You might want to ask your financial advisor about annuities. I know they are often frowned upon, but there are a lot of options, including ones that will pay out as long as either of you is still alive.
Yes, you might do better with other investments. And yes, an annuity might take away a lot of the estate you hope to leave your heirs. But there is something to be said for knowing you’ll get $xxxx per month for the rest of your lives even if the stock market crashes.
I am using net income when i crunch my numbers. i put 20% into my 401k. Gonna move to a state income tax free state, etc. when i say 80% of current income that is what i mean. But i came here for advice, not to give it.
I was hoping actual retired people would tell me. Some of whom have and i appreciate it.
I wouldn’t worry about income. Or this guidance. Before I retired I plugged the numbers into various retirement calculators the financial services companies offer. They were all junk. Low income, low savings, you better save more. Increase your income and keep your savings a constant percentage of it, and they assume you’ll be spending more in retirement, so better save more.
Not that saving more is bad advice, but these things will never tell you that you are saving enough.
Figure out how much you will spend, talk to a financial planner about how much you can expect to make from your investments - which look to be in good shape - and add some padding for unexpected big expenses. Then you’ll be fine.
If you retire with a good bit of your money in post-tax investments, you can control your income. You can control how much your income is by taking the right amount out of your IRA to avoid the next tax bracket. If this is more than you need, you can put some in a Roth to keep it and its earnings tax free.
With the new tax law and its higher standard deduction I don’t pay a lot of federal or state taxes.
So I wouldn’t move to a state just to avoid taxes. I live in a high tax state and it’s not painful at all. And remember, some states with low or no income taxes have high property taxes which might affect you more.
Retired for 2 years now, spending is less than I expected. But it’s not a “typical” year since the pandemic limited a lot of travel/etc.
As far as the OP’s 80% question, we were saving 20% so we were already living on 80% of income. The amount of income after taxes and healthcare remained the same after retirement. After about 6 months, I reduced my IRA distribution about 30% because I wasn’t spending all of it. I’ve yet to increase it.
As of now, I’m using the IRA at a higher rate so I can delay SS. In a few years I’ll reach the point we calculated and start SS, reducing the IRA to compensate.
These rules of thumb seem pretty useless as they take no account of individual circumstances. I’ve just gone through my budget spreadsheet and removed expenses related to children and a couple of other things that won’t apply once we are retired. Our current lifestyle costs us about 60% of our current income. More to the point, our current lifestyle costs us only 35% of our pre-covid income. It doesn’t even work for specific individuals.
If I were you, I would work out what life costs now, what you can do without, what you may like to add, then add an “oops” buffer. That’s what your retirement will cost you. If that’s less than the retirement package they’re offering, great! Don’t forget also, that as you get older you can afford to gradually deplete your savings.
I just turned 60 the other day. Woo-hoo! I think that is pretty cool 
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My wife and I both still work. We currently have about 11x of our gross combined salaries invested. In retirement we think that we will spend 70-80% of what we spend now — we’ll eat out less, no commute costs, less on clothes, etc.
We re-fi’d recently and, with interest rates so low an we’re locked in at a good rate, we’re thinking that we may never pay off the mortgage. Why pay off a 2.5% loan when we can earn 7-8% on that money?
We are trying to get where @Telemark’s father is, where our principal can keep growing while we’re retired:
That’d be a great place to be. If we can achieve that.
When talking about the 80% or income, are you talking about gross, or net? Because it makes a big difference. For a standard US person, paying SS/Medi, and 401k, can account for over 20% of your gross. When you retire, that goes away, so thinking about matching 80% of your gross income is very workable, and keeps your net roughly the same.
For me, I have only my 401k, until SS kicks-in in a few years. I saved aggressively, and the markets have been good to me, so I’m at about 18x my pre-retirement income. I expect my drawdown to match pre-retirement pay, with a good raise once I get to SS. So far, so good (fingers crossed, knock wood, throw salt over my left shoulder,…)
A professor we knew when Typo Knig was in grad school said that between his military pension (WW2 or Korea, I forget which) and his university pension, he would be bringing in more than before he retired.
We probably have about 9x our total salary put aside (my figures in Quicken are not up to date). I played around with assuming we draw down 4% a year and it grows 5%, and obviously that is self-sustaining. I remember quipping to a financial planner “just tell me when I have to die”.
I added that 4% figure to our SS at full retirement age, to get pretax retirement income.
Then I looked at my current pay stub, and subtracted the SS / 401(k) to the net to estimate adjusted gross income for comparison.
Our retirement income looks like about 80% of that adjusted salary.
That doesn’t include a small pension of a couple hundred dollars a month - which won’t do much to the bottom line. Some of the income will be nontaxable, of course, between SS income being mostly taxable, and some of the retirement funds coming from Roth accounts. But it seems like a fair comparison, anyway.
I’d like it to be more. We have 2-3 years before we can even THINK of retiring, so if we’re lucky we can get the ratio of savings to income up to 10x or more.
What kind of changes are people thinking of making in retirement, to impact their budget?
We no longer have childcare expenses, of course.
Our automobile expenses won’t change much - we’ve only got one car (plus my son’s car) - unless we need to get a second one before we retire. And right now we don’t commute, so we won’t be spending that - though of course that could change in the interim. We spend almost nothing on clothing.
We live in a very expensive area. We have more house than we need right now, and would like to downsize to something single-level but one-story houses are nonexistent, while condos are pretty expensive and come with high monthly fees. Possibly still cheaper than the house - but not by as much as it should be. I’m not eager to move to somewhere cheaper because I hate the thought of going where we don’t know anyone.
Cheaper places might also be more expensive in other ways. Property tax rates, Medigap policy costs, alternative transportation if you cannot drive…
Medical expenses might go up a fair bit. Some money from my job will be available to pay Medigap expenses; I figure what that doesn’t cover may be pretty close to what we’re paying in health insurance right now, so that’ll be a wash. But I’m sure that even with that, out-of-pocket expenses will soar some years.
Part of my plan is to downsize my housing. Hopefully using the equity in my big house in a high cost of living area to pay cash for a smaller house in a lower cost of living area.
Paying cash for a house might not be the best idea. Why not borrow at 2.5% when you can earn 5% and that money? I get that argument. I would just feel better not having a monthly payment.
Has anyone found a good retirement calculator? I have many years of data in Quicken which shows how I have spent in the past. I want a tool to create future scenarios but would rather not start with a blank spreadsheet.
Here’s what I’ve found in the 4+ years that I’ve been retired: Between Medicare, Supplemental, and Dental insurances, we’re paying more each month in premiums than we did when I was working, because my employer was paying the bulk of my health insurance premium. My dental expenses have gone up, because stand-alone dental insurance is expensive, so I opted for a cheaper plan which doesn’t cover as much. But my overall medical expenses are about the same as pre-retirement, because my current health insurances (Medicare and Supplemental) have close to the same coverage as before. For instance, I had double-bypass surgery in 2019. Once I hit the relatively low deductibles, I paid nothing more.
I’ve discovered that these insurance premiums are about the only expenditure that has risen since retirement, other than the vacation trips that we’ve taken.
Because that 5% return is not guaranteed. If you’re 35 and you put retirement money in the market you can ride out bad times. If you’re already retired, and storing your savings in the market, you might be forced to pull it out to cover living expenses at low points in the market.
I’m not saying retirees shouldn’t store any money in the market, just diversify, and make different decisions about risk than you did 30 years ago.
RE: Health Insurance
I will be able to keep my employers health insurance. (still have to pay premiums) I am confused though about Medicare. Are you required to sign up for it at 65? part b, c etc.
Do i get rid of private insurance when i turn 65? pay for both?
Regarding Medicare: Here’s a good place to start:
https://www.medicare.gov/sign-up-change-plans/get-started-with-medicare
I use [u]**https://maxifiplanner.com/**[/u]. Not free, but darn good for what’s really a trivial amount of money considering the leverage these kinds of decisions have on your entire future.
Their basic idea is that your goal is to have a constant standard of living during your working and your retired life. The exact proportions of your budget areas may differ as you spend a bit more on medical and a bit less on cars. But broadly speaking if you’re used to spending $X/year now, you should expect you’ll be generally happy doing so UFN (properly adjusted for inflation). There is a bunch of explanatory text about how and why they believe as they do.
From there you can run a bunch of scenarios, including Monte Carlo simulations of your savings, consumption, market returns, etc. going forward. There’s room for lumpy distributions, early deaths, adding kids, and all the rest. It generates some real nice models.
Index funds and the like are great in saving for retirement. When you are retired, look at cash flow more than appreciation. If you can redirect your investments to generate more cash than you need to live on (considering pensions and SS) you’re portfolio will grow. Another advantage is that these are usually less volatile than the higher risk investments that make sense when you are 40. You won’t gain as much as the S&P rises, but you also won’t lose as much when it falls.
The goal of pre-retirement investing is to maximize the value of your investment when you retire. The goal of post-retirement investment is to have enough money for your needs and wants, and not to make your heirs rich.
I never realized this until I retired.
Regarding Medicare, I highly recommend JohnT’s very excellent thread as a good place to start, as well:
Presuming I go 4 more years at my present job, the pension is set and I can retire. I’ll be 60 at that point. I can keep my insurance at about what I’m paying now (less, actually, since the kids will be too old to be on our insurance). Maybe ACA insurance will be less, maybe not. We’re also planning on cashing out on our house, which will be almost paid for, and moving somewhere with a much lower cost of living. Since we’re right outside DC, that won’t be hard. Houses in our neighborhood are going for almost three times what we paid for ours, and a subway stop will be opening a couple of blocks away in a couple of years. We’re looking at pension +whatever Ms. P and I get in SS (not much for me) +4-500K in various funds. We should do ok, since we tend to be tight with money. There’s also likely inheritance; my parents never made much money but have a 50 acre farm that will be split between four of us. Ms. P’s parents are pretty well off. We’re not counting on any inheritance; we’d be fine with it going to our kids in the inlaws’ case.