It really IS in how one looks at things.
Take, for example, the statistical data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal in this article on Boomer retirement.
The statistics themselves are not encouraging:
The median 401(k) plan for folks ages 60 or 61 holds only $149,400, including plans from previous jobs. To figure the annual income from that level of savings, analysts looked at what the family would get from a fixed annuity. They found that $149,400 would generate just $9,073 a year.
The median income for the folks surveyed was $87,700.
Wow! And I thought I was behind!
In fact, the survey found that only 8% of near-retirees had saved the $636,673 necessary to generate 85% of their prior income that the analysts thought necessary for a comfortable retirement.
But that's where I part company with the analysts.
I agree with Morrison at All Doors Considered, who first brought this survey to my attention. I just don't see that I or most other retirees will really need 85% of their prior income.
I know, for myself, that I currently pay for a mortgage, and I put away a third of my income in my 401(k) as part of a belated attempt to pump up my retirement savings. Both of these expenses will be gone by the time I retire.
I also note that the analysts posit that folks will have to retire later, whereas I wonder if that is more of a "want to" than a "have to." Again, for myself, my work is an important part of who I am. Right now I do have to work until age 69 to attain the savings I think I will need. But I strongly suspect I would stay employed at least part-time past age 62 or 65 even if I didn't have to.
Morrison thinks retirees won't travel as much as they believe they might in the first days after retirement. I don't know that I fully agree, but I do know that as a retiree, I'll be able to take advantage of last-minute discounts that I currently cannot as a working woman with an employer who wants to know well in advance as to when and how long I'll be gone.
One place where she's wrong is when she says seniors willingly give up their gourmet coffee. NOT THIS SENIOR! But I do buy the coffee in bulk and make it at home most days.
There are a ton of interesting comments made on Wall Street site--good reading.
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15 comments:
I'm with you and Morrison on this one. We live on slightly less that 1/2 of our pre-retirement income. In part because of cutting a few expenses (house cleaner, gardener, work clothes, etc.) and in part because we spend less on travel and entertainment. Ironically, we travel about 10 times as much as we did before retirement, but we travel a lot less extravagantly -- great trade off in my opinion.
But the biggest ticket items are, as you say, no longer contributing to retirement accounts, and our taxes are virtually nothing now. Plus we weren't spending anywhere near 85% of our income even BEFORE we retired!
That's why I hate those "rules of thumb." The only way to know how much you will need in retirement is to project your own living expenses in retirement (do a detailed budget.) Yes it takes a little more work but it gives you a real answer, not a made up one.
For the record, my husband and I have made a pact today that we intend to go at least once per week to our local cafe and order up 2 cappuccino's to stay. We decided we are NOT giving up the expensive coffees anymore. For $6 it's a v good deal to be out and about. We always meet someone we know, start up a chat and it's a very good thing.
At home, I bought a new Tassimo single brew coffee maker that makes thee greatest Starbucks primo latte or Gevalia decaf cappuccino at a cost of $1.21 per cup. So, we have it both ways, home or out.
Being retired means you get to choose how you want to live. So, we'll do both!
I thougth the statement "Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s..." applied to a couple. So if that's the case, Grace, you're in even better shape!
Nope, but I believe that people don't know what retirement really costs. The reason?
Most people retiring or retired have PENSIONS and medical from state retirement plans and companies. Something that people 30 years out from retirement don't have and won't have. Thus maybe they don't have a lot of retirement assets saved, my mom had $180k saved, but a 70% pension for the rest of her life. So there's her 85% most paid for without saving.
People who are 60+, who worked for the same private company get medical premiums and pensions. Not going to happen in the future.
So will people who are 30 (like myself need 85%)? Yes likely. Why? We won't have the chance to buy a medical plan in retirement otherwise. We likely will have to cover more if they cut medicare cost. Neither of us have a pension, we need cash in a 401k.
Example, to generate my mom and MIL's $5k/month pension or $60k/year they needed to save $1.5M in a retirement account with 4% withdrawal rate. Not even close.
Hence why pensions are killing states and companies. But great for retirees. People don't realize how much they need to retire when they don't have a guaranteed monthly pension and ability to buy extra medical insurance. Medicare doesn't pay for everything and if they cut costs, when do you use most medical care? When you retire.
Most of the money may not be drained when you are a 60 something retiree, but probably 80-something retiree about to die. Sorry to be morbid. But that's when the bills and long term care will be racking up and eating away at the carefully preserved nest egg.
LAL--I think you are a generation behind the times. Your parents are in the minority. My father had a great pension as a longshoreman. But I'm almost 62 and I don't have one. Neither do most of my friends, except those that work for the government or the school district--they traded wages for security and right now, they look smart.
$5000 a month? Bit steep, wouldn't you say? I make it on $3000 a month and run 2 houses, so really I could be living on less if I wanted to. Being mortgage and debt free is more of a realistic goal than savings in a bank.
I am making it on 60% LESS than what I earned when I was working, raising a family and had debt up to my eyeballs.
Add it up. What would your bills be right now if you didn't have to pay a mortgage, car or student loans, credit cards, home equity, etc. etc.? You'd be very surprised to add up just your utilities, food and gas bills. Makes a HUGE difference. My biggest bill now is my health insurance which is 20% of my monthly expenses. Still, no big whoop! When I turn 65 that big bill will be gone. (hopefully. fingers crossed)
Rather than have a big 401K, people should aim to own their own home by 65 and get rid of all of their debt by that time also.
Just a thought and my 2 cents.
oops, i got the percentage wrong. we live on only 40% of what we did before i retired 10 years ago. throw in inflation and we're still doing well. considering.
My husband and I are 42 and 46. We both have 401's(being layed off right now Im not donating to mine) which we max out. We have 2 IRA's and we do have stocks.
Neither one of us will get a pension. Our house is paid for but we are concentrating on getting all of our debt paid off in the next 18 months then hit our retirement accounts at full speed.
We do plan to travel when we retire, hopefully we will. Staying debt free will be a big help though
judy
For the last six years of his working life, my 64-year-old husband worked for a company that provided a pension, but you can imagine how small that pension might be with so few years. You're right, Grace, that a whole lot of us 60-something's don't have pensions, either. He was continuously employed all his working life. No pension. I've worked as a writer my entire working life, so I of course had no pension, either. We saved. We maxed our contributions to the 401K, just as 30-something LAL is doing. We were also the go-to people for our extended family when life dealt them financial blows. When retirement came years earlier than anticipated due to a reoganization that occurred at the beginning of the recession, we weren't young enough to hope for years to regroup and make up the difference. A fragile family member depends on our financial stability, so we must provide not only for ourselves but provide some backup for that other family member. That's not as unusual a situation as many would imagine in these times. However, I find, as you might have noticed, too, Grace, that in this recession, articles and some blogs have expressed growing animosity against us boomers. It's easy to point at those who overspent, but we're also often people who put ourselves through school, worked and saved all our lives, never lived above our means, and are now thirty-something's moms and dads, helping out when needed and trying to figure out how to best stretch our savings.
travel and living well like morrison. My parents returned from Asia recently in january, my in-laws as well. My in-laws are going to Baja in march and europe this summer probably again to the french open. My parents are planning a trip probably to cambodia and they'd love to do india or africa.
but for sure they are going to head east to visit us and my sibs at least 3x this year. So $5k is just what my mom makes and my MIL. My dad and FIL make money too. That's just their pensions.
My mom and MIL pay $0 for healthcare because my mom worked for the government and MIL is foreign.
And they own their homes, my parents have 4, my in-laws 2. And I'd guess they are all millionaires but they don't drive fancy cars, but they retire well.
They do not need to "budget" food costs or worry. They travel and enjoy life a lot. They eat out with friends pretty much daily, have internet, cable, DVR, etc. They saved and worked hard and retired at 55 (they are only 58 turning 59).
As they say they are busier now than before. They certainly are giving retirement a good name.
Grace, I think about 50% of people who are in their 50s and 60s I read still have pensions. Half, those under 50 the number starts to decline significantly. In the 20-30s bracket it's something like 15%. So while it doesn't seem like a lot, I think a lot of people blue collar and white collar who are boomers do have pensions. They are the last that do. And 50% of them is not a tiny number.
And I'd say since the 1980s medical has started to get cut drastically. Thus it's impossible to really predict what our portion of medical care will be in the future.
I agree that LOL is a bit behind on the pension thing.Very, very few people retire with pensions today. It is the exception, not the norm. I have an extremely small pension, but my husband was a government worker. Non government employees are unlikely to see pensions these days. I travel, own a home (still making mortage payments) and think I live will and I dont spend five grand a month-and thats with a college student still semi dependent. I cannot imagine spending five thousand a month.
I don't think 85% is exaggerated for some people.
Too many what ifs. Retiring younger, you will need a bigger buffer for inflation and far more unknowns.
Depending on your tax situation, you can need more. I am a tax professional. The prevailing myth is that your taxes go down in retirement. This is simply not true for many retirees.
My parents were forced into early retirement (unexpected disability/layoff, etc.). My dad is looking for work but not sure he will find it. Their assets near $2 mil so they will be just fine. They only lived on 1/3 of their income. For now, their tax bill is zero since they are living off investments, unemployment, etc. I have warned them not to get used to it. Once SS kicks in, and RMDs for IRAs, they will NEED social security to cover the huge tax bills. The average person doesn't have a clue that Social security income is taxable (if you have ANY other income too).
These are just a few things to consider. My spouse temporarily retired from the workforce (to raise kids) and we tend to be overly idealistic. IT has been an eye opening experience and we are planning more 85% replacement income in retirement than the 50% we thought we could easily live on, before. Our health insurance went up about $15k per year, in just a few short years. I appreciate the younger we retire the less prepared we will be for these sorts of changes (completely out of our control!). So we probably aim to work longer and replace more income, after this experience.
Goodluck to you! I hope you can achieve your goal and reach your savings before you retire. But working even after retirement is ok in my opinion. That way you will stay productive and in touch with society.
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