THE Retirement Thread (merged)

[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

[eastbay]

Excellent fool yap,

One can also decrease the amount saved if you have a pension or other steady reliable income.

If you and your spouse each have a $10,000/ year pension you can decrease the required total by $500,000. Pensions can disappear too, so don't put all your eggs in this nest.

We all know it won't last forever, so social security income should probably not be included in a long term plan... nice if it's there, but don't plan for it.

Plus, if your house is paid off you can decrease the size of the total sum accordingly.

[FoolYap]

If you and your spouse each have a $10,000/ year pension you can decrease the required total by $500,000. Pensions can disappear too, so don't put all your eggs in this nest.

Yeah, I would be cautious about making plans based on any "money" that wasn't in an account that had only my (or my spouse's <g>) name on it, under my direct control. Many companies have been ditching their pension obligations lately, and barring some backbone and will to make legislative changes from Congress, I expect that trend to continue.

Plus, if your house is paid off you can decrease the size of the total sum accordingly.

Good point. We are planning to have the house paid off before retirement; it's an essential part of our assumptions. (We're actually reducing what we could otherwise be saving now, and throwing it against the mortgage instead. Many people will recommend against that, but I'll sleep better when the only house-related bill I have is the annual real estate tax.)

--Steve

[Ferretlover]

We had a bit of a shock this week at work. It seems we management people will be shifted to a new type of pension, more of an "a la carte" approach, instead of a defined pension from the company, we will (at our option) contribute to a "defined contribution" fund which the company will match, up to 6% of our gross income, and we can choose among various investment options. Our existing entitlements will be frozen where they are as of June 30. The company is concerned that its carrying too much of the pension coverage risk.

With all the talk this raised, among people in the mid 40's to mid 50's, I was surprised to see how many had no familiarity with different savings schemes. And, so many who were carrying substantial debts, beyond home mortgages. I am talking here about people who make from the low $70K to low $90K range per year, and have to understand business measures, etc.

Most came across as if the company pension (along with the government pension) was their only retirement income plan. I just have to wonder, how do people think they'll survive 15 to 30 years of inflation after they retire with no additional savings?

I also see this chart, below, and what surprises me is that the bulk of the baby boom generation should have paid off their mortgages by now, but the average personal equity in real estate is actually shrinking as a proportion. This is a real cause for concern as the population ages.



From Grandfathers Economics

I remember hearing of hard times back on the farm as a kid, about the rough times in the thirties with mortgages and the like and I have shunned owing money. But, I thought all baby boomers went though that same litany from our parents and grandparents.

[Plantagenet]

IMHO, the Baby Boomers are screwed.

--Companies are cutting retirement benefits.
--The social security "trust fund' is a farce.
--The US is flooded with illegal aliens, producing surplus of workers that drive salaries down.
--Corporations are off-shoring to cheaper labor pools.
--Bubbles in stocks and real estate have popped
--Costs for fuel, food, taxes are going up rapidly
--US politicans of both parties have been dishonest about social security, peak oil, the costs of globalization, etc. etc.

And, worst of all, US workers seem to no longer be willing to go on strike or fight for their wages and benefits. People just accept all the cuts and losses.

[Ferretlover]

This is a real cause for concern as the population ages.

Or, not so big a concern as the population Doesn't age due to starvation, disease, and war.

[peaker_2005]

We had a bit of a shock this week at work. It seems we management people will be shifted to a new type of pension, more of an "a la carte" approach, instead of a defined pension from the company, we will (at our option) contribute to a "defined contribution" fund which the company will match, up to 6% of our gross income, and we can choose among various investment options. Our existing entitlements will be frozen where they are as of June 30. The company is concerned that its carrying too much of the pension coverage risk.

With all the talk this raised, among people in the mid 40's to mid 50's, I was surprised to see how many had no familiarity with different savings schemes. And, so many who were carrying substantial debts, beyond home mortgages. I am talking here about people who make from the low $70K to low $90K range per year, and have to understand business measures, etc.

Most came across as if the company pension (along with the government pension) was their only retirement income plan. I just have to wonder, how do people think they'll survive 15 to 30 years of inflation after they retire with no additional savings?

I also see this chart, below, and what surprises me is that the bulk of the baby boom generation should have paid off their mortgages by now, but the average personal equity in real estate is actually shrinking as a proportion. This is a real cause for concern as the population ages.



From Grandfathers Economics

I remember hearing of hard times back on the farm as a kid, about the rough times in the thirties with mortgages and the like and I have shunned owing money. But, I thought all baby boomers went though that same litany from our parents and grandparents.

Acutally that sounds a little like how super works here. It works fine as long as the market isn't crashing

[Ainan]

You think baby boomers have it bad? I'm 21, i have half a century till i 'should' retire. Will pensions even exist then? Will the government even exist? More importantly, will i even be alive to need it? What should young people like me do?

My first though is to have kids to support me and a cache of physical gold. Any baby boomers with 200 gold coins in a hidden floor safe will do better than the others with their corporate savings scheme which could be worthless at any moment.

[Plantagenet]

Don't worry. Obama has announced a plan to raise social security taxes again and save the SS program.

His plan is similar to the past plans.....first you extend the retirement age and reduce the benefits and raise taxes even higher so you are taking in more then the program pays out.....then you promise to put the money into a "trust fund" and promise the program will now be solvent forever.

[Ferretlover]

You think baby boomers have it bad? I'm 21, i have half a century till i 'should' retire. Will pensions even exist then? Will the government even exist? More importantly, will i even be alive to need it? What should young people like me do?

You should be fine. There will be lots less people, so there will be lots more (worthless) money available for your old age!

[Tyler_JC]

There are plenty of good places to invest your money in order to provide for retirement.

Social Security isn't one of them.

I'm basing my retirement off of the idea that I will never get a penny in social security.

So are my parents and they are in their early 50s.

[jasonraymondson]

DELETED...

[bodigami]

You think baby boomers have it bad? I'm 21, i have half a century till i 'should' retire. Will pensions even exist then? Will the government even exist? More importantly, will i even be alive to need it? What should young people like me do?

My first though is to have kids to support me and a cache of physical gold. Any baby boomers with 200 gold coins in a hidden floor safe will do better than the others with their corporate savings scheme which could be worthless at any moment.

I'm 22, hmm... if I have to give only 1 advice to fellow humans in my same generation it is: prepare to die. Seriously that gives a huge amount of freedom of mind, happyness and serenity. Meditation is the tool I've found more effective to prepare to die (it also works for other mental enhancements).

I thought that overpopulation was something that all on this forum have at least thought about... For reproduction basically ask yourself:
will you feel good having offspring before TFSHTF and not know what kind of pain will they live? Isn't reproducing while leaving a crap legacy (what older generations did to our generation!) something to feel bad about?

No, I prefer to survive TFSHTF and then reproduce. But I'm already prepared to die so I'm fine with both outcomes. Hey, chances are that surviving girls have some adaptation, and be more fuckable on avarage (I've compassion towards all humans but am also honest about survivors... people with obvious genetic diseases are much less fuckable... in a "perfect" society they should live but NOT reproduce)! But this strategy works better for boys, because our fertility doesn't deteriorate so drastically after a relative young age.

[hubbertspeak7777777]

You think baby boomers have it bad? I'm 21, i have half a century till i 'should' retire. Will pensions even exist then? Will the government even exist? More importantly, will i even be alive to need it? What should young people like me do?

My first though is to have kids to support me and a cache of physical gold. Any baby boomers with 200 gold coins in a hidden floor safe will do better than the others with their corporate savings scheme which could be worthless at any moment.

I'm 22, hmm... if I have to give only 1 advice to fellow humans in my same generation it is: prepare to die. Seriously that gives a huge amount of freedom of mind, happyness and serenity. Meditation is the tool I've found more effective to prepare to die (it also works for other mental enhancements).

I thought that overpopulation was something that all on this forum have at least thought about... For reproduction basically ask yourself:
will you feel good having offspring before TFSHTF and not know what kind of pain will they live? Isn't reproducing while leaving a crap legacy (what older generations did to our generation!) something to feel bad about?

No, I prefer to survive TFSHTF and then reproduce. But I'm already prepared to die so I'm fine with both outcomes. Hey, chances are that surviving girls have some adaptation, and be more fuckable on avarage (I've compassion towards all humans but am also honest about survivors... people with obvious genetic diseases are much less fuckable... in a "perfect" society they should live but NOT reproduce)! But this strategy works better for boys, because our fertility doesn't deteriorate so drastically after a relative young age.

I've pretty much accepted the fact that I'm gonna die (and probably young) and I'm fine with it. I've accepted the fact that even in the best case scenario, I won't live past my 40's. If some kind of dieoff occurs, I will be one of the first to go.

I've also decided that I'm never gonna have children. There are two reasons for this... 1) the shitty future we face. 2) I'm genetically inferior and I don't want to piss in the gene pool.

Btw, can you recommend any good books on meditation?

[vision-master]

Don't worry. Obama has announced a plan to raise social security taxes again and save the SS program.

His plan is similar to the past plans.....first you extend the retirement age and reduce the benefits and raise taxes even higher so you are taking in more then the program pays out.....then you promise to put the money into a "trust fund" and promise the program will now be solvent forever.

Most current, as in "the Geezer" generation retires depend on SS for OVER HALF of their income as we speak.

Many Boomers will ONLY have SS + a worthless 401k/ 403b plan. Also, many Boomers have large 30 year mortgages and huge credit card debt. AND with a higher age required for full benefits the Boomers will take home even LESS. The Geezers are setting good.

Without SS MOST Boomers and their offspring will be homeless and penniless. That's a FACT! AND if you think you can work till death, dream on. MANY disabiling diseases HAPPEN in you're 50's. IF you think you will beat the odds chances are you [s]won't.[/s] may not.

Example. Couple makes $150,000 year, lives the good life and THEN retires,,,,,,,,,,,,,,,,,,,,,,,,,, ON What?

[hubbertspeak7777777]

Don't worry. Obama has announced a plan to raise social security taxes again and save the SS program.

His plan is similar to the past plans.....first you extend the retirement age and reduce the benefits and raise taxes even higher so you are taking in more then the program pays out.....then you promise to put the money into a "trust fund" and promise the program will now be solvent forever.

Most current, as in "the Geezer" generation retires depend on SS for OVER HALF of their income as we speak.

Many Boomers will ONLY have SS + a worthless 401k/ 403b plan. Also, many Boomers have large 30 year mortgages and huge credit card debt. AND with a higher age required for full benefits the Boomers will take home even LESS. The Geezers are setting good.

Without SS MOST Boomers and their offspring will be homeless and penniless. That's a FACT! AND if you think you can work till death, dream on. MANY disabiling diseases HAPPEN in you're 50's. IF you think you will beat the odds chances are you [s]won't.[/s] may not.

Example. Couple makes $150,000 year, lives the good life and THEN retires,,,,,,,,,,,,,,,,,,,,,,,,,, ON What?

That's why the average life expectancy is going to plummet. Instead of the average being in the late 70's, it's going to be in the early 60's, maybe even lower. There will also be an increase in the number of suicides of retirement age people.