When Is It Enough? (Retirement Funds)

[MrsPete]

What would be your "snapshot" and how much do you think it would take???

My husband and I talked about this earlier this week. We have a definite idea of what we feel we need to fund the retirement we want, and we feel we're on track to making it happen:

Pre-retirement: Provide our children with enough help that they can earn a bachelor's degree in a profitable field and graduate debt-free. We won't hand them a blank check, but we'll put them close enough that -- with effort on their part -- they can enter their adult lives with a blank slate, not behind the eight-ball. I hope they choose to live close enough that we'll see them frequently, and I'd love to have grandchildren at our house often. If my daughters choose to work, I'll help them with child care, though probably not on a day-to-day, everyday basis.

At this point in our lives, we're debt-free, and we hope to stay this way. Going into retirement without debt will greatly reduce our needs. Our daily expenses will be decreased: we won't be saving for retirement, we won't be saving for our children's educations, the children will be out of the house, and we'll cut back to one car.

We'll sell our large house (not a fancy house, but located in THE location) for a good profit. Buy a mortgage-free townhouse or condo that'll be comfortable for the two of us; this will free us from something we hate: yardwork.

My pension will be fully funded, and it will be enough for our basic needs: utilities, groceries, etc. I expect we'll also receive some Social Security, though it's hard to say how much.

We'll have a significant amount saved; our goal is 2 million. We hope to use only a small portion of this each year. We'll use this for travel, to replace cars every couple years, etc.

We want to travel in our retirement years. We're shopping right now for a resale Marriott Vacation Club membership. That'll allow us to travel in luxury at moderate prices. We'll also do missions work with our church.

We are concerned about medical costs. Along with my pension, I'll have basic insurance paid through my former employer. And I can purchase insurance for my husband. We will certainly need to pick up some additional insurance. This is something I need to investigate further.

 

[C.Ann]

I guess you could say that I'm "retired" now - although I didn't reach this phase in the normal way - it was a rather unpleasant way, but still..

My DH passed away and I sold our family home - which had no mortgage on it - in order to pay off some debts that remained after we had already spent everything we had on his medical care over the course of his 10 year battle with cancer and a multitude of other health problems.. Thanks to the fantastic renovations my son-in-law did on our home, I was able to sell it for much more than I ever thought I would so I was able to pay off all of the debts and have much more money leftover than I thought I would..

I also have a summer place at a lake in the Adirondack Mountains that carries no mortgage either, so I am able to live/vacation there 7 to 8 months out of the year.. Two months I will live with my DD and her family (for the holidays) and the rest of the time will be split visiting my sister and my brother who both live in Florida now..

I recently bought a 2005 mini van for a great price with an awesome 8yr/80,000 mile warranty that goes into affect after the original 3yr/36,000 mile warranty runs out.. I paid cash so I don't have to worry about a car payment..

The only monthly payments I currently have are electric, cable, telephone and internet (for here at the lake - and all of which drop down to a lower seasonal rate the months that I'm not here) - health insurance, and life insurance.. My yearly bills are the taxes here at the lake (which aren't even $400 a year); the beach rights (less than $50 a year); the homeowners ins. (less than $300 a year) and my car insurance ($703 a year).. So basically my total yearly living expenses are less than $7000 a year (not including food - which is very little for just me 8 months out of the year; gas - again very little because once I get here I rarely go anywhere; clothing - which I always buy at garage sales, thrift shops, etc. - except for under clothes, socks and sneakers; birthday and Christmas gifts; and traveling.. Probably within the next year or so I will be putting the place at the lake in a trust for my daughter (which will then pass on to my granddaughter when she's of an age where it won't interfere with her ability to get financial aid for college should she need it) - with a lifetime use clause for myself - and at that point my DD & her DH will take over the taxes, the beach rights and the homeowners policy.. I will continue to pay the electric, cable, internet and telephone for as long as I continue to live here..

I can easily live the kind of lifestyle I am comfortable with and enjoy on less than $15,000 a year - and probably closer to $12,000 a year.. In 3 and a half years I will be able to collect my widows Social Security and that will be approximately twice what my current monthly income is.. (And although the popular opinion is that SS is going to collapse, I don't see that happening during my lifetime and even if it does, by then the money I have in the bank and investments will have grown enough to sustain me for whatever time I have left to live.) Long-term healthcare has already been addressed and the only other thing I can see that I'll need to spend a fairly large amount of money on in 10 years or so will be another car (if this one becomes too costly to repair) and that will come out of the money I currently have in the bank and investments.. I also have a fairly large life insurance policy which will cover the "inheritance" aspect..

Having said that, I don't really consider myself "retired" because I know at some point I will either get a part-time job or take temp jobs so I don't die of boredom.. LOL

I have always lived a very simple, very frugal lifestyle on a pay-as-you-go system and that is how I will live the remainder of my life.. I don't feel "deprived" - nor do I feel as though I "do without" anything I really want.. I just find cheaper ways of acquiring those things..

I couldn't imagine retiring with a few million dollars - or even one million dollars.. I honestly wouldn't know what to do with it and would probably give most of it away to charity.. It would take several lifetimes for me to spend that kind of money.. So I think when people are considering "how much is enough" in terms of retiring, the first thing they have to do is to determine the "kind" of retirement they want and then make their decisions based on that - not the numbers that financial planners place on the "average" family that they don't know squat about.. If you want a "rich" lifestyle, then you're going to have to be "rich" - if you want an "average" lifestyle then you're going to have to be "average" - and if you want a simple, low-key comfortable lifestyle then that is what you will need..

It's all about priorities and what you really need and/or want..

 

[disneysteve]

C.Ann - What a great story! This should be required reading here on the Budget Board.

 

[dvcgirl]

I couldn't imagine retiring with a few million dollars - or even one million dollars.. I honestly wouldn't know what to do with it and would probably give most of it away to charity.. It would take several lifetimes for me to spend that kind of money.. So I think when people are considering "how much is enough" in terms of retiring, the first thing they have to do is to determine the "kind" of retirement they want and then make their decisions based on that - not the numbers that financial planners place on the "average" family that they don't know squat about.. If you want a "rich" lifestyle, then you're going to have to be "rich" - if you want an "average" lifestyle then you're going to have to be "average" - and if you want a simple, low-key comfortable lifestyle then that is what you will need..

It's all about priorities and what you really need and/or want..

With all due respect, you are the exception rather than the rule if you can live on $12,000 a year in retirement. Also, it sounds like you are from upstate New York, one of the relatively few place left where it is cheap to live. $12,000 a year would barely cover property taxes, utilities and bare maintenance on a modest paid-for home in Orlando. There would be nothing left for food, gifts...and forget health insurance and travel.

And I disagree with the idea that financial planners knowing "squat" about the American family and their needs. A million dollars replaces $40,000 of income in retirement. I think you're looking at it like it's a lottery prize or something of that nature. Or that accumulating one million dollars through saving and investing is an unattainable goal. It's not...not at all. It's just the amount of money necessary to provide X amount of money without risking the danger of outliving your money. The median income in the US right now is about $45,000. Social Security for that couple provides about $18,000. Not many folks are eager and willing to take that kind of paycut. And so without a pension, they would need roughly $600,000 to get that back up near $40,000 a year in retirement.

 

[jekjones1558]

Reading this thread I feel lucky to have been raised in a family with little money. It has allowed me to take great pleasure in simple luxuries like eating out and sharing any extras with those who are really needy. It has also made it possible for me to be very happy in a home that is nice but not fancy. The small mortgage payments meant that we could pay it off and never have any credit card debt. It also made for a life devoid of money worries. It allowed me to retire at 56. I cannot tell you how many times I have thanked God that I was never desperate for money nor did I ever have so much that obtaining the next trendy "thing" or a dream home were ever part of my life style. I also recognize that I have been blessed to never have a catastrophe bring me to the brink financially.
These comments are just to say that a person's life long relationship with money will probably not change much in retirement. This fact is often not taken into account unless one is planning for retirement. I think that retirement finances are being dictated daily from our early years, not just by how much we save but also by how we choose the role dollars play in making us happy and content.

 

[disneysteve]

With all due respect, you are the exception rather than the rule if you can live on $12,000 a year in retirement.

The median income in the US right now is about $45,000. Social Security for that couple provides about $18,000. Not many folks are eager and willing to take that kind of paycut. And so without a pension, they would need roughly $600,000 to get that back up near $40,000 a year in retirement.

This post will sound strange coming from me, but here goes. I'm never one to argue for saving less, but I think C.Ann made some good points. Various expenses that we have during our working years won't exist in retirement and that can change the savings equation considerably. For example, just off the top of my head, I can come up with about $3,000 in regular monthly expenses that we currently pay that won't exist in retirement. That's $36,000 worth of income we won't need to replace so $900,000 we don't need to save. We'll be able to earn $36,000 less than we do today without changing our lifestyle one bit.

If you do a similar calculation for that family earning 45K, you may find that 35K in retirement will be plenty - maybe even less. So if SS gives them 18K, they might only need another 17K which means savings of 425K. Saving less than 7% of income per year for 35 years would top that figure.

All of this is not intended to say that people should be saving less. We all know that isn't sound advice. But as much as we all share stories and data showing the common opinions and recommendations, I think the reality is that there are plenty of people who will be able to retire without accumulating a 7-figure nest egg. Of course, that depends a lot on SS still being intact. And it might require working a few extra years, maybe even more than a few, but lots of people will be doing it I suspect.

Not sure what my point is here. I guess I'm just trying to agree with C.Ann that how much you will need in retirement can vary dramatically depending on how you live now and how you intend to live then. The rule of thumb of 25 times your current income may yield a number much higher than many folks will actually need. That's the number I'm shooting for because I'd rather end up with too much than not enough, but when I actually sit down and run the numbers, I could maintain my current lifestyle on closer to 15 times current income based on my calculations. That's a big difference.

 

[gina2000]

The key for me is not to own too many things but to have as many experiences as possible both now and in retirement. I find that owning too many "toys" puts one in the position of having to maintain the toys. We live frugally by most people's standards but we have travelled far more than anyone I know and have been to more sporting events, theater performances and fine dining venues than most people. I believe in enriching my life and the life of my family with experiences rather than things. I will not do without those experiences, though, because to deprive one of the beauty of life is to start the intellectual dying process prematurely.

This philosophy has obviously bitten into our retirement savings (though we do have a substantial amount....not in the million dollar range though) and I wouldn't change a thing. I truly believe that if you balance living for today with saving for tomorrow, you achieve enjoyment during all phases of your life. I don't want to merely save for retirement because I know too many people who were unable to enjoy retirement due to ill health. I don't want to deprive myself of the few things I crave because I want to pass a legacy down to my child. I merely want to pass onto my child a love of learning and the experiences that broaden his horizons and help him strive towards a greater understanding and enjoyment of the world through education and experiences which come along with it. My childhood travel and experiences led me to become the person I am today and I hope that my son's experiences will lead him to become a stimulated, interesting person upon maturity.

A bit different philosophy than most, but it suits us. It's not measured in $$$ and cents.....and I don't think life's experiences can be....

JMHO

 

[C.Ann]

Not sure what my point is here. I guess I'm just trying to agree with C.Ann that how much you will need in retirement can vary dramatically depending on how you live now and how you intend to live then. The rule of thumb of 25 times your current income may yield a number much higher than many folks will actually need..

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Thanks, Steve.. It's nice to see that someone finally "gets it" - LOL..

Oh - and about the living in Orlando and the costs associated with it.. My sister is retired and now living just north of Orlando on waaaaay less than the numbers I have seen thrown around here.. She's having a ball - doing things and going places every single day.. (Doesn't sound very "retired" to me - LOL.. Sounds like hard work.. I'll take the mountains and a lounge chair on the beach any day..) But again - she was raised the same way that I was and "money" was never the deciding factor in happiness and contentment - or lack of..

 

[C.Ann]

Reading this thread I feel lucky to have been raised in a family with little money. It has allowed me to take great pleasure in simple luxuries like eating out and sharing any extras with those who are really needy. It has also made it possible for me to be very happy in a home that is nice but not fancy. The small mortgage payments meant that we could pay it off and never have any credit card debt. It also made for a life devoid of money worries. It allowed me to retire at 56. I cannot tell you how many times I have thanked God that I was never desperate for money nor did I ever have so much that obtaining the next trendy "thing" or a dream home were ever part of my life style. I also recognize that I have been blessed to never have a catastrophe bring me to the brink financially.
These comments are just to say that a person's life long relationship with money will probably not change much in retirement. This fact is often not taken into account unless one is planning for retirement. I think that retirement finances are being dictated daily from our early years, not just by how much we save but also by how we choose the role dollars play in making us happy and content.

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Great post!!

 

[C.Ann]

It's not measured in $$$ and cents.....and I don't think life's experiences can be....

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I love this statement! It's all about what you "want" out of retirement and there are many wonderful "wants" that don't cost a dime - which again points to the problem with using the term "average family" when talking about dollars needed to retire.. Retirement is a very "individualized" thing that can't and shouldn't be determined by what the nameless, faceless "average family" will need or want..

 

[TDC Nala]

Mine would be a little different, since I am not a couple and don't have children. I'd like to maintain the same lifestyle I have now, except without having to work 10 hours a day...maybe half that (I do want to keep working, as long as possible, but not where I am now, and not full time). That means making enough in combination with my retirement income to pay for a place to live (which would probably be a condo somewhere as I am not interested in landscaping, house maintenance or yard work), food, transportation, and fun (including frequent travel).

 

[C.Ann]

Mine would be a little different, since I am not a couple and don't have children. I'd like to maintain the same lifestyle I have now, except without having to work 10 hours a day...maybe half that (I do want to keep working, as long as possible, but not where I am now, and not full time). That means making enough in combination with my retirement income to pay for a place to live (which would probably be a condo somewhere as I am not interested in landscaping, house maintenance or yard work), food, transportation, and fun (including frequent travel).

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That sounds like a much more reasonable way of determining what you will need for retirement.. You already know your individualized type of lifestyle you would like to maintain, what you would like in terms of housing and how you feel about continuing to work during retirement.. If you know "where" you want your housing to be, you have all of the info you need to determine the dollars needed to accomplish your goals.. You're not the imaginary "average family", so there is no need to base your retirement goals on a lifestyle that may be far different than mine, Jim & Mary's or Harold so-and-so..

 

[dvcgirl]

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Thanks, Steve.. It's nice to see that someone finally "gets it" - LOL..

Oh - and about the living in Orlando and the costs associated with it.. My sister is retired and now living just north of Orlando on waaaaay less than the numbers I have seen thrown around here.. She's having a ball - doing things and going places every single day.. (Doesn't sound very "retired" to me - LOL.. Sounds like hard work.. I'll take the mountains and a lounge chair on the beach any day..) But again - she was raised the same way that I was and "money" was never the deciding factor in happiness and contentment - or lack of..

lol...I get it...trust me. I think it's wonderful that anyone can live on $12,000 a year and I think you are offering hope to people...that's wonderful. And I'm sure that you are very creative in being able to live on so little. For instance, I would expect that just our supplemental health insurance will run close to 75% of what you are able to live on in a year. You must have found incredibly cheap health insurance, or have it from a previous job. Also, you have some special circumstances to your ability to live at such a low income level. One being that you are living with family members for 1/3 of the year. A lot of people would not be willing to do that....on both sides of the equation.

Money is not the deciding factor in happiness or contentment...totally agree with you there. However, I am in the camp where it sure doesn't stink to have some laying around .

 

[dvcgirl]

This post will sound strange coming from me, but here goes. I'm never one to argue for saving less, but I think C.Ann made some good points. Various expenses that we have during our working years won't exist in retirement and that can change the savings equation considerably. For example, just off the top of my head, I can come up with about $3,000 in regular monthly expenses that we currently pay that won't exist in retirement. That's $36,000 worth of income we won't need to replace so $900,000 we don't need to save. We'll be able to earn $36,000 less than we do today without changing our lifestyle one bit.

If you do a similar calculation for that family earning 45K, you may find that 35K in retirement will be plenty - maybe even less. So if SS gives them 18K, they might only need another 17K which means savings of 425K. Saving less than 7% of income per year for 35 years would top that figure.

All of this is not intended to say that people should be saving less. We all know that isn't sound advice. But as much as we all share stories and data showing the common opinions and recommendations, I think the reality is that there are plenty of people who will be able to retire without accumulating a 7-figure nest egg. Of course, that depends a lot on SS still being intact. And it might require working a few extra years, maybe even more than a few, but lots of people will be doing it I suspect.

Not sure what my point is here. I guess I'm just trying to agree with C.Ann that how much you will need in retirement can vary dramatically depending on how you live now and how you intend to live then. The rule of thumb of 25 times your current income may yield a number much higher than many folks will actually need. That's the number I'm shooting for because I'd rather end up with too much than not enough, but when I actually sit down and run the numbers, I could maintain my current lifestyle on closer to 15 times current income based on my calculations. That's a big difference.

I agree, that for many expenses will go down in retirement, especially folks who have kids, and now have a mortgage payment. However, the mortgage payment could easily be replaced with supplemental health care insurance by the time you retire.

Yes, you can also look at how you live now and how you'll live then. But that's the thing, most people don't just want to stop living the way that they are living at age 61 because all of the sudden they hit 62 and are retired. The more I read lately on the topic, the more I see many experts adjusting that 70% of pre-retirement income upward, to compensate for healthcare. That's why many will continue to work well into their 60s and 70s, not just so they can pay their basic expenses, but because they still want some of the "extras", which are the first things that must be cut in a retirement budget. I think when most people think of retirement, they think of being able to do everything they do now...and a little more. Whether that "little more" is travel, or helping the kids or grandkids out, or giving to charity....this is what most people want. Study after study points this out.

I will openly admit that both my DH and myself would be incredibly disappointed if we reached 65 and weren't in a position to live our retirement years out the way we have always envisioned them. Years filled with lots of fun leisure time, tons of travel all over the world, lots of trips to visit family and lots of giving to both family and the charities of our choice. And all of that will cost money. We could probably live just fine on less than *half* of what we will have...I know we could because we're almost doing that now, and we're aggressive savers. And I'm sure we'd be happy...but it would not be what we have worked so hard for, and dreamed of all of our lives.

 

[C.Ann]

For instance, I would expect that just our supplemental health insurance will run close to 75% of what you are able to live on in a year. You must have found incredibly cheap health insurance, or have it from a previous job. Also, you have some special circumstances to your ability to live at such a low income level. One being that you are living with family members for 1/3 of the year. A lot of people would not be willing to do that....on both sides of the equation..

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And you "expect" this why? My sister is old enough to collect Social Security now and after the Medicare portion is automatically deducted from her check, her supplemental health insurance (with prescription coverage) is minimal at best.. And contrary to your numbers regarding living in Florida, her expenses have actually gone down from what it previously cost to live in the particular area of upstate NY that she previously lived in..

As for "living" with family members for a third of the year, I wouldn't call it "living" with them (although I often refer to it that way just out of habit)and neither do they.. My DD and her family would be devastated if I didn't spend the holiday months with them and the only way I can see my sister and brother is if I travel to Florida.. I wasn't able to make it this year because of business I had to attend to here and they were absolutely crushed.. My brother literally cried on the phone.. I think it's so sad that there are families out there who wouldn't want to have other family members visit them or vice versa.. I guess I truly am blessed..

I've considered the possibility of making my seasonal home into a year-round home.. It could be done quite easily at a minimal cost, but my family won't hear of it.. To do so would increase my living expenses very little, but it's simply something that my family prefers that I not do..

Sometimes "less" is "more".. It all depends on the type of lifestyle that will truly make you happy..

 

[C.Ann]

I will openly admit that both my DH and myself would be incredibly disappointed if we reached 65 and weren't in a position to live our retirement years out the way we have always envisioned them. Years filled with lots of fun leisure time, tons of travel all over the world, lots of trips to visit family and lots of giving to both family and the charities of our choice. And all of that will cost money. We could probably live just fine on less than *half* of what we will have...I know we could because we're almost doing that now, and we're aggressive savers. And I'm sure we'd be happy...but it would not be what we have worked so hard for, and dreamed of all of our lives.

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You have just done a great job of proving my point.. That is what you and your DH want out of retirement - not what everyone wants.. Obviously you will need a substantial amount of money - but not everyone is you - or the "average family"..

 

[gina2000]

I will openly admit that both my DH and myself would be incredibly disappointed if we reached 65 and weren't in a position to live our retirement years out the way we have always envisioned them. Years filled with lots of fun leisure time, tons of travel all over the world, lots of trips to visit family and lots of giving to both family and the charities of our choice. And all of that will cost money. We could probably live just fine on less than *half* of what we will have...I know we could because we're almost doing that now, and we're aggressive savers. And I'm sure we'd be happy...but it would not be what we have worked so hard for, and dreamed of all of our lives.

DVC Girl, I hope you don't mind me quoting you but you've nailed a philosophy I must comment on. You've said that you're an aggressive saver, living on just about half of what you would be living on in retirement. You've also said that you look forward to doing things in retirement (such as travel) and are dreaming of it. Why not do some of it now? You may not live to see retirement. You may be ill in retirement. You may not even be married to the same person in retirement. And yet, you've banked all your plans, all your hopes and dreams on retirement.

I believe there is a balance that should be achieved when living today and planning for tomorrow. You should always keep one eye on your goals but you should not sacrifice your dreams of today because you may not reach tomorrow. And I see many people who are aggressive savers doing just that. It's not for me to comment on any of it but you did strike a note of ******* in me. And it's not my life so I certainly have no say in your plans. But I figured I'd throw this on the table for conversation's sake.

 

[disneysteve]

DVC Girl, I hope you don't mind me quoting you but you've nailed a philosophy I must comment on. You've said that you're an aggressive saver, living on just about half of what you would be living on in retirement. You've also said that you look forward to doing things in retirement (such as travel) and are dreaming of it. Why not do some of it now?

I know from many previous threads and private conversations with dvcgirl that they do plenty now. They just look forward to having the time to do even more after retirement.

We're the same way. We love to travel, and do it regularly. But we are usually limited to one week at a time due to job and school commitments. Last August, for the first time in 12 years, we took a 2-week vacation and it was wonderful. In retirement, we'll be able to do 2 weeks and more at a time, something that just isn't possible while we're working. I've got my eye on a 105-day around the world cruise that Holland America currently runs. No way we could do that kind of thing pre-retirement.

 

[disneysteve]

The more I read lately on the topic, the more I see many experts adjusting that 70% of pre-retirement income upward, to compensate for healthcare.

That's where I see our advantage. We currently save 28% of our income which means we are only living on 72% of our income now. If we need 80% of that number in retirement, it works out to just 58% of our current gross. To generate that, we'll only need to have saved about 14-15 times our current gross, much less than the 25 times figure.

As I said, I'm still shooting for the higher figure because we want to travel more, dine out more, go to the theater more, etc. and we don't know what health care costs will be. Better to be overprepared than underprepared.

 

[DMRick]

Also, it sounds like you are from upstate New York, one of the relatively few place left where it is cheap to live. $12,000 a year would barely cover property taxes, utilities and bare maintenance on a modest paid-for home in Orlando.

This is news to me. We're always being told we are in a high cost area. I live in the same area as C.Ann. Her circumstances are different. She's just far enough away that her main home is now a lake home, where it is mostly vacation properties (camps). Her taxes and utilities are much less than the norm here, (generally, the camps are a lot smaller, and so are the taxes, and the utilities are not for the entire year), and she lives several months with her daughter. I think she is doing very good with her budget..but I think the point she was making, was, that is her budget (and even her budget can be blown to smithers if she suddenly had a catastropy, or needed expensive medical care, but the OP said not ot consider those things). You have to know your own budget and needs. Living in the same area, we would starve (2 people, she is one), and fall behind on our nimo bill if all we had was $12,000 a year. However, we don't need anywhere near $40,000 to pay our taxes, food, car expenses and travel. We can make do on a lot less because our home is paid for, the kids college is done, and we only have to feed two, instead of 5. You have to know your budget, and go by that..not other people wants and needs.