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Spending More or Less in Retirement?

This topic contains 9 replies, has 0 voices, and was last updated by  Bainc 3 years ago.

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  • #177850

    norules
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    What do you plan to spend in retirement? That is the question most financial advisors ask. My answer, How the heck do I know. I assume everything will go up in price. However, I know that is not the case. Look at gas prices, food prices go up and down, travel prices go up and down.

    Do you plan on going on trips, buy more toys, start a hobby, buy a cabin, go out to eat. Even if you don’t, you may want the luxury to do so though. Do you want to say “Ooh, I would like to go on a cruise, but I can’t afford it” during retirement? Or you can say I can go on the cruise, but I don’t want to. I want to go to Washington DC for the museums instead.

    You also have to plan on spending more for medical issues.

    I try to maximize my financial plan by doing investments that I am comfortable with. There are many ways, stocks, mutual funds, real estate, banks, ETFs, bonds, and etc. You have to choose the vehicles that you are comfortable and best fit your goal.

    A question was asked about saving enough for retirement by people in there mid 40s. See question below. You have to know if you are on track to retirement by then.

    This is a question that was asked on Money.com. Other thoughts?

    http://money.cnn.com/2016/09/14/retirement/retirement-check-up/index.html?iid=hp-stack-dom

    “My wife and I are in our mid 40s, save 15% a year and have a 401(k) balance of more than half a million dollars. Are we on the right track toward retirement?–R.P.

    The fact that you’re saving at good clip and that you already have a sizeable amount tucked away in retirement savings about half way through your career suggests that you’re likely on pace toward a secure retirement, or at least not too far off.

    But it’s always smart to check now and then to get a better handle on where you really stand. After all, the last thing you want is to blithely assume everything’s going swimmingly only to find out when you’re ready to retire that you’re not nearly as prepared as you thought.

    That said, keep in mind that no assessment can give you complete assurance that you’ll be able to retire on schedule and live the post-career lifestyle you envision. There are too many variables, uncertainties and potential disruptions along the road to retirement for such certainty. But the idea is to come away with a decent sense of whether you’re on the right path and, if not, change what you’re doing so you can tilt the odds more in your favor.

    You can get a quick estimate of whether you’re generally on track by looking at your “savings to income ratio,” or how many times your annual salary you currently have tucked away in retirement savings accounts at a given age. For example, Fidelity Investments has calculated such ratios — or what it calls “savings factors” — for people age 30 and older based on a variety of assumptions, including that you’ll continue to save 15% of pay throughout your career and invest more than half of your savings in stocks.

    So, for example, if you earn $50,000 a year, plan to maintain your current lifestyle in retirement and expect to stop working at 65, Fidelity estimates you should have about six times your salary, or about $300,000, saved in retirement accounts by age 45.

    But if you figure your spending will drop by 15% after you retire, that six-times salary benchmark at age 45 falls to just four-times salary, or $200,000 instead of $300,000, as you won’t need as large a nest egg at retirement to sustain your lower level of spending.

    Assume, on the other hand, that you’ll live large in retirement and boost spending by 15%, you would need to have a higher multiple of salary set aside by age 45, an estimated seven times pay, or $350,000 in this scenario.

    The age at which you eventually plan to retire also affects how much you should have tucked away by a given age. For example, if the 45-year-old in the example above plans to retire at 62 instead of 65 and maintain his pre-retirement lifestyle, he would need to have seven times salary instead of six times by age 45 to fund those extra years in retirement. And if our hypothetical 45-year-old expects to hold off retiring until age 67 and maintain his pre-retirement lifestyle, he would need savings equal to just four times salary because he’ll be drawing on his nest egg for fewer years.

    In short, depending on the age at which this 45-year-old plans to retire and what type of retirement lifestyle he might lead, he might need as little as three times salary (retire at 67 and reduce spending by 15% in retirement) by age 45 to as much as nine times salary (retire at 62 and spend 15% more) in order to have a shot at meeting his retirement goal.

    You can gauge whether you have enough set aside in savings at different ages based on when you expect to retire and the retirement lifestyle you expect to lead by going to Fidelity’s Get Your Savings Factor calculator.

    While this savings-to-income approach is fine for giving you a general idea of whether you’re making progress toward a secure retirement, it’s also worthwhile to occasionally get a more customized and nuanced view of where you stand. One way to do that is by going to a tool like T. Rowe Price’s Retirement Income Calculator.

    Aside from allowing you to include such information as your current income, savings rate, retirement account balances, how your savings are currently invested and whether you expect to receive income from a pension or part-time work in retirement, this tool also gives you greater flexibility for factoring Social Security benefits into the analysis.

    That’s important because generally the more you earn during your career, the lower the percentage of your pre-retirement earnings Social Security will replace.

    And unlike many other calculators, this tool uses Monte Carlo computerized simulations to make its projections and then estimate the chance that you’ll be able to retire at the age you wish and have sufficient income to maintain an acceptable lifestyle. If you find your chances are uncomfortably low — say, less than 75% to 80% — you can see how making changes like saving more, investing differently or postponing retirement might boost them.

    By doing this sort of analysis periodically and tracking your chance of success from year to year, you can also see whether you’re making progress toward your retirement goal or falling behind (and thus need to step up your efforts).

    If you’re not confident about doing this sort of evaluation on your own — or you have other issues you need to address, say, whether to take a company pension as an annuity or lump sum or whether to downsize or take out a reverse mortgage — then you may want to go to a financial adviser who can crunch the numbers for you and help you consider your options. Many advisers aren’t eager to do this sort of review on a one-shot basis. But you can find advisers who are willing to work for an hourly fee or on a project basis by going to the Garrett Planning Network site. Planners in the network charge just under $200 an hour on average, although hourly fees can typically range from $175 to $250.

    Finally, remember that any evaluation you do on your own or receive from a pro gives you only a snapshot of where you stand now. Many things can change en route to retirement — a layoff could disrupt your savings regimen, a severe bear market could put a major dent in your savings balance, medical expenses or other unexpected outlays could force you to dip into your savings, etc. — so it’s important to do this sort of retirement check-up every year or so and make adjustments as needed. Put off this sort of re-assessment too long, and you may have to scramble to get back on track or, worse yet, relegate yourself to a more meager retirement lifestyle than you’d envisioned.”
    CNNMoney (New York) First published September 14, 2016: 10:18 AM ET

  • #295084

    Bainc
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    So many factors. Will your home be paid off? Will you downsize? (most don’t) Will you be able save at a much faster rate from your mid 40’s through your mid 60’s now that your kids are grown? I completely agree it’s difficult to know how much you’ll need. My rule of thumb is save until it hurts. Unfortunately, right now that’s not much.

  • #295080

    newmom
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    Hubby and I are mid 40’s, but our kids are still 14 and 8. Because of undergraduate and graduate school debt we didn’t start a family until we were 30. Many of my friends did the same. You will see many more couples start their families later in life due to college debt, which means they can’t start saving as much for retirement until later in life.

  • #295079

    LC
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    More. Our retirement income is the same as when we were working, plus anything we pick up with side work. I use Amazon income for vacations, and the side work income goes in the pot for that too. I’ll probably start taking social security in a year or two and that alone will carry us for any vacations we want over the year. The unknown is now mostly known, and our everyday living expenses are comparatively low. We’ll never go into to principal so we’re spending fairly freely, making sure we always have a couple of years of living expenses saved up just in case.

  • #295082

    norules
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    @lc 127681 wrote:

    More. Our retirement income is the same as when we were working, plus anything we pick up with side work. I use Amazon income for vacations, and the side work income goes in the pot for that too. I’ll probably start taking social security in a year or two and that alone will carry us for any vacations we want over the year. The unknown is now mostly known, and our everyday living expenses are comparatively low. We’ll never go into to principal so we’re spending fairly freely, making sure we always have a couple of years of living expenses saved up just in case.

    That is what I anticipate with my spending. I plan to spend freely since I plan to not go into principal. With retirement plans, private investments, Social Security, and money management we should be more than fine. Gone are the days of sitting at home waiting to die when you retire. So much is out there with technology and information that it is hard not to get excited about retirement. Eight to ten more years…

  • #295085

    Bainc
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    @newmom 127678 wrote:

    Hubby and I are mid 40’s, but our kids are still 14 and 8. Because of undergraduate and graduate school debt we didn’t start a family until we were 30. Many of my friends did the same. You will see many more couples start their families later in life due to college debt, which means they can’t start saving as much for retirement until later in life.

    This is very true but can be minimized with planning and hard work which is difficult for someone in their early 20’s. My wife and I were married while still in school. We both went to JC, lived at home from 18-20, worked while in school, lived in a mobile home after we were married instead of an apartment. We still had a modest amounts of student loans of about $20k. Then when my wife finished her teaching credential and began teaching we continued to live on one income and paid off our loans in under 18 months. We promptly started having kids still in our mid 20’s. School is now more expensive and people rarely get married at 22 & 21 anymore but there are things that can be done to minimize the damage of student loans.

  • #295083

    norules
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    Everybody’s situation is different. If someone can’t save in their 20’s, they can work longer to make up for that. Maybe that was their goal. Others want to retire in their 50’s, so they set their goals on that. Life throws real lemons at you and you have to roll with the punches.

    A friend just recently divorced in their 50’s. Very little retirement planning when married. She really wants to retire in seven years. After talking about finances and goals, she has straightened out her 401K a bit. I mentioned that she may want to consider working for at least 10 years to be more financial secure in retirement. She really doesn’t want to work an extra three years, but it is her decision. I am just trying to play devil’s advocate. She probably would be fine either way. I just don’t want her to have to cut her spending down so much during retirement.

  • #295086

    Bainc
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    Oh man, throw in divorce and throw out your plan. As I’ve heard numerous places the best financial plan is to get married and stay married.

  • #295081

    newmom
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    @bainc 127684 wrote:

    This is very true but can be minimized with planning and hard work which is difficult for someone in their early 20’s. My wife and I were married while still in school. We both went to JC, lived at home from 18-20, worked while in school, lived in a mobile home after we were married instead of an apartment. We still had a modest amounts of student loans of about $20k. Then when my wife finished her teaching credential and began teaching we continued to live on one income and paid off our loans in under 18 months. We promptly started having kids still in our mid 20’s. School is now more expensive and people rarely get married at 22 & 21 anymore but there are things that can be done to minimize the damage of student loans.

    Most people have far more college debt than 20k these days though-in fact, the average graduate has 37k in loan debt. College costs have increased, aid has decreased, and most families didn’t save enough for their kids….the result is far more graduates with a LOT of student debt. So imagine saving for retirement with 3 times what you owed. Would you still have been able to start a family and save? Would you have had to wait to start a family? We had 100k in school debt, most of it from hubby’s law school. That can’t be done at a JC. There was no way around it. We were married at 24 and he was still in law school. To have kids then would have been irresponsible as we could not afford them. We waited 5 years so we could get into jobs, pay off some debt, and buy a house.

  • #295087

    Bainc
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    I think we paid off our student loan debt even quicker. It actually might have been only 9-12 months. It’s been 12 years so I don’t remember all the details. I remember writing checks of about $1,500 per month because we choose to keep our lifestyle the same as we did on one income. I worked with many, many others in similar situations but they went on vacation, bought new cars, and always went out. We had a plan and stuck with it. Most 25 year olds don’t. I’m not saying anything about your situation just talking in general there are ways to minimize student loan debt even with the recent increases in education costs.

  • #295088

    Bainc
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    But I completely agree with your statement about people starting families, buying homes, and saving for retirement later with the tremendous about of school debt. It’s a huge problem, I’m only pointing out ways to avoid the student loans nightmare.

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