If you make a median income for forty years, set aside 10% of your income into savings into a low-risk investment vehicle, don’t live extravagantly, avoid health issues and avoid debt, you will have a very satisfying retirement.
I kind of lived like that. My retirement fund was worth about $950,000 half from my contribution and half from my employers. In addition my wife and I had totall savings in the neighborhood of $700,000. Our house is worth something like another $700,000 in a poor market (it is assessed at just under $800,000, but I don’t think I’d get that today). So we live well in retirement, but I wouldn’t call us rich by any means. If I were rich, the only thing I would do differently is travel first class. Oh, and buy an apartment on Plaza St. W in Park Slope, Brooklyn.
I expect my life support equipment will be tied directly to my bank account and will automatically shut down when the balance = $0. It should only take a couple of minutes – maybe I’ll last a few days if I accumulate some wealth in advance.
Either way, I’ll die broke.
In a way, this comes back to how you define rich. Do you define it by assets or by consumption?
I have a family member who could not consider herself “successful” without a lot of truly frivolous spending. In fact, every time she feels depressed about being broke and unemployed, she goes to Starbucks. (Nope, not making that up.) Starbucks lattes are just the tip of the iceberg. For example, she’s concluding that the Seattle area is too expensive to live in because she wants to rent a house with a yard, which is pretty much a $2000/month proposition around here. But for $1200, she’d have the same living space in an apartment and save herself $10,000 a year. My advice: take the apartment, bank the 10k. At the end of five years, take your 50k plus interest and make it a down payment on a house. Now she’s got a smaller mortgage and is saving perhaps 5% interest expense on 55k for the next 30 years. That’s how you turn $800/month into $130,000. (And since her job qualifications will earn her 20k/year more in Seattle than in her hometown… well, you do the math and don’t forget that she’s 40 and cashed out her 401k while she was unemployed. :smack: )
When you die you will likely have had extended health problems that cost an enormous amount of money. So it mostly depends on what the health insurance situation is in your society.
I too am a fan of regular investing in low cost S&P 500 index funds. It is easy to understand and over the span of one’s working life, pretty much certain to make you very comfortable, if not wealthy in retirement.
This calculator shows how a $2000 annual IRA contribution ($167/month) from 1980 would have grown tax free to an account worth over $950,000.
(This assumes that the calculator was set to increase the monthly savings for inflation and ignore taxes - and that the investment is left untouched through market crashes and peaks).
The period 1980-2015 would be saving from age 30-65 and retiring this year. To emphasize the Time Value of Money, if this same plan were carried out from ages 25-65, the ending value is $2,000,000. From 20-65 it would be $3,500,000!
Compound interest is your best friend…(and I learned that late in my career).
Waiting until later to start saving/investing is the worst financial mistake I ever made.
Die rich? no. However I’d like to believe that 200-300k in savings (adjusted for inflation obviously) would be enough along with SS to get me through 20 years of retirement.
I plan on having nearly 10x that to have a comfortable retirement doing what we want.
That was a lot like my mother-in-law’s plan, and it worked fine provided that nothing bad ever happened to her. After some medical bills came along, she spent the last six years of her life dependent on Medicaid, which allowed her to keep $59/month for discretionary spending.
But it’s not like medical bills are a common concern for old people… no way she could have anticipated that. :smack:
I am seriously considering moving to central or south america when I hit my 50s due to medical expenses (I’d prefer a western european nation, but am not sure I would quality to emigrate tehre). The medical costs in this country are too insane.
250k invested should yield about 1000-1500 a month for the duration of retirement.
Another reason to buy a Medigap/Supplemental policy. That 20% coinsurance on Medicare can easily end up being serious money.
That $100,000 bill after a heart attack or stroke means you pay $20,000.
Indeed. I’m rather wealthy by Thai standards, but once we move back to Hawaii, with it’s high cost of living, I’ll probably once again be just another of the sweating masses.
I think medicare only covers something like 60-65% of medical expenses when you retire. The other 35-40% is Medigap, Medicare D, long term care insurance and whatever isn’t covered by medicare. I think right now an average person needs 100k in retirement to pay for medical care not covered by medicare and that number will grow rapidly I’m sure.
I figure I’ll work until I can’t anymore, and hopefully not last too long after that.
Going off on a tangent here (and you did say any contingency), but I’ve never heard of a centenarian who needed a 24-hour caregiver for the final 20 years of her life. Super-old people tend to lead a hearty life until the very end, while the sick elderly don’t make near that age.
I’ve seen this sort of attitude to then justify the decision “…therefore, I will do nothing.” Not saying that’s what you are doing at all; just something I’ve noticed with others.
For myself, if “X” = “how much you should have to have a comfortable retirement” (or fill in other goals, if you like), I would rather have 60% of X rather than 0% - at least I’m closer. That’s why I save 10 - 12 % of income. I figure even if I run out of money when I’m old, I’ll still be better off than if I did nothing.
I think the problem with a lot of the quick formulas such as 4 times the last year’s earnings is that it glosses over many possible outcomes. Not just bad ones, but good ones too. Real retirement planning is more complex than that, but you can get help to do it.
Many financial advisors (aka brokers) can run a retirement plan for you for free. I’ve done this. You fill out this survey form of current assets and expectations. Then they run the program and it produces a report. What is different about the reports done now than it was years ago, is that it uses a Monte Carlo simulation. If gives results in the percentage of obtaining reachable goals. Previous retirement planning was too simple, it just figured for the most part 8% return on investments on average. But doing this now with showing your chance of outcomes is much better I feel.
For example, your ideal situation might only have a 50-60% chance of outcome. While your more modest outcome has a 80-90% chance. What is very useful about this, is that if you are given these kinds of possible outcomes you can plan for each of them. So if your ideal situation is you summer in one location, winter in another and take expensive trips, while at the the more modest outcome is you live in one location and travel occasionally, you can better plan your life for each of these. There are no 100% guarantees at anything, but this helps you at least decide how you might want to live and what you are willing to do about it now. If your ideal situation is obtainable if you give up the expensive trips now and not get a boat, or whatever, then you can make a choice about it.
You also might not want to live in your current home not only to reduce costs but to be close to things that are of interest to you.
I spoke with an experienced Financial Advisor who has many retired clients. He told me of two areas where people have problems they didn’t consider. One is having to financially take care of other family members. He said this ranges from someone who genuinely is in a rough situation to others who continue to use the retiree as a personal cash machine. The other is people don’t take into consideration that they may become ill and this changes their financial situation.
As for health you can get insurance and long term care insurance. As for others coming to you with their hand-out when you retire because they know you have money (or think you do) that’s something you need to establish early on that you aren’t going to be bailing people out all the time because they expect you to continue to do so.
Seriously, how far are you from retirement age? There are things you could do now.
I know a fellow in his 30s who told me he never expects to have enough money to retire. I told him that’s silly because he has about 30 years to do something about it.
To some extent, it depends on just what type of medical expenses you’re talking about.
For my mother-in-law, it was a long period of needing assistance 24/7. That started at 6,000 per month (and reached 10,000 per month before she died), and wasn’t covered by Medicare or her supplemental insurance. It could have been covered by a Long-Term Care policy, but she didn’t have that.
Once her money ran out, Medicaid was happy to pay for everything. While that was a blessing, it was also not the way she wanted to live out the last few years.
Contrast that to my wife’s ex-husband’s mother. She could afford in-home care and managed to afford it for 20 years, in fact, passing away at 102. My mother-in-law always resented the difference between their situations, but it was at least partly of her own choosing. (In fact, mother-in-law had so little interest in saving or planning financially that we discovered she had opted out of an employer-paid life insurance policy because it wasn’t going to do her any good, was it?)
We have the same attitude. If you can’t pay off the credit card bill each month, then you are buying things you simply can’t afford and shoul wait until you have the cash to do so. I have a friend who spends more than he earns and has done so for decades. He told me recent, I thought he was going to cry that he feared dying before his wife and leaving her with this huge debt in credit card bills, 2nd mortgage, HELOC, personal loans, leased cars, expensive vacations, etc. Then two weeks later he showed off a brand new car he bought that he clearly didn’t need.