Amount needed vs Amount wanted for retirement

[Like2Plan]

I mentioned this upthread-that most people adapt to what they have coming in. But, this is different from what should your goal be if you want X dollars to spend in retirement.

Two other things--one is social security, which is inflation adjusted does a lot of heavy lifting for folks in retirement. Social Security covers more of your working income if you are in a lower income. A lot of people make assumptions about social security--one of the common assumptions is that it won't be there are retirement (I don't think that will happen). Another belief I see sometimes is is that you don't need any additional savings from what social security provides (this may or may not be true).

The other thing is that a lot of people have a goal to work much longer than what they are able to work. You don't retire with that same 20 year old body that allowed you to burn the candle at both ends. Sometimes stuff happens that prevents you from working. I know lots of folks who had to go on disability before reaching full retirement age. or even the age they initially planned to retire.

I feel if you save at a steady 15-20% rate through out your working career (assuming a normal retirement time horizon and average investment returns) most people will be in good shape.

[corn18]

That’s a good point. My current budget includes a 7000$ deposit into my IRA, and I do tend to save a bit more every month depending on flexible needs/wants like travel, clothes etc.. My question is more about how long the 25x amount is designed to cover. Obviously it’s only a guideline tool, but I’d like to hear what people generally think.

The 4% rule comes from the Trinity study. It's based on a 30 year retirement and actually yields a 95% probability of success. If you plan to retire for a longer period of time, you will need to lower the withdrawal rate.

As DS mentioned earlier, this is just a rule of thumb to determine approximately what you can spend or what you need to save. I don't know anyone that actually uses it for withdrawals. If you are in year 2 of retirement and the market drops 40%, the Trinity study says you can still withdraw the original 4% + inflation and be ok. No one does that. They cut back and hunker down until they are more confident and then start returning to the 4% rate. If you plan to retire and need every dollar of the 4% to survive, then it could get scary. But at least you know that it should still work. I think that's why people work one more year (or more) to get a bit of a cushion established so they could cut back in down years and still be happy.

[Smilinggirl]

Ah. So you'll need enough to fully cover your expenses from that point on. During the period from 60-70, will you still be able to add to your retirement savings?

That’s a good point. My current budget includes a 7000$ deposit into my IRA, and I do tend to save a bit more every month depending on flexible needs/wants like travel, clothes etc.. My question is more about how long the 25x amount is designed to cover. Obviously it’s only a guideline tool, but I’d like to hear what people generally think.

[kork13]

the larger the "S" is on Million = the more capital G in glutton. (only in most cases)...... 1-5 million oughta satisfy most people's Needs and wants. Those in excess, are likely consuming more than they ought.... (unless you live on a coast, they're different countries from non 1-5%)

This conversation went kinda fast today, but the one point I wanted to make is that amassed wealth doesn't directly relate to or indicate consumption. As you note, $1M-$5M will pretty easily satisfy the wants & needs for almost anyone's consumption. But when you get above that (especially above $10M, and even more so for each zero you add to the end of that number, your money becomes FAR less about consumption than it does for giving generously, gifting a legacy, and developing the community around you. I would argue that MOST people who build their own wealth into the "millionS" frequently are not ones to wildly over-consume. But really, that entire topic is dramatically different from the one OP is asking about.

[amarowsky]

No need to shut up. Communicating through the internet can be frustrating. I'm sure if we were together in person, this discussion would continue without animosity.

omg i could not agree more man.... Text is such an awful form of communication (especially w/ heavily nuanced topics, opinions, and what have you)

[disneysteve]

That’s when I’ll need to rely fully on retirement savings, aside from social security, which I’m hoping will still exist, but don’t want to count on if I can help it.

Ah. So you'll need enough to fully cover your expenses from that point on. During the period from 60-70, will you still be able to add to your retirement savings?

[disneysteve]

No need to shut up. Communicating through the internet can be frustrating. I'm sure if we were together in person, this discussion would continue without animosity.

I agree. I think discussing topics like this is super important. As I said earlier, my mom has been living off her nest egg for 30 years and never had anywhere near $1 million. Her needs are modest and she has plenty to cover them.

[Smilinggirl]

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?

That’s when I’ll need to rely fully on retirement savings, aside from social security, which I’m hoping will still exist, but don’t want to count on if I can help it.

[corn18]

I think I was generous enough to give a 1.5 - 5 million window before I truly tagged one as a "Glutton".

corn18 is accurate, I am being petty.

I am trying to speak out of consideration of Smilinggirl 's observation. Not everyone can save away millions, and you're not ****ing up if you can't.

I apologize I should not have said anything.... It's annoying how people jump down your throat the second your question them for asking for more than they NEED. But I get it, i need to know when to shut up. (something I struggle with.....)

No need to shut up. Communicating through the internet can be frustrating. I'm sure if we were together in person, this discussion would continue without animosity.

[amarowsky]

I'm glad you at least qualified that based on where people live since the bulk of the population lives in those areas, so your comment only applies to a minority of the population.

That said, let's look at your number: $1.5 million. With a 4% withdrawal rate, that's $60,000/year BEFORE taxes. If that money is coming from a 401k, traditional IRA, 403b, or other taxable accounts, you'll lose about 20% to taxes, leaving you roughly $48,000/year.

If I worked hard my whole life and reached a point where I was earning $250,000/year or more by the time I retired, why would I want to suddenly be stuck living on $48,000. We'd have to sell our house and move out of state most likely for one thing. And we'd have to sharply cut back our lifestyle overall. While I'm sure we could do that if absolutely necessary, why would we want to do that? What purpose would that serve?

I think I was generous enough to give a 1.5 - 5 million window before I truly tagged one as a "Glutton".

corn18 is accurate, I am being petty.

I am trying to speak out of consideration of Smilinggirl 's observation. Not everyone can save away millions, and you're not ****ing up if you can't.

I apologize I should not have said anything.... It's annoying how people jump down your throat the second your question them for asking for more than they NEED. But I get it, i need to know when to shut up. (something I struggle with.....)

[disneysteve]

I do not have millions set aside, and I will most likely never get to that level.

And that's fine. Certainly not everyone needs, or will ever have, millions, but their expenses don't require it either.

Look, our property taxes alone are $8,000/year so we need $200,000 set aside just to support that one bill.

[disneysteve]

1-5 million oughta satisfy most people's Needs and wants. Those in excess, are likely consuming more than they ought.... (unless you live on a coast, they're different countries from non 1-5%)

I'm glad you at least qualified that based on where people live since the bulk of the population lives in those areas, so your comment only applies to a minority of the population.

That said, let's look at your number: $1.5 million. With a 4% withdrawal rate, that's $60,000/year BEFORE taxes. If that money is coming from a 401k, traditional IRA, 403b, or other taxable accounts, you'll lose about 20% to taxes, leaving you roughly $48,000/year.

If I worked hard my whole life and reached a point where I was earning $250,000/year or more by the time I retired, why would I want to suddenly be stuck living on $48,000. We'd have to sell our house and move out of state most likely for one thing. And we'd have to sharply cut back our lifestyle overall. While I'm sure we could do that if absolutely necessary, why would we want to do that? What purpose would that serve?

[Petunia 100]

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.

I do not have millions set aside, and I will most likely never get to that level.

[corn18]

the larger the "S" is on Million = the more capital G in glutton. (only in most cases)...... 1-5 million oughta satisfy most people's Needs and wants. Those in excess, are likely consuming more than they ought.... (unless you live on a coast, they're different countries from non 1-5%)

That's very judgmental, don't you think? I've been on various fora long enough to see that some view frugality as a badge of honor, sometimes to the point of berating anyone who spends more than $30k a year. Every time I post my retirement budget, I get a lot of unsolicited advice on how to cut my expenses. "You spend more in a month on (name that budget category) than we spend in a year". Seems petty to me. You do you.

[amarowsky]

the larger the "S" is on Million = the more capital G in glutton. (only in most cases)...... 1-5 million oughta satisfy most people's Needs and wants. Those in excess, are likely consuming more than they ought.... (unless you live on a coast, they're different countries from non 1-5%)