Amount needed vs Amount wanted for retirement

[LivingAlmostLarge]

Even in HCOLA a lot of people can't afford it when they retire as I pointed out. It really depends on where they live. And in HCOLA many people downsize and sell to fund their retirement. Usually their entire retirement plan is to use their home as their nest egg. So maybe they cash in $500k in CA outside of SF/LA/SD and then they use that for retirement. And in HCOLA people should often count home equity because it ends up being such a large portion of their networth.

[GoodLiving]

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 don't think you're missing anything obvious. I live in fly over country (not the coasts) and I'm very financially conservative but I'm probably not going to have the s. I just hit the million mark for my net worth ($300k in real estate) at age 51 1/2 but because of my plans for retirement, fears about healthcare expenses, familial longevity, high need for security, I'm going to keep working until probably 60-62. At this point my plan for healthcare will be COBRA and then open market. Like someone else said....you do you. I do expect the market to end up crashing for a bit.

I always thought it would be just me taking care of me but it's now me and my spouse. My spouse is significantly less prepared and 6 years older than me.

[LivingAlmostLarge]

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.

This is only true in 2 cases, one you live in CALI. Live in the other east coast and oregon and WA you have property taxes that go up. Try living in SF and LA in your 3M beachfront property you bought in 1960 with the new property taxes of $30k/year. BIG difference. If Prop 13 wasn't in effect CA would have a very different RE scenario. Let's be real here about that. Locking in 1% when you buy for the rest of the time is part of the reason it's affordable. Elsewhere people downsize and move because if their homes went from $100k in 1970 to $2-3M in 2020 well it's a big difference. What did your parents buy for and what's it worth now? What are they paying in property taxes and how would it affect their budget to "pretend" to have to pay property taxes at a new rate? I only point this out because I have many clients who sell because they can't afford the property taxes and maintanence once they retire. I think it does make a difference in a lot of ways.

Personally with our property taxes being $15k it's a nice chunk of change. I'm not sure what it will be when we retire but that will definitely be a reason why I would need more in our retirement annual spending. I think $5M is probably enough for most people. But I sit here and really ponder what will medical costs for early retirement?

In the other thread you say you never have been dependent on employer provided coverage. What are your expectations for cost of for medical at 50?

[srblanco7]

To tie this back to the original question, another thing to consider is that those who are looking to amass millions don't necessarily plan to spend it all on themselves. Look around. Who do you think makes those 7-figure donations to universities and cultural organizations? Who helps fund all sorts of charitable endeavors? My wife and I have already committed to the Leave a Legacy program through the Jewish Federation, leaving a bequest to our synagogue when we die. Hopefully, we'll have more than enough money to support various other causes both during our lives and after we are gone.

In many cases, those who accumulate in excess of $5M are able to do so because they control their expenses and manage their money well. As noted, it's unlikely (for most) that they'll need more than $5M to fund their retirement, even with early retirement, and so it becomes about other things - for example, creating generational wealth and the ability to give generously.

[disneysteve]

To tie this back to the original question, another thing to consider is that those who are looking to amass millions don't necessarily plan to spend it all on themselves. Look around. Who do you think makes those 7-figure donations to universities and cultural organizations? Who helps fund all sorts of charitable endeavors? My wife and I have already committed to the Leave a Legacy program through the Jewish Federation, leaving a bequest to our synagogue when we die. Hopefully, we'll have more than enough money to support various other causes both during our lives and after we are gone.

[corn18]

You're apology is well received DS. And completely understandable w/ the Heroic amount of posts you (99.99%) thoroughly reply to w/ wise incite and content. (32,900 posts & counting is a decentralized Tolstoy novel! Where quantity becomes a quality of itself)

I appreciate the post buddy.

I apologize, too. I got snippy for no reason.

[disneysteve]

32,900 posts & counting is a decentralized Tolstoy novel!

I love this comment. I just shared it with my novelist daughter who also got a laugh out of it.

[amarowsky]

amarowsky I owe you an apology. I misread your initial post. I thought you said $1.5 million, not $1 - 5 million. There's a huge difference there.

Yes, somewhere up to $5 million should cover nearly everyone. That provides for a retirement income of up to $200,000/year (plus SS). That would have you in the 97th percentile, so only 3% of the population would be earning more than you.

Now $1.5 million, on the other hand, is a different story. That gets you $60,000/year which is the 65th percentile, so that would be low for about a third of people.

You're apology is well received DS. And completely understandable w/ the Heroic amount of posts you (99.99%) thoroughly reply to w/ wise incite and content. (32,900 posts & counting is a decentralized Tolstoy novel! Where quantity becomes a quality of itself)

I appreciate the post buddy.

[disneysteve]

I live on the coast. My parents retired in San Francisco. None of us need even $1 mil to retire comfortably.

It really depends on location and such. $1 million gets you 40K/year. That would be pretty tough here. After taxes maybe that's 32K. Our property taxes are 8K, which would only leave us $24,000 to live on. I have no idea how we would manage that. We would be forced to move and significantly change our lives, something I certainly hope we don't need to do in retirement.

[disneysteve]

1-5 million oughta satisfy most people's Needs and wants

amarowsky I owe you an apology. I misread your initial post. I thought you said $1.5 million, not $1 - 5 million. There's a huge difference there.

Yes, somewhere up to $5 million should cover nearly everyone. That provides for a retirement income of up to $200,000/year (plus SS). That would have you in the 97th percentile, so only 3% of the population would be earning more than you.

Now $1.5 million, on the other hand, is a different story. That gets you $60,000/year which is the 65th percentile, so that would be low for about a third of people.

[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.

[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.

[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.

[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.

[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.