is not all in cash)--so, you have to make an assumption as to what your growth factor will be.

Do you plan to leave an inheritance, if not- what assumption would you be making as to your life span (average life span from social security mortality tables, age 80, age 90, age 100 or ??) ?

In your example above--is it 10 years of needing approx 12 k (excluding the inflation/growth factors) plus ?? years of needing 42k (excluding the inflation/growth factors)?

[disneysteve]

You're not.... people are gluttons.

Can you expand on that? What about standard retirement planning advice do you think makes people gluttons?

[amarowsky]

I've been reading this and other financial forums on and off for years, and I've appreciated what I've learned, but I find I'm sometimes taken aback by the conversations about money needed for retirement. Some of you, maybe many of you, have millions set aside or you're on track to have millions. It makes me wonder, do you really anticipate needing that much in retirement? I keep a monthly budget and can anticipate roughly how much I'll need as I grow older, but it's not nearly the amount most of you have or are planning to have. I feel like maybe I'm missing something obvious.

You're not.... people are gluttons.

[disneysteve]

So to put that in terms for my far more modest budget, if I typically budget 3500 a month, and from age 60-70 will continue to have 2500 month income, how much might I need to have saved? Do I still figure my expenses (3500 x 12) by 25% or is it less since I’ll only need 1000$ a month until age 70? Of course I realize this is just a rule of thumb, but the various perspectives is helpful.

If your monthly expenses are $3,500 and your income is $2,500, you need your savings to generate the other $1,000. Is that correct? If so, you need $1,000/month x 12 months x 25 = $300,000 according to the rule of thumb.

What happens after age 70, though? Is there a pension or some other source of money that will cover your expenses?

[kork13]

Depends on where that $2500/mo is coming from.

Do you have a job earning that, or is it from a pension/SS that will continue into your old age? If it's a pension, then you really only need $300k or so to produce that $1k/mo.

If that money is a job that you'll leave, you will eventually need to replace the full $3500/mo, less your estimated SS amount (I'll wildly guess & say $1500/mo from SS -- you can check your actual estimated amount on the SSA.gov website). In that case, you'd want to save up around $600k by the time you fully retire at age 70 (to replace $2k/mo), knowing that your growth between now & then will be hampered by drawing down $1k/mo. If you have $700k by age 60, you should be more than good.

[Smilinggirl]

So to put that in terms for my far more modest budget, if I typically budget 3500 a month, and from age 60-70 will continue to have 2500 month income, how much might I need to have saved? Do I still figure my expenses (3500 x 12) by 25% or is it less since I’ll only need 1000$ a month until age 70? Of course I realize this is just a rule of thumb, but the various perspectives is helpful.

[corn18]

A couple of points that I considered before deciding to pull the plug this year:

1. SS: You can ignore it if you wish, but I chose to include it. I am 54 and plan to retire @ 55 (this March). I would have to work another 5 years if I chose to ignore it completely. That to me is unacceptable. So I have an input in my spreadsheet that cuts SS benefits by 25%. That is what the current projections show might happen by the time I decide to start collecting @ age 70. I think this is a good approach for us. I will be 55 when I retire, so will have to wait 15 years to start collecting SS. I have a plan for that. My recommendation is if you are < 50, look at a retirement plan that does not include any SS. Then as you get closer to retirement, consider including some or all of SS. Another part of not including SS is the timing of the income. I don't want to have a giant nest egg at age 70 that required reduced spending from 55-70 just because I assume SS will not be there. I want to spend as much as possible from 55-70. Father Time catches up to us all and I am planning to go, go, go (e.g. spend, spend, spend) from 55-70 and then slow down after that. The risk with this approach is medical costs after 70. So I am planning to have a nice nest egg for that contingency. That nest egg is a lot smaller if I assume SS income from 70+.

2. I used the approach of lean FIRE, FIRE, fat FIRE and obese FIRE. I had a number for each of those.

Lean FIRE was a budget that made sense to me, but was less than what we are currently spending. It was not vetted with my wife. But it was generous, IMHO, and would be a fine lifestyle.

FIRE was our current budget without any travel/blow that dough money. This included ALL expenses (taxes, cars, home maintenance).

Fat FIRE is what we are targeting now. It is FIRE + $25k / year for travel / blow that dough (BTD) stuff.

Obese FIRE is where we are right now. We've blown past Fat FIRE and are into Obese FIRE. The data show we can spend $45k / year of travel / blow that dough. We are still planning for $25k / year, but it is nice to know that we have extra available if we want to spend more.

So how do I answer your question? Maybe with some numbers:

$103,108 = base budget. This includes all expenses except travel / BTD. It is our current budget and we have been sticking to it for 2 years now. It is not conservative and we could easily cut it if we had to. Details (monthly / annual):

Auto	674	8,094
Clothes	400	4,800
Pets	200	2,400
Food	1,500	18,000
Gifts	404	4,850
Health / Beauty	260	3,120
House	1,669	20,034
Entertainment	150	1,800
Misc	600	7,200
Insurance	625	7,495
Medical	605	7,260
Cell Phone	120	1,440
Utilities	320	3,840
Internet	150	1,800
Taxes	915	10,976
TOTAL EXP	8,592	103,108

$850,000 = Savings required @ 55 to have a 100% Ps for this base budget. I used the Flexible Retirement Planner (like firecalc) to get this number. This is a very important number. If I have this much in savings @ 55, I can retire and not have to change our lifestyle. This Ps includes SS @ 70. With all of these Monte Carlo sims, there is a very high chance that we will have 2x this @ age 90, but that's ok. I am blessed in that I have a $50k / year COLA military pension and my SS will be $60k / year @ 70. That is $110k of COLA income from 70 on. So this more than covers my base expenses of $103k. I also have free health care from 55-70 thanks to my military retirement. That is a HUGE benefit. Actually, it's now $300 a year. Then I go to Medicare and my military health care is a free supplement to Medicare. This would be a much different number if I had to pay for healthcare from 55-70.

We will have $1.9M in retirement savings by Mar, so we have this base covered by a long shot. We currently have a $500k mortgage on our house @ 2.75% fixed for 30 years. We may pay that off, but that is dirt cheap money. If we do pay that off, we will have $1.4M. More than enough to cover our base budget. But who wants to live off a base budget (as generous as it might be)? That's where we go a different route:

$1.9M savings
-$850k for base budget @ 100% Ps
-$500k payoff mortgage
=$550k of play money

So we could do the 4% rule on the $550k and plan to spend $22k / year. But that means we could spend $22k / year forever and there would be a very high probability of having lots of money left over. We will start with $25k / year starting this year and take a look each year to see how we are doing. If the market tanks, we may spend nothing extra. If it does well, we can spend more. This is like the Variable Percentage Withdrawal (VPW) method.

Takeaway if you made it this far: Figure out your base budget including ALL expenses and multiply that by 25. If you can't guess your expenses in retirement, just save 15% of your net income each year until you get closer to retirement. And don't compare expenses with others. You do you.

[Singuy]

Life is all about setting goals so then one can enjoy the journey. If you are young and hit FIRE, then the next goal is FATFIRE cause why not. The hardest part is getting that snow ball rolling, but once it starts rolling no one can stop it even if you tried sometimes.

[Like2Plan]

I know what you mean. But, I will say that early on in the accumulating phase I didn't have a clue about the safe withdrawal rate and estimating future medical expenses. Even with medicare, our medical expenses have gone up quite a bit and this is before any really bad stuff associated with old age has happened to us. You know--those nice things to have like hearing aids and stair lifts and lift chairs and so on--medicare doesn't always pick up the bill for some of these big ticket items.

I think the first 10 years (or so) of retirement you spend more--you are more mobile, you can possibly travel. Then, you start slowing down. Finally, you might start to need a little help-like you can't drive anymore (bring on those self driving cars!) and so on--then, it starts to get really, really expensive-- assisted living expense--possibly nursing home. So, that is what I think about. Best case scenario--we don't necessarily need all that and our son can use what is left over for whatever.

I think most people adapt their lifestyle to the retirement income that they have coming in--Not everyone is saving a big pile of money for retirement, but they are still retiring.

[cypher1]

At age 39 I can get by with necessities around 2000 per month, but more realistically I'd say 2500 (which is still 30K baseline per year). So roughly 30K * 25 yrs = 750K for target amount. But I simply round up to 1 million for goal.

However, like the original poster mentioned, it's hard to determine what other unknown expenses are missing. The biggest unknown is medical/prescriptions expenses for me. The rate of saving for retirement I could probably retire in early 50s, but I'm simply not in any hurry to follow FIRE movement. In fact, I'd actually be willing to prolong retirement and continue with more active traveling now, than later.

[disneysteve]

It really depends on individual circumstances and anticipated or wanted lifestyle.

Totally. My dad died 28 years ago. My mom's been living on their nest egg for nearly 3 decades and never had anywhere near $1 million. Not even half a million. But she had a paid off home. 13 or 14 years ago she moved to a subsidized senior apartment building. She gets SS. She collects dividends from a small stock portfolio. She gets interest from a bond portfolio. And she owns a couple of mutual funds. Her expenses her really low. She doesn't need 40K or 50K/year so she never needed to have a 7-figure portfolio to support herself.

It all depends on how much you want to be able to spend.

[bjl584]

I've been reading this and other financial forums on and off for years, and I've appreciated what I've learned, but I find I'm sometimes taken aback by the conversations about money needed for retirement. Some of you, maybe many of you, have millions set aside or you're on track to have millions. It makes me wonder, do you really anticipate needing that much in retirement? I keep a monthly budget and can anticipate roughly how much I'll need as I grow older, but it's not nearly the amount most of you have or are planning to have. I feel like maybe I'm missing something obvious.

It really depends on individual circumstances and anticipated or wanted lifestyle.
I could technically "retire" on very little if I was able to replace my income with something like dividends or a few rental properties.
Financial independence probably could be achieved much sooner than millions of dollars.
But, having millions of dollars would be a nice nest egg

[disneysteve]

Awww, I bet she'd do just fine on a ship. I think the cruise lines are well equipped to handle old folks since that's probably a huge number of their customers. And they have medical staff on board. It might be a super fun thing for her to do! Or for you to do with her perhaps? I hope when I'm 90 I can still be doing things like that, and honestly if I had to just sit around and do nothing because I was old, I'm not sure life would be much worth living. I'm an adventurous sort though. Maybe something like one of those Viking river cruises through Europe? Then at least she'd always be near a major city if something goes wrong.

We've cruised with her a few times but it's been a number of years. If we do one, we'd go for something that stays in the US/Canada like a fall foliage cruise. We live about an hour from the cruise port here in NJ so we wouldn't have to fly and we wouldn't be visiting any 3rd world countries.

[Fishindude77]

We were decently high earners during our working careers and were able to amass a pretty nice portfolio of real estate, cash, etc. We didn't want to reduce spending by much in retirement, so it takes a pretty large stash to generate income close to what we were earning via work. Our goal is to continue to spend at pre-retirement levels and to be able to pretty much do everything we want while still hanging on to our real estate and large assets to give to the kids or grandkids.

Time will tell how this plan works out, but after three years of full retirement it feels like it's going to work.

Not much you can do about the health insurance issue with ACA other than; keep working a W-2 job for insurance, keep income low and live below the ACA income threshold to keep this cost low, or just suck it up and pay the full price without any discounts. We're paying full price as we are above the income level to get any ACA discounts, so cost runs around $17,600 annually for us as a couple, plus the out of pocket cost if you need to use it. As a couple we'll pay for 7 years of it, then the wife only for a couple more years after I've reached Medicare age. Between the insurance and out of pocket over this time period we could easily spend $150,000 for health insurance coverage. Pretty cheap, when you consider that one procedure could easily cost that amount.

Planning ahead is the key. Start looking into things like health insurance costs, what your social security income will be, how much income your investments might generate without depleting them, what your cost of living will be, etc.