Retirement Savings Question

[Kramer]

Just curious about fellow budgeters thoughts on retirement savings. Specifically... what percentage of your pre-retirement income is your goal for retirement. I have read a lot of personal finance advice that suggests to aim for 65% of your pre-retirement income, but now I'm starting to see more and more people recommend shooting for 75%.

What is your goal?

 

[mrsg00fy]

It depends on the lifestyle you want during retirement. The assumption is that some of your preretirement expenses will cease.
We want to travel a lot. We should have no mortgage or any other debt. We figure on 1 car instead of 2 that we now have. With that being said, my goal is 100% of preretirement income. We don't want the constraints of a fixed budget to determine that we can not do the things we have always dreamed of.

 

[dvcgirl]

Just curious about fellow budgeters thoughts on retirement savings. Specifically... what percentage of your pre-retirement income is your goal for retirement. I have read a lot of personal finance advice that suggests to aim for 65% of your pre-retirement income, but now I'm starting to see more and more people recommend shooting for 75%.

What is your goal?

We aim high...80-90% is our goal, and we're not counting on Social Security. Why? Healthcare costs. However, we also plan on doing a lot of traveling when we retire and would like the option to retire in our mid-50s if we so desire.

I've never seen 65% as a number...generally the recommendation is 70-80%.

We also calculate our returns very conservatively so that there aren't any ugly surprises down the road. I heard Dave Ramsey on the radio the other day pretty much guaranteeing a caller that if she saves $1,000 a month in mutual funds for 30 years she'll have 3.5 million. Man, that sounded high to me and so I plugged the numbers in when I got home...he's calculating her return at 12%. I know that the stock market has seen returns in that range over the last 80 years, but man, if that woman only sees a small return in the first ten years of that 30 year run....well, she sure isn't going to end up with 3.5 million. I just thought that it was unrealistic to by throwing out those numbers.

 

[disneysteve]

I'm with mrsg00fy. We're shooting for 100%. I expect some expenses to be lower - no child to provide for, mortgage paid off, etc. But I expect some expenses to be higher - travel, dining out, healthcare costs. I'd rather end up in retirement with too much money than not enough.

 

[EthansMom]

My goal is about 100% of our current income and we're 20-25 years from retiring. With the increasing health insurance costs, inflation, and a desire to lead active lives in our retirement (travel & maybe sail), 100% is more likely to be a little low than too much money.

 

[dvcgirl]

I'm with mrsg00fy. We're shooting for 100%. I expect some expenses to be lower - no child to provide for, mortgage paid off, etc. But I expect some expenses to be higher - travel, dining out, healthcare costs. I'd rather end up in retirement with too much money than not enough.

That's us too....more than enough is what we want . And we want the option to retire at a young age....even though I'm sure we won't...lol! But we aim for 80-90% as a high number because we are able to save over 40% of our net income now. Once we retire, we'll no longer have to save. I know that number is very high, but we're high income earners and without a mortgage and children it's not difficult for us (that whole living beneath our means deal we talk about so much around here). We've also always used 7% as our goal as far as rate of return. We're already nicely ahead of schedule on that, even with the downturn in 2000. It is amazing when you play with the interest rate...if we got anything close to 10%....man, our nieces and nephews (our heirs) will be happy campers .

 

[PrincessDadx2]

Those numbers are published by people who make money selling investments. To reach 100% of income you would need to save 25 times your salary given a 4% safe withdrawal rate that ensures you will not run out of money. Possible, but not realistic for most people.

People who have actually retired on www.retireearlyhomepage.com and message boards report they actually spend about 35% of their old salary. This assumes you have paid off you mortgage and have no debt.

Salary-income taxes-SS taxes-retirement savings-mortgage-debt payments-college & other savings etc = about 35% of gross income. I know this is true in my case. On a 100k income I spend about $3k per month after savings and mortgage interest.

The big variable is health care, but if I was retired and had more time I could probably cut my current expenses 10-15% by smarter shopping and that would help cover some of it. Worst case Social Security is projected at 70% of my promised benefit and that would also help. Could also take a reverse mortgage if that was needed.

My personal goal is to shoot for 50%. I think saving 12.5 times my salary is realistic and is a good balance that will allow me to retire at 60 if I choose.

 

[disneysteve]

we are able to save over 40% of our net income now. Once we retire, we'll no longer have to save. I know that number is very high, but we're high income earners and without a mortgage and children it's not difficult for us (that whole living beneath our means deal we talk about so much around here).

LOL! We're right there with you. In 2005, we saved 27% of gross income. I just did a quick calculation and came up with a bit over 39% of net. And that's with a child and a mortgage.

 

[ChristyJ]

We just upped our percentage going into retirement-with longer life expectancies too, you have to consider being around for awhile!
We also want to travel and treat our kids (and their kids) to things like a trip to WDW or help with the down payment on a house. I'm 36 & DH is 38-we have 8 years left on our mortgage (then oldest DD will be heading to college...with younger DD to follow 2 yrs. later). We currently have no car payments (and own 2 cars) and pay off anything spent on credit cards every month. I'm hopeful that we're in pretty good shape, but you never know what the future will hold...

 

[dvcgirl]

LOL! We're right there with you. In 2005, we saved 27% of gross income. I just did a quick calculation and came up with a bit over 39% of net. And that's with a child and a mortgage.

Well, see how nice it is when the wife goes back to work . Steve, I think you'll retire with 120% of your income...lol!

 

[disneysteve]

Well, see how nice it is when the wife goes back to work . Steve, I think you'll retire with 120% of your income...lol!

I remind DW every day that every dollar she earns is one less dollar I have to earn before we can retire. Prior to her reentering the working world, we saved 16% of gross, which isn't bad at all, but with her working it is far better.

 

[PrincessKitty1]

People who have actually retired on www.retireearlyhomepage.com and message boards report they actually spend about 35% of their old salary. This assumes you have paid off you mortgage and have no debt.

My personal goal is to shoot for 50%. I think saving 12.5 times my salary is realistic and is a good balance that will allow me to retire at 60 if I choose.

Thanks for the link! Lots of interesting posts, but I couldn't find any posts from people who are actually retired and who mentioned the percent of their old salary that they're living on.

 

[Feralpeg]

After having been retired about two years, I can tell you that it costs me about 85% of what I lived on prior to my retirement to live now. Of course, I moved from the midwest to Florida, so there is some adjustment there. DD is still living at home. I think this amount will drop a little once she goes off to college, but not much.

 

[dvcgirl]

Those numbers are published by people who make money selling investments. To reach 100% of income you would need to save 25 times your salary given a 4% safe withdrawal rate that ensures you will not run out of money. Possible, but not realistic for most people.

People who have actually retired on www.retireearlyhomepage.com and message boards report they actually spend about 35% of their old salary. This assumes you have paid off you mortgage and have no debt.

Salary-income taxes-SS taxes-retirement savings-mortgage-debt payments-college & other savings etc = about 35% of gross income. I know this is true in my case. On a 100k income I spend about $3k per month after savings and mortgage interest.

The big variable is health care, but if I was retired and had more time I could probably cut my current expenses 10-15% by smarter shopping and that would help cover some of it. Worst case Social Security is projected at 70% of my promised benefit and that would also help. Could also take a reverse mortgage if that was needed.

My personal goal is to shoot for 50%. I think saving 12.5 times my salary is realistic and is a good balance that will allow me to retire at 60 if I choose.

Well, not all of this information is written by people who sell investment vehicles for one. And 35% is not realistic for most people (is SS included in that number or separate?). You'd be living a very frugal existence on retirement with that type of income. Trust me, my DH and I live far beneath our means and are able to save 40% of our net income, but living on 35% of our income would be *very* tight. We wouldn't be leaving the house much, let's put it that way. And, we have no debt...no mortgage...nothing. On 35% we're not going to starve, or be homeless, but we're not traveling and enjoying ourselves like we do now...that's for sure. Most people when asked, respond that they expect to live a better quality of life in retirement than they are right now. And for most people that won't be the case. And it surely won't be the case trying to survive on 35% of your income.

 

[DMRick]

Although our pension and income is more, we are actually using about 50% of my husbands previous income. My income always paid for private school and college, so we wouldn't need that now. The 50% covers all our living expenses, and most of of our traveling (we bought a new RV and Truck just before retirement, and paid it off once we did retire, and just purchased a new car with good gas mileage). We have good savings, for those times we want to treat the kids and grands to something special. Our expenses are much much less with the kids all out of the house, and colleges and weddings all paid up. We retired early, thanks to GE offerings at 55 for my husband, (I was 50 at the time). He took my retirement money with the state out when my job moved, several years ago and reinvested it well, and so I get to get more at 60, than they would have paid me...and that money is available if needed.
He could have worked longer, and we would have gotten a better retirement (as it is, GE pays as if he is getting Social Security until he's 63), but then, well, he would still be working.
We do eBay on the side and I have a Desk Top Pub business that suppliments our income for extra's above and beyond (even more trips than we had planned on), and allows me to only work when I want to.

We liked to live and have fun before we retired, and not always just think about retirement, and we did.
Life is good!

 

[dvcgirl]

After having been retired about two years, I can tell you that it costs me about 85% of what I lived on prior to my retirement to live now. Of course, I moved from the midwest to Florida, so there is some adjustment there. DD is still living at home. I think this amount will drop a little once she goes off to college, but not much.

That sounds like what we're aiming for Peg....and I read your posts...you have a nice life . I have a nice life now and I want to continue that trend in my retirement years .

 

[Julia M]

Wow, I'm not even sure what we are saving!!

Maybe I'll ask dh today what we are doing.

I do know that dh is not planning on social security for us, nor is he adding in any of my benefits when he runs numbers. He has told me that he will consider my retirement benefits (my pension, my 401k) our "play" money.

When figuring how much we will need of our current salary, I just don't think we'll need as much as some people, since so much of our income is directed towards the kids.

Thanks for the reminder.

Julia

 

[DMRick]

When figuring how much we will need of our current salary, I just don't think we'll need as much as some people, since so much of our income is directed towards the kids.

Julia

That's what we found Julia. It's amazing how much of our income was because of the 3 "kids". We could actually live on much less than we do. Right now I buy whatever I want, without thought...but if we had less money, I would certainly be more careful. Each time a kid graduated from private high school and then college, we felt we got a hugh raise. Then the 2 girls wedding's and the boys partial wedding expenses..wow, what a difference having them all off on their own makes LOL! We just hit our 5th year of retirement, we go to Disney (from NYS..and usually values, sometimes mods) 5 or 6 times a year, plus a couple much longer trips and lots of camping with friends. I'll also be getting SS in 7 years, which will be another raise!

 

[PrincessDadx2]

Thanks for the link! Lots of interesting posts, but I couldn't find any posts from people who are actually retired and who mentioned the percent of their old salary that they're living on.

You need to get to the message boards. Here's a few sample:

http://early-retirement.org/forums/index.php?topic=492.0

http://early-retirement.org/forums/index.php?topic=4993.0

You'd be living a very frugal existence on retirement with that type of income. Trust me, my DH and I live far beneath our means and are able to save 40% of our net income, but living on 35% of our income would be *very* tight. We wouldn't be leaving the house much, let's put it that way. And, we have no debt...no mortgage...nothing. On 35% we're not going to starve, or be homeless, but we're not traveling and enjoying ourselves like we do now...that's for sure.

Totally a question of values and income level. My grandparents retired on their farm and $7,000 per year social security in the 1980's and had a great life. My wife's mom has lived comfortably the last 10 years on $1,000 per month. My 35% includes 4 weeks in Disney World, so I am not being denied anything.

On the early retirement board people value freedom above all else. Many people keep working at jobs they hate even though they have more than enough to retire because they are trying to reach 80% of their income (which is based on the financial press, not any actual retirees).

If what the financial press sells is true then the baby boomers will never retire and we will have a disaster, but it ain't gonna happen. I would also recommend "Get a Life, You don't need a Million to retire well", by Ralph Warner. Excellent book on how to achieve what you value with time to enjoy it.

 

[dvcgirl]

You need to get to the message boards. Here's a few sample:

http://early-retirement.org/forums/index.php?topic=492.0

http://early-retirement.org/forums/index.php?topic=4993.0



Totally a question of values and income level. My grandparents retired on their farm and $7,000 per year social security in the 1980's and had a great life. My wife's mom has lived comfortably the last 10 years on $1,000 per month. My 35% includes 4 weeks in Disney World, so I am not being denied anything.

On the early retirement board people value freedom above all else. Many people keep working at jobs they hate even though they have more than enough to retire because they are trying to reach 80% of their income (which is based on the financial press, not any actual retirees).

If what the financial press sells is true then the baby boomers will never retire and we will have a disaster, but it ain't gonna happen. I would also recommend "Get a Life, You don't need a Million to retire well", by Ralph Warner. Excellent book on how to achieve what you value with time to enjoy it.

The Baby Boomers will retire....eventually. Just a whole lot later than the generation that came before them. We're transitioning in this country from a pension-based retirement to a market-based retirement where workers need to have done the majority of the savings themselves. And that simply isn't happening at the rate that it needs to be.

As for the financial press, Money magazine recently did a whole series on retirement. The slant was..."How you'll live a great retirement...and why it won't be what you were expecting!" Just paraphrasing, but you get my drift. In those pieces the authors pretty much go on to prepare readers that you "live that great retirement" by finding something you love to do for a living...because you're going to need to do it for much longer than you though. And it won't be what you thought it was going to be....because you'll still be working....lol! There are sooooooo many things that can go wrong with ones portfolio (even following all the rules and remaining fairly conservative), which is why planning on actually being able to survive on 35% is a nightmare waiting to happen. I'm not talking about the dinosaur called a "guaranteed pension". I'm talking about those of us who are going to be fully funding our own pensions through 401Ks and other personal investment vehicles.

What if your retirement rests solely in the market, which is where many of will be. Well, what if those first years in retirement you don't see the return you expect? Now what? Live on 30%, 25%. No thanks. The most successful retirees are those who underestimated their returns and those who plan on needing more than they may actually need. Anything to the upside is a huge surprise. In other words, I'll take the icing on the cake if its there when I arrive, but I'm planning so at least I have a whole cake .

Again, we're very frugal people. Not many people in their 30s can save as much as we do. Almost all of our friends spend nearly every cent they make. But still, living on 35% of our income would mean a very bare exisistence...and then really, what have we worked and sacrificed for all these years?