How much $$$ do you need to retire ?

[daveleo]

(I am going to spare you my opinion on this, at least for a while.)

Here is a quote from a 2012 study:

" . . . . a new analysis from the benefits consultant Aon Hewitt tries to keep things simple: 11 times your final working salary. That’s how much an average worker needs beyond Social Security payments to retire at 65, according to the report. The estimate takes into account inflation and future medical costs. It is based on the retiree maintaining the same standard of living.
Working longer makes a difference. At age 67, you would need 9.4 times final pay. Retiring early, of course, requires more savings—13.5 times final pay at age 62 ......."

Here is the full article:
http://business.time.com/2012/07/17/retirement-savings-11-times-final-pay-is-the-new-target/

Would you care to comment on this ?

 

[rhl-oregon]

Well, that math keeps things simple for us dummies (not including you in this census, Dave).

According to this metric, I've already wiggled under the limbo stick closing in on 62, with savings/pension. Of course I've been working half-time for slightly more than half my last FT salary for the past year. And I buy (good quality) clothes at Goodwill, cycle/ride the bus/walk, dine out little, have no plans to buy any sort of RV or cruise the world on a floating disco bar....

Serenity and happiness are not commodities, in any case at this age or any other. ;-)

 

[Roger Hicks]

And what the hell does "final pay" mean for a freelance?

For that matter, do you own your house free and clear?

Also, we're dealing with a "benefits consultant" here. Ho, ho, ho.

Cheers,

R.

 

[daveleo]

I will stir the pot a bit . . .

Here is why I think the article is arithmetic BS.

The "correct" arithmetic answer is always dictated by the assumptions and the constraints. How do we get to needing 11 years' pay saved? The average life expectancy for a man in the USA is 76. If you retire at 65 and assume that you will "maintain the same lifestyle", then (dictated by this assumption) the average man needs 11 years of his gross working-years pay stashed away for retirement. There's no rocket science to that arithmetic.

"The same lifestyle" ? Really? You're still raising kids? Paying a huge mortgage on a 4-bedroom house in a high real estate tax suburb? Still own two BMW's? Buying furniture? Adding on a garage? Renovating your kitchen? Really? After retiring?

There's another viewing angle here. Lot's of people are retired and doing very nicely. Did they stash away 11 years' pay?? What does it take to stash away 11 years' gross pay over a 45 year working life? If your interest/dividends gains from savings exactly tracked the rising COL increase, you needed to save 11/45 = 24% of your gross income for retirement every year for 45 years. I don't think anyone I know stashed away 24% of their gross income for 45 years, so there is definitely a disconnect between reality and what this guy is saying we need to retire happily.

"Happily". Tricky word. I tell my kids to be careful in equating happiness with how much money they have, "the pursuit of happiness and the pursuit of money go in opposite directions" is what I tell them.

Life's too short.

 

[David Murphy]

The often used rule of thumb is that it is safe to take 4% per year out of a good retirement nest egg, say at least $1,000,000 dollars for someone in late middle-age. That assumes the money is invested in conservative stocks and bonds - so called income and growth funds or level pay funds (a new version of that). At 4% it could draw down slowly and may not last if you retire say at 55 and live to 90 (there are calculators online to run scenarios).

I would consider a 3% draw a little safer. That means between $30,000 and $40,000 per year, which is a very modest life style for many, but if one has no other debt (say a paid off house) it's doable for many. One key element is to be completely debt free, and own your own home - always a good thing and particularly important as one nears retirement. If one has kids in college, heavy medical expenses, car payments, etc. the cash demands on retirement funds can be a challenge. Obviously as much money stashed away in tax advantaged retirement accounts is the goal.

In my case I was forced into to sort of a quasi early retirement in middle-age two years ago (like so many these days in America). As much a shock as it was, I had still prepared this event (I read the newspapers) and saved better than some. I had invested my 403b fairly heavily in stocks a few years ago and that paid off. I avoided major debts. I'd advise this to anyone hitting their late 40's now: never trust your employer and save as much in retirement funds as you can stand (and then some). You may need it sooner than you think. Good luck!

 

[Spanik]

"The same lifestyle" ? Really? You're still raising kids? Paying a huge mortgage on a 4-bedroom house in a high real estate tax suburb? Still own two BMW's? Buying furniture? Adding on a garage? Renovating your kitchen? Really? After retiring?

Life's too short.

You'd be surprised of the lifestyle of pensioners. Maybe they're not raising kids but they could have grand-kids they invest heavily in. Both my brothers did sell their house and bought a more expensive new one when they retired. Likewise a lot of pensioners really do makeover their whole house, sometimes even preparing for living with reduced mobility. Like larger bathroom with a bath you can step in with a door so you don't have to lift your legs, wider doors throughout the house, new garden with level paths. Or a second house in the country. An oldtimer. Yep, all very real I'm afraid.

 

[David Hughes]

Hi,

OTOH, you can shop at leisure and study the enemy, our expenses dropped a lot once we had the time to sort out what we needed and then track down the best value or best prices.

Regards, David

 

[daveleo]

What started me on this thread (2 months ago) was reading the article I linked to.

I retired 7 years ago. I can assure you that I did not have 11 years' salary stashed away for my 🙄 "golden years". (The best laid plans, etc etc). Yet our life is doing just fine in this regard, which is why I get pi$$ed at these fearsome warnings about the cash needed to retire.

It really comes down to cash flow. If you can look forward and make your cash flow plan work, then you can retire.
Get the house in perfect shape (we dropped $$$$$$$ renovating this place before retiring), pay off all debts and do the math. It's not nearly as bad as these magazines tell you.

If you wait to stash away 11 years' of your final salary, you will probably die working in your office, right below that picture of the sail boat on your wall.

 

[Paul Jenkin]

I work in the City of London but live in rural Essex. My wife likewise. We pay about £9,000 (combined) out of net salary - just to get to and from work. When (if?) we reach retirement age, we'll sell up and move to the comparitively cheaper north west of England - from whence I hail - or maybe Scotland and get as much distance between us and London as we possibly can.

We shouldn't have a mortgage and we will only need one car - an older and cheaper to run model.

I will have more (some!) time to develop my own film and I will, by then, have cured my "G.A.S." syndrome. Oh yeah....!!

I doubt we'll be living in the lap of luxury and there will still be bills to pay. However, I sincerely hope the 11 times final salary prediction is way off, otherwise we'll be living off baked beans and a tent will be our only shelter.

 

[Beemermark]

Here is why I think the article is arithmetic BS.

Getting very close to retirement and I agree with your assessment. While everyone circumstances are different 11x my final salary would mean I would have more (much more) retirement income than I bring home now.

Financial advisers have a very good reason to inflate retirement income requirements, it inflates their income. Buy mutual funds for retirement? The more you buy, the more the mutual fund company makes as an example.

Just like life insurance. While most people require some sort of insurance, especially if they have a family, the amounts they try to convince you that your family will need is ridiculous.

 

[Pioneer]

It really depends on your own expectations coupled with your bills added to your medical costs.

Money is rarely a recipe for happiness, but neither is poverty. The real key for a lot of us are medical issues. If medical is covered by the government or your retirement plan then it becomes a bit easier to calculate. However, there are never absolute guarantees and that is why the "benefit counselors" are able to make good livings.

 

[David Murphy]

Hi,

OTOH, you can shop at leisure and study the enemy, our expenses dropped a lot once we had the time to sort out what we needed and then track down the best value or best prices.

Regards, David

Yes I entirely agree with that. With more time one can take the time to budget more carefully, to cook at home, shop more carefully, and do all the little things that can save money here and there. It's not a huge savings, but it can make the money go a little farther.

 

[David Murphy]

Getting very close to retirement and I agree with your assessment. While everyone circumstances are different 11x my final salary would mean I would have more (much more) retirement income than I bring home now.

Financial advisers have a very good reason to inflate retirement income requirements, it inflates their income. Buy mutual funds for retirement? The more you buy, the more the mutual fund company makes as an example.

Just like life insurance. While most people require some sort of insurance, especially if they have a family, the amounts they try to convince you that your family will need is ridiculous.

There is no reason to have life insurance if one does not have dependents. One of the many disingenuous behaviors of the life insurance industry is to sell individuals with no dependents life insurance. It happens all the time. By dependents I mean a financially dependent spouse and/and or minor children primarily. The biggest of these legal scams is to sell life insurance policies for children to parents. It's often a whole life policy which is such a ripoff it should be illegal.

I hear ads for this sort of life insurance often and one of the pitching points is that it will help pay ones bills after one dies. In the USA if ones dies one's bills are paid out of ones estate (if there is an estate), and no one else is liable unless they are co-signers on a loan for instance. Once the estate is used up, creditors are entitled to nothing, so there's no financial calamity to protect family members from and no point of having life insurance, yet people buy it all the time - I am simply amazed.

 

[Lawrence Sheperd]

"Welcome to Wal-Mart! Can I help you find anything?"

…sigh