Amount needed vs Amount wanted for retirement

[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.....)

[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.

[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.

[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.

[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?

[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)

[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.

[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.

[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.

[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.

[MonkeyMama]

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%)

I live on the coast. My parents retired in San Francisco. None of us need even $1 mil to retire comfortably. I think it's good to note that it's not normal, average, or required to save that much to retire. This forum can get very Top 1%. The vast majority of people are never going to save that much.

[disneysteve]

Social Security covers more of your working income if you are in a lower income.

Very true. For the average worker, SS will make up a big chunk of retirement income, even if you start collecting at 62. If you are a higher income worker, which automatically puts you in the minority, SS will comprise a much smaller share of your retirement income.

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.

I agree with this, too. That's why we always push that 15% figure. If you do the math, that will provide a nest egg sufficient to generally replace your pre-retirement income.

[disneysteve]

That’s a good point. My current budget includes a 7000$ deposit into my IRA

Your budget is $3,500/month but that includes $583 to the IRA. So you are really living on $2,917/month or less (if extra also goes to savings). Once you retire, you won't be funding the IRA anymore so your actual budget won't be $3,500.

$2,917/month x 12 x 25 = $875,100.

And that doesn't include SS. How much will that be? Subtract that from the $2,917 and do the calculation again to get the actual estimate of what you ought to have saved based on the 4% rule. Clearly, it will be well under $1 million.

[Petunia 100]

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.

It really depends on your exact rate of return, especially in the early years of your withdrawals. If you should happen to enjoy high returns in your first several years, you will likely die with more money than you started with. If you should happen to have poor returns in your first several years, you just may need to consider part-time work and reduced withdrawals for a few years, so that you don't run out of money while you are still alive.

Unfortunately, you can't know ahead of time how those first years will go.

I think it is wise to have a back-up plan of some sort, just in case those early years are not good years.

[MonkeyMama]

I live on the coast. My parents retired in San Francisco. None of us need even $1 mil to retire comfortably. I think it's good to note that it's not normal, average, or required to save that much to retire. This forum can get very Top 1%. The vast majority of people are never going to save that much.

P.S. I think early retirement also becomes a factor in bigger savings #s.