THE Retirement Thread (merged)

[smallpoxgirl]

Retirement? Aren't you the optimist.

[I_Like_Plants]

None. No income for one thing. and it's impossible to save, it's taken away from you no matter what you do.

Only things that can be "saved" are skills, knowledge of foraging, hunting, sniper skills, you can "save" by keeping yourself in good physical shape, and you can "save" in terms of, if you buy a tool or a gun or anything useful, never sell it.

Guns will get you through times of no money better than money will get you through times of no guns.

I plan to leave Mother Earth a legacy though by taking a lot of humans with me when I check out!

[roccman]

With inflation tapping on the door of 15%...I would say saving 15% is not going to cut it.

Retirement is like God, Santa, and the Easter Bunny...it does not exist.

[Denny]

Guns will get you through times of no money better than money will get you through times of no guns.

I plan to leave Mother Earth a legacy though by taking a lot of humans with me when I check out!

Somehow, I don't see improving my gun skills as a useful plan as I get older. If I manage to make it my 80's, I expect my co-ordination and eye sight will be pretty crappy, something I can't control - nor can you.

I hope you aren't actually looking forward to "taking a lot of humans with you". Its one thing by necessity, but I sense a certain element of optimism in your thoughts concerning this prospect. That is scary stuff.

[lawnchair]

Hard to say. I spend quite a bit less than I make, overall, and I don't make much in the national scheme of things. Being childless, being fairly happy (so not needing many toys), and living in a very, very cheap part of the country all help.

I also have debts, though. Student loans and mortgage. Paying just over the minimums on them, since at their absurdly low fixed rates, it's nice to have the flexibility now, and they're a bet on hyperinflation (which I don't think is probable, but as I boy I collected Hungarian Pengo and Weimar Mark postage stamps, so the possibility has always been in the back of my mind).

The question is, how little can you live on in 'retirement'? I assume I'll have the house paid off, and continue to have brutally simple tastes and no particular wanderlust. The only variables are the baseline cost of food (pasta, rice, potato, flour, lentils, beans + extensive gardening), basic utilities (wood heat helps here), non-health insurances, taxes, and health care. Subtract the last two, my life would fit pretty okay at $4000 a year and free time and I could quit pretty damn soon at quite young. I have no idea how bad taxes will get, though, or how much I'll eventually wish I had to spend clinging to life. Obviously, the cynic slacker in me is thus in favor of socialized (paid for by progressive taxation) health care. On a slightly less cynical note, I do think socialized health care would substantially contain the outrageous cost increases.

[mekrob]

I save nearly Allah it. But to be fair, I don't have many expenses that are of my own. And I don't really save it for retirement, but things that can be used to get me towards "retirement" such as knowledge, healthy food, books, bike, etc.

[Narz]

Guns will get you through times of no money better than money will get you through times of no guns.

That's one of the dumbest quote I've ever seen.

[mattduke]

I save 100%. When required, I dip into my savings to make purchases.

[Tyler_JC]

(Good idea for a thread!)

I try to save as much as I can, basically.

Currently I have some money in bank CDs, some money in a checking account, and some gold/silver.

Then again, I'm in college so I have lots of living expenses that come before long term savings.

When I finally get rid of my car I'll be in much better financial shape. It's ridiculous how much money I've wasted in gasoline, car repairs, and insurance.

I can get a monthly combined bus/subway pass for less than the cost of gasoline alone.

As for guns being a reliable source of retirement support...? I don't think old folks would survive in that kind of world/what do you do for health care?

[mmasters]

Living paycheck to paycheck at the moment. I have a few assets a good job and no debt. Plan to start saving soon.

[I_Like_Plants]

Somehow, I don't see improving my gun skills as a useful plan as I get older. If I manage to make it my 80's, I expect my co-ordination and eye sight will be pretty crappy, something I can't control - nor can you.

I hope you aren't actually looking forward to "taking a lot of humans with you". Its one thing by necessity, but I sense a certain element of optimism in your thoughts concerning this prospect. That is scary stuff.

Denny I don't know what off-brand you're smoking, but almost no one makes it to 80 or more years old in the US. Those who do, are rich, have medical care, etc. That's not true for almost all of us. Most of us are on borrowed time after 60.

Assuming I haven't died fighting the Chinese hordes in my 50s, yeah I plan to take plenty of 'em with me in my early 60s, I can't hope to live long than that.

You Canadians, Brits etc must live in some kind of fairyland social-welfare state or something.

[eastbay]

Done it.... by saving 20% every year for the last 15 years of my working life... a bit more including tax returns, etc...

The capitalist financial guru's are speaking the truth here. Cut back on everything and make 20% happen somehow. Even if things unwind suddenly and deeply, you'll still be very happy to have something to fall back on.

I realize some of you younger people, especially those in college, may not see the need... but you too will be happy you saved like a maniac and embraced frugality.

[Specop_007]

Right around 20%. Based on projections, I could still come up short on what I want when I retire.

[I_Like_Plants]

(Good idea for a thread!)

When I finally get rid of my car I'll be in much better financial shape. It's ridiculous how much money I've wasted in gasoline, car repairs, and insurance.

I can get a monthly combined bus/subway pass for less than the cost of gasoline alone.

As for guns being a reliable source of retirement support...? I don't think old folks would survive in that kind of world/what do you do for health care?

Typer - smart to get rid of the car when you can .... just off the top of my head, AAA figures from a few years ago, the average American is spending about $8k a year to own and operate a car, which means they have to earn about $13k to do that since they're paying with after-tax dollars.

As for guns ..... Well, do you really think we are actually headed for anything better? I'm talking about conditions as they are now, most of us will be on borrowed time if we make it past 60, only a few of the rich are going to make it into their 80s. That's how it is NOW. Think about how it will be in say 20 years and on out. Scary.

The fall of the US Empire may, sadly, take England and Western Europe down with it, to where what was once the "Western world" will be republics run by despots under Brazil type social conditions.

[SpringCreekFarm]

I saved a bunch in the past under tax sheltered investments that went bust when the dot calm bubble burst. I cashed out most of what was left to help buy this farm from my aunt.

Once I started scrutinizing retirement for what it's supposed to be, I realized I didn't need that much money to live on. The models I looked at were geared to fancy vacations and really didn't take into account that expenses are much lower when the mortgage is paid and the kids are out of school. I saw it as a mechanism to keep money flowing into investment more than a way to take care of ME and MINE down the road. All of it is based on a growing economy and we all know where that may be headed.

Having said that, I did this past year, save a bit in a tax-sheltered bond that will give me a better tax return this year. A Canada Savings Bond is about as much risk as I'll take and it's convenient to buy.

I've also paid into the Canada pension plan for over the last 25 years or so that I've worked. That may be enough to keep me if I live to be 60 or if it isn't there, then surely no other fund will be either I'm thinking. The pension I pay into at work, I don't think will be there for me at all and I pay a LOT into that! I just see it as another tax, really.

I believe in investing in home infrastructure rather than money markets. You can't literally eat money. You can build a more self-sufficient homestead.

[hubbertspeak7777777]

Spend all my extra cash on booze, cigarettes and fast food (with extra mayo and butter), so I don't have to worry about retirement... hopefully when I'm 50-something I'll just fall over and never get back up.

This qoute sums it up perfectly...

"With inflation tapping on the door of 15%...I would say saving 15% is not going to cut it.

Retirement is like God, Santa, and the Easter Bunny...it does not exist." - Roccland

[lowem]

Currently saving 20-30%. Elizabeth Warren, in her book "The Two-Income Trap" advocated saving one income and living on the other. So we're targeting 40-50%, but haven't quite managed to reach that.

[topcat]

Not quite sure, maybe I'll look into it at tax tiime. I am cure whatever we put away is not going to be enough.

Here is something I have posted above the PC in our home office (not sure from whom):

'Assuming 2% annual inflation, the amount you'll need to withdraw from our portfolio 20 years from now to equal $40,000 in today's dollars: $59,000'

Yes, 2% inflation is nowhere near where we are now (in the US), and yes who knows if the Earth will still be here 20 years from now, but seeing the numbers gave me a wake-up call.

[FoolYap]

I don't think the question to answer is, "What percentage of your income to save?", but "How much annual income do you need to live?" and "How much do you need to save, and in what ways, to generate that much annual income?"

You must answer the first question I posed, in order to answer the second.

You must also make some assumptions to have any confidence in the answers to either of them. For example, "What annual cost-of-living inflation?" affects the first -- if you can live on $40,000 in 2008, but cost of food, heating, clothing, etc keeps going up 10% a year, you probably can't live on that much in 2018.

You must also make some assumptions about the annual return on your investments, as well as the period you expect to be needing it, to have confidence in the answer to your second question. For example, ideally the amount you have saved will throw off $X (your answer to the first question) for as long as you live. If you can live on $40,000 a year, you'd better be really certain the value of your investments don't go to zero -- either because you're withdrawing too much, or because their value drops -- while you need that income stream.

I can't get perfect answers to some of these questions, so I don't sweat it much; I use rough but plausible numbers. I think of this as navigating a boat (which may make sense only because I've never done that ). I need a compass bearing now, while I'm still a wage-earner. I don't need to know precisely where I'm going, just where I need to go to make landfall. I figure as I get closer to the "shore", I will still have time to trim my course as needed. And, frankly -- and assuming the S doesn't HTF and destroy my ability to save money, and if it does, it kinda moots the whole set of assumptions I've made about how to saving for retirement so that's another issue to tackle separately -- if I find myself nearing "shore" (desired retirement age) and I'm still not where I need to be, I'll just keep sailing (working) until I reach it. No biggie, assuming I'm not 80 when that happens.

A web site that helped me greatly in this regard is The Retire Early Home Page, where you will find a lot of discussion over this issue, as well as some calculators that are based on back-tested results. (This is not to say that they are infallible, just that they are based on something, so that gives me a little more confidence.)

For me, I have reduced that web site's charts to a simple-minded percentage that helps me to answer question #2: I assume that I can withdraw 4% of my investment, "safely". (Meaning, that my withdrawals will never cause the nest egg to hit zero.)

That's a simplification, because that site's charts require to make other assumptions, like, "How many years do you expect to need this income?" and "What mix of stocks/bonds do you expect to have?" But screw it; I use 4% as a "steer-by" number for now. (It's actually more like 3.85% IIRC, but like I said. I'm making the math easier for now.)

So, what if you assume you can live on $40,000 a year? Let's forget cost-of-living inflation for now; "steer-by" numbers, remember. Then this answer to the first question lets you get an estimated answer for the second question: 4% of $1,000,000 throws off $40,000 a year.

If you wanted to live "better", and want $50,000 annually, then that raises your total to $1,250,000.

If you can live on $30,000 annually, that drops your total to $750,000.

After all this, if you can answer those two questions, then the answer to "what percentage to save annually" mostly just falls out of the math. It does depend on other assumptions, like, what rate of return do you expect your investments, while you are making (not withdrawing) them, to give you? And, do you expect your income to be stable or growing? (If not, try to front-load your % as much as possible, because $10,000 invested 20 years from retirement is worth much more than $10,000 invested right before your retirement.) Etc.

Like I said, lots of caveats in there. But I've used them to make what I expect are very conservative predictions of our annual savings rate, and I measure where we are at the end of every year. So far, we're beating the predictions. I'm also not assuming any income from social security, just to be safe. As I get closer to retirement age, I'll figure out what inflation has been doing to my expected annual income needs -- if I can't live on $X any more, then I'll need to keep saving, or figure out how to live on less.

--Steve

[FoolYap]

I should add, that the Retire Early Home Page's idea of "safe withdrawal rate" isn't a simple idea that says you're investing in a passbook savings, and so the 4% is just the interest you're getting.

Rather, it assumes that you will make some investments in stocks (S&P 500 index, IIRC), and some in bonds. It assumes that there will be years when the stock-based portion will lose value, and some when they beat the hell out of your safe withdrawal rate (SWR).

The back-testing I mentioned looks at rolling windows, back in time. So if you choose the "30 years of withdrawals" column of their charts, then they've used a 30-year-wide window, looking back in time at results of the S&P 500 index and T-bills, to see if the withdrawal rate you want to use had ever caused your investment to it zero. 1900-1930, 1901-1931, 1902-1932, etc. If not, then the SWR is judged "safe". Its not to say that it might not be worth very little at the end of 30 years, but it's still a positive value.

And yeah, if we're going to experience the financial equivalent of a 1,000 year flood soon, then it blows the snot out of things. But like I said, at least the numbers are based on something other than speculation. Can't ask for more than that, if you want to try to answer these questions at all.

And there's nothing to say that you can't decide to save more than needed, or withdraw less than you could. Some people I know want to use very small SWRs, like 2%. Go for it.

Me, I'm ever so glad other, math-savvy people do this kind of thing for me.

--Steve