Here’s an interesting retirement projector:
You can put in some starting values and it will project forward to estimate various retirement balance scenarios over time. It also includes projected lifespan probabilities, so you can get an idea of how likely it is that you will outlive your retirement savings.
Quite. But …
That presupposes one has enough principal to invest mostly / entirely for income and earn enough to meet their needs and wants and keep up with inflation enough to be comfortable about the risk of price inflation reducing the real assets to penury during one’s expected lifespan.
As I mentioned above I’m not quite there. And I have no 3rd party pensions. This story isn’t about me personally, but I’m an example I think of a lot of people whose retirement nest egg is just meh versus their needs / wants / whims.
So even post-retirement I need to be investing some for growth to protect the out years. An all-income strategy leaves me slowly losing to inflation and/or skipping all the whims and a bunch of the wants.
The folks in harder spots have no room for whims or wants and will be scrimping on the needs. Which will only get worse for them as they age and inflation chips away at the real value of their assets while they spend all the income and maybe even some principal.
for people looking to retire early, they aim for about 25x their annual expenses. they feel a 4% annual withdraw rate is pretty much sustainable for multiple decades while still conserving principal (these are people retiring in their 30s and 40s), so 50x your spending would basically ensure your estate is worth several times it’s original worth when you pass away.
another thing to consider is taxes and expenses should hopefully be different in retirement.
your taxes will be lower, your mortgage will hopefully be gone, your kids will be independent. plus you won’t need to save 10%+ of gross income for retirement. maybe before retirement you spend (of your gross income) 25% in taxes, 10% on mortgage payments and 10% on saving for retirement. after retiring those numbers may be 15%, 0% and 0% respectively. but health care costs go up.
This wasn’t really practical for us, since we bought our first house when I was 55, and we could barely manage the payments on a 30 year mortgage at first. Thanks to rapid growth of property values in the first few years and again in recent years, and advantageous re-financing, we now own at least 50% equity. Since we don’t have children to inherit the house, to me that means, at a pinch, we could do a reverse mortgage and have quite a bit more spending money now, and a much smaller estate to leave behind. We could, but I’m glad we didn’t, because I’m no longer convinced I want to live here the rest of my life.
All good. But …
There should a factor there for where you have been and now are on the food chain. E.g. somebody who lived their whole life on $20K/yr probably needs a larger multiple than somebody who lived their whole live on $200K/yr.
The latter person has lived and will retire with a lot of luxuries that can be cut if need be. The former person has had none of that and any forced cuts will be from basics like food and a roof over their head. Not cutting out the 3rd 2-week European cruise this year or the new leased car every year.
As well there are two sorts of folks in retirement. Those where e.g. 90% of their expenses are fixed: such as insurance, car and house and boat and club and credit card payments on a large balance, versus those folks where all that fixed stuff is just e.g. 30% of their spending and all the rest is stuff they can do this month but stop the next like travel, eating out, adventures, donations, gifts, etc.
Being in the former situation is very comfortable. But also very brittle & risky. The latter is much less likely to encounter a disaster when the market or economy turns sour for a few years.
Said another way if you want to be, or need to be, or already are, in the former situation, you’re going to need a larger multiple than if you’re in the latter situation. Even if in both cases you’re spending the same e.g. $100K/yr.
The former person may not need a bigger multiple this year, but it’s a virtual certainty that over a 20 or 30 year retirement they’ll have some years where that larger multiple is the difference between ongoing future success and financial disaster.
I’m not sure what you are considering assets.
Clearly you still need to diversify. But when you are investing for retirement, income producing stocks and funds are probably too conservative, and your relatively high tax rate will eat into the return.
Clearly you shouldn’t put 100% of your investments into anything, and betting on high inflation is just as much a mistake as betting on no inflation. The things I have still gain value, just not as fast as more aggressive funds. Plus, good companies are going to produce dividends that track inflation. We’re not talking about putting all your money into CDs here. And depending only on iffy pensions is a problem also. But I’m considering investments where you have some flexibility.
I was responding to a case where principal will grow after retirement, which is cool. Sure, not everyone can produce enough money to keep from spending some of their capital. But income generation is something to measure which I don’t see very much of.
Bottom line here is that I never guessed that my strategy after retirement would be so different from what it was before retirement.
I this we’re saying something similar just with different emphasis on different parts of the same elephant. All good.
I just retired. Financial planner rejected that 80% rule for a more complex analysis that takes inflation and market fluctuations into account.
I’m “making” 50% of what I did when working. But expenses are minimal. No commute, no lunches out with coworkers, almost no mileage on my car.
After the pandemic, I had trouble spending 50% of that 50%. Now that things are opening up, I’m spending more time in bars and coffee joints, so all is good.
My point is, don’t buy into a “rule of thumb”. Find a planner you trust. And hopefully… retire! I’m ridiculously happy sitting on my porch (which is free) and sipping my Lacroix/rum/bitters/lime concoction (almost free).
I’m in the same situation. My primary extenuating circumstances was that I inherited a relatively new house with no mortgage which I am using as my primary residence.
I was very cognizant of the fact that I needed to adjust to living on a reduced income, and rein in a lot of the casual spending that I did when working.
A few weeks ago I met with my financial advisor, and pretty much the first thing he said was “You’re allowed to spend some money, you know”……so I’ll say that I adjusted to my reduced circumstances pretty well.
I’m 53. Last I checked I have $1.3M in my 401K.
Thing is, I don’t want to be married to my wife anymore. I’m not sure what to do at this point.
Most likely, that should probably be stated as “in our 401k”. Most all assets are going to be shared no matter whose name they are in. Look at all the assets and debts in the marriage, such as the house, your 401k, her 401k, bank account, savings, etc. and all that stuff would be split.
You hopefully have another 30-40 years to go. You can easily work another 10. That seems plenty of time to go in whatever direction would make you most happy.
Sorry, @Crafter_Man, but I have to agree with @filmore. You’re going to have to restructure your retirement plans.
Or, as the saying goes, ‘it’s cheaper to keep her’.
Depends on the size of her 401k I suppose.
I can probably retire now, at 60. But my wife and I are pretty conservative and we want a nest egg that should weather any storm (market unrest) that’s likely to come.
I plan on retiring in a few years, I will be in my late 50s. Get on my wife’s insurance until I am eligible for Medicare.
Retirement income until Social Security and my 401k will be my pension (not much as it was “froze” several years ago), rental houses we have bought over the years (fully paid for), and maybe some token part-time job. Doing some expensive work on the houses now while I can afford it such as new roofs and driveways so those large expenses I can pay for now while my income will cover it.
House I am living in was paid off recently and all the kids will (should?) be out of the house so expenses will drop. Figuring I will be bringing in, minus yearly expenses on the rental houses, about 1/2 of what I am making now at my job. Add the part-time job, maybe 3/4.
As a somewhat humorous side note our life insurance insurance agent offered us a free financial/retirement consultation. Got some useful information and of course we could use more life insurance and move some funds around, but he also offers, for a fee, ongoing financial and tax advice as an additional service of their company. I asked “so approximately how much are you going to save us or make us in money each year?” He said “just a cursory glance from going over your numbers, probably a couple of grand.” I said “how much is your service going to cost?”. He said “based on a percentage of your total portfolio, around $2,000 a year”. I said “I am supposed to pay you 2 grand a year to maybe save 2 grand a year? That doesn’t make much financial sense”. He back-tracked a little bit and when the meeting was ending he said to think over his offer for him to be our financial advisor. I didn’t tell him the decision was made 10 minutes ago.
On Friday, our financial planner spent half an hour convincing my wife she could retire at the end of the year. She did say we’d never have enough nest egg to weather anything. “If you waited for that, you’d never feel like you have enough, and you’d never retire.”
One way to make sure you’re covered for unexpected expenses is to delay SS until you’re at the max. I know there are Excel spreadsheets to optimize payouts, but waiting until you get the max payment is one way to make sure you will be getting the largest SS payment possible for the rest of your life even if you lost everything else. That’s going to be my strategy. A large SS payment will be my insurance policy against outliving my regular retirement savings.
Max payout is at age 70. And if you wait that long, rather than taking SS at your full retirement age, you need to live to age 82 to hit the break even point, and past it to come out ahead with SS. At least that’s what I’ve read.
I’ll be retiring on a combination government pension, SS, savings and assets. The longer I wait, the higher the pension, but I doubt I can realistically put up with the job much longer than about 15 more months.
You can start to get Social Security as early as 62, or as late as 70, but for my age bracket, “full retirement age” is 67. It annoys me a bit that it’s that late.
I put my numbers into a spreadsheet, and it was sometime between age 81 and 82 that I would reach the breakeven point. Given that my Dad lived to be 95 and Mom is still alive at age 100, I decided it would be prudent for me to wait until age 70 before I start drawing.
I just checked on My Social Security, and the difference between starting my draw now (I turned 68 in February) and waiting until I’m 70 is 450 bucks a month.