When Is It Enough? (Retirement Funds)

[staceyfe]

I've read the entire thread (been lurking, really) and had to chime in my 2 cents.

I've enjoyed the honest answers..
I've not seen anyone tell anyone else they must have xxx amount for retirement...if someone wants to read it as that way, well, that's their problem.
I've learned alot from this thread, the number one thing reinforcing something I really already knew, deep down: there are many unknowns in retirement, just like in working life. If I want to live comfortably, I'd better save as much as I can...

 

[disneysteve]

anyone who does that has to be prepared to cash out, so to speak, if needed. And that's a BIG event. There you are, 90 years old, in the same house for your adult lifetime, and suddenly you need to sell your house in order to free the equity.

No, what mickeyfan2 is referring to is a reverse mortgage where you borrow based on the value of your home and your expected lifespan. You get to stay in your home, receive a lump sum or monthly payments and don't have to repay anything until either you sell the house or, after you die, your heirs sell the house.

 

[DVCLiz]

No, what mickeyfan2 is referring to is a reverse mortgage where you borrow based on the value of your home and your expected lifespan. You get to stay in your home, receive a lump sum or monthly payments and don't have to repay anything until either you sell the house or, after you die, your heirs sell the house.

Oh, I didn't see that, just the comment that the house was the next source of money, so I assumed a sale. Do a lot of people have a reverse mortgage these days? I guess the issue would still be what happens if somebody's math is off and you outlive your reverse mortgage? I'm still hoping to have enough to make sure I have a backup and never get to the zero mark.

 

[disneysteve]

I guess the issue would still be what happens if somebody's math is off and you outlive your reverse mortgage?

You can't outlive a reverse mortgage. It is like an annuity. In exchange for your home, the bank pays you a set monthly income for life. If you outlive the actuarial charts, its the bank that loses out. The problem is the flip side. If you take out a reverse mortgage and die soon after, your family loses the value of your home.

 

[DVCLiz]

You can't outlive a reverse mortgage. It is like an annuity. In exchange for your home, the bank pays you a set monthly income for life. If you outlive the actuarial charts, its the bank that loses out. The problem is the flip side. If you take out a reverse mortgage and die soon after, your family loses the value of your home.

Ah, I see. So what does anyone think about that as a retirement strategy?

 

[Chicago526]

Wow, I'm sorry I missed out on this thread earlier!

For me, it's hard to know what I'll want in retirement, I'm only 29. It's also hard because I don't know if DH will share in my retirement due to his health, he may make it to 60 or 65, or then again maybe not.

I'd like to think I won't need 2 or 3 million to retire, I'd be very happy in a nice condo or town home rather than a house, a house would be too much for me to handle anyway, even if DH is around to help! Since I get to travel some due to my current job, I don't think I'll be a globetrotter in retirement, you know "been there, done that". I'd like to travel some, but I don't think it would be a major trip every year, either. So, assuming my expenses will be low (paid for condo, low utilities, etc.) I hope that I can retire on 50% of our combined income. I lived by myself for almost 5 years making about $35,000 a year, and that was with a car payment and a mortgage, so I don't see why I couldn't do that again once I retire, especially since I won't have a car payment or a mortgage!

But the real X factor in how much I (or anyone else) will need to retire is health insurance, and how healthy I (or you) will be in retirement. My mom is 100% healthy at age 60, and her mom is very healthy at 80+, so I'm assuming that I'll be healthy in old age too. But you know what they say about people who "assume", and at the end of the day there is never a guarantee. Plus, who know what the state of the health care system will be in this country in 35 years. It may take a 2 or 3 million dollar retirement fund just to insure a basic level of health care. I just don't know, and neither does anyone else.

So, what I'm going to do is, starting this May with my next pay raise, is to start to increase my 401k contributions. And they'll keep going up for as long as I can afford to increase it. They way I figure it, there is no such thing as retireing with too much money, it's always an easy thing to figure out how to spend it, what's hard is not having enough. Even if I wind up like C.Ann and don't need more than $12-$15,000 a year in retirement (and wouldn't that be great!) I could always give what I don't need to charity, or leave a nice inheritance to my children and grandchildren.

Or leave it all to the

 

[mickeyfan2]

Ah, I see. So what does anyone think about that as a retirement strategy?

We are considering a reverse mortgage as part of our retirement stategy. We would not start it at retirement but would consider it later in life to suppliment our income (if needed). That is why I wonder if it is or is not part of the total. We have a number in mind and if our investment does worse than our projection, we have the reverse mortgage too. We also have LTC insurance. We have no interest in leaving any inheritance, but more than likely we will leave a small amount otherwise we would be broke and still alive.

 

[DMRick]

I did some limited reading in these two links (one I have removed) and did not see brutally honest and blunt as much as explainations (I am sure they are there, I just did not find them). I did like the 4% rule explaination they used. Again maybe a discussion here would be nice. I know our plan has this (love the graph) but we use the how much do you need to retire on in todays rule rather than number of times our salary.

I agree with the explanations. I spent some time there this morning too. What graph are you talking about?

 

[DMRick]

Ah, I see. So what does anyone think about that as a retirement strategy?

I'm not sure it would be something I would count on as part of my retirement. In our area at least, they are not easy to get...the banks and mortgage company's don't seem to want to take the risk.

 

[DVCLiz]

We are considering a reverse mortgage as part of our retirement stategy. We would not start it at retirement but would consider it later in life to suppliment our income (if needed). That is why I wonder if it is or is not part of the total. We have a number in mind and if our investment does worse than our projection, we have the reverse mortgage too. We also have LTC insurance. We have no interest in leaving any inheritance, but more than likely we will leave a small amount otherwise we would be broke and still alive.

It's a good question. I guess for me the answer would be yes, but I was thinking that I would have sold my "big" house at some point along the way and downsized into either a townhouse or gone into an assisted living facility. So my $3 million figure would include proceeds from my house minus the new expense of my townhouse or facility.

I bought my house in May 2002, and in 4 years it's appreciated about $140,000.00 (although some of that is due to an addition that increased the square footage slightly!) So people shouldn't underestimate the power of their home. It's a major, major piece of the puzzle for many retirees. I'm sure there will be new choices that haven't been invented yet in the next 10 or 20 years.

 

[mickeyfan2]

What graph are you talking about?

It comes from our financial planner. He runs a program with a 100+ situations and you see how you end up. I saw one in a link at one of the sites, but sorry I don't remember what it is.

 

[DMRick]

I'm sure there will be new choices that haven't been invented yet in the next 10 or 20 years.

This is so true. Being older than most of you, I've seen the changes first hand from when I was in my 20's. We never discussed SS not being there, because we always assumed it would be (along with our pensions, which we helped support). Of course, although my husband worked at a place that did do some matching on our savings, back then, that was unusual, and a great work perk. Now, it seems many many places do that, rather than give you a pension.

 

[dvcgirl]

Ah, I see. So what does anyone think about that as a retirement strategy?

Reverse mortgages are not great deals just yet. The fees can be very high, and you don't get anything close to the full value of the home in the loan. It can be an okay deal for an older person who just doesn't want to move, but until the fees drop it will stay just an "okay" deal. I've heard Clark Howard suggest on many occasions to steer clear of them. But with the state of retirement savings, they are likely to become increasingly common.

 

[dvcgirl]

Hello everyone! Very interesting thread! Here is a little background : I am 29 and my DH is 32 and we have been trying to figure out what we will want/need for retirement for the last 5 years. We have both been contributing 15% with a 4% match to our 401k for the last 6 years, as well as a good savings, investments. We pretty much work all of the time with the exception of taking a full month off every year for vacation. I have a number in mind and it certianly is within our reach, but I often wonder if we will really need that much? Our goal is to retire when I am 50. So here is my question... are we supposed to plan on living off of the intrest of our ivestments or is it "better" ( relative term there I know ) to have xxx amount to last us x amount of years will a zero balance when the bell rings? I know we could live off of very little money, but we did that when we were young and in college and didnt care for that much! LOL

If you plan to retire when you are 50, chances are, you're going to need a pretty big number. Supporting yourself for a full 40 years doesn't come cheap. Think about it, if you started your first "real job" in your 20s, you're looking at working less than 30 years and saving/investing enough to carry you for another 40 years. Not many people can achieve that goal. It all depends on what you plan to do in retirement, and what you think your future budget will be. There are lots of great retirement planning calculators on the net that factor in inflation and will even throw in Social Security if you are using that income in your calculations.

The calculator on leadfusion.com will show you exactly how your money will accumulate, peak, and then the years where you'll start eating into the principle until it is gone. It will give you the odds of running out of money based on what you will have, and what you believe your retirement budget will be.....

 

[MrsPete]

My mom is 100% healthy at age 60, and her mom is very healthy at 80+, so I'm assuming that I'll be healthy in old age too. But you know what they say about people who "assume", and at the end of the day there is never a guarantee.

Sounds like my family. My mom is in her early 60s and is 100% healthy. My grandmother is 95 and is just starting to slow down. Most of the women in my family tend to live well into their 90s with good health until the last few years.

I know that I may very well be hit by a bus tomorrow, but I can't plan for that. Since I plan to retire 55-58ish and I have reason to believe I could live another 40 years, I found myself a job with a traditional pension. Obviously, this is something of a bet. It's possible that I'll retire and die two years later, having collected almost nothing. But it seems reasonable to me to plan for what's likely to happen, not what could happen!

 

[MrsPete]

It's a good question. I guess for me the answer would be yes, but I was thinking that I would have sold my "big" house at some point along the way and downsized into either a townhouse or gone into an assisted living facility

I'm making the same assumption. I love the big house that we live in right now. It's so comfortable and convenient with a family: a bedroom for everyone, a living room plus a den plus a huge covered porch, a home office, and a huge yard. We intend to live here until our girls are out of the house.

But the downside is that it's also expensive. Our house was a fixer-upper, and I have been very surprised at just how much everything has cost! 5K seems to be my magic number: the roof, replacing kitchen countertops and backsplashes, putting in Pergo floors. And let's not even talk about our electric bill! Our house is far from cheap, but we can afford it and -- as I said before -- it's comfortable for us right now.

Once we're retired, I can't imagine continuing to pay higher prices for this extra space. Plus, we intend to travel frequently. We're going to consider a nice townhouse. If both kids and their children want to visit at the same time, it'll be much less expensive to rent them hotel rooms rather than to maintain a big house all the time.

 

[dvcgirl]

I'm making the same assumption. I love the big house that we live in right now. It's so comfortable and convenient with a family: a bedroom for everyone, a living room plus a den plus a huge covered porch, a home office, and a huge yard. We intend to live here until our girls are out of the house.

But the downside is that it's also expensive. Our house was a fixer-upper, and I have been very surprised at just how much everything has cost! 5K seems to be my magic number: the roof, replacing kitchen countertops and backsplashes, putting in Pergo floors. And let's not even talk about our electric bill! Our house is far from cheap, but we can afford it and -- as I said before -- it's comfortable for us right now.

Once we're retired, I can't imagine continuing to pay higher prices for this extra space. Plus, we intend to travel frequently. We're going to consider a nice townhouse. If both kids and their children want to visit at the same time, it'll be much less expensive to rent them hotel rooms rather than to maintain a big house all the time.

Same here....we'll continue to downsize as we go forward. At some point we'll end up in a townhome I'm sure, and we may actually end up renting on down the line. We tend to move around a lot, and the fees associated with moving sure do stink.

It will be interesting to see if the reverse mortgage evolves into a better product. Right now, a loan in the 200K range can run as much as 10K in fees alone. And the other issue is that many of higher value homes can only tap a very low percentage of the home's value. I think Fanny Mae only goes as high as a loan in the low 400s. Some independent companies are loaning more, but above a certain amount the loan is not federally insured...so if the company goes belly up, the checks to the house end. Plus, they will only loan you 80% of the value of the home, so you lose another 20% right there. I would never be so attached to a house that I'm going to give the bank 20% in equity. That's why for now, the better route is selling the bigger home and downsizing to pull that equity, or selling and then renting. Perhaps that niche of the lending industry will get more competitive as there are going to be a whole lot of baby boomers out there who will need to tap into that money.

 

[MrsPete]

Same here....we'll continue to downsize as we go forward . . . Perhaps that niche of the lending industry will get more competitive as there are going to be a whole lot of baby boomers out there who will need to tap into that money.

So you and I won't be in a position to use this product; we won't have that much tied up in housing.

I agree that the mortgage industry will react to consumers' needs, and since we'll probably see of lots of high-income/low savings people with big bucks tied up in huge houses as the baby boomers reach retirement, there should be a market for such a product.

 

[DMRick]

Perhaps that niche of the lending industry will get more competitive as there are going to be a whole lot of baby boomers out there who will need to tap into that money.

I would think that this type of loan will fall by the wayside, by the time you get to retirement, if the boomers and those that follow do more retiring and do a lot of reverse mortgages. How many banks will want to have their assets tied up in real estate? If there are a lot of people not saving, and the only way for them to get money, will be reverse mortgages, the bank/mortgage companies assets are really tied up. The fees will have to be much higher, and the income would be much lower. I think you'll see more hose sales, than reverse mortgages.

 

[sandraB]

I have been a lurker here for a while now...

I have read most of this thread, and am still confused on how much is really enough for me??

I am a full time student right now, went back to get my eduation degree, and will be done at christmas 2006. I am hoping to get a job pretty quick, and work in the field long enough to get a pension. I am 36, and was a SAHM for many years.....we actually did start saving for retirement young, but had to drain it to move home to canada from the us.(where we went at 22) We don't regret our decision to move home at all!! Even though financially it was a disaster, hubby took a huge paycut, and we used our 401, we know it was the right thing to do. We are hoping to start saving aggressively for retirement when I start working, but how much is enough??

Is there a website that helps you figure this out? I really don't think we will consult a financial planner...we just want to start thinking about it all...I know some of you will think we are a little old to just start now....but I feel my 20's I invested in my kids future....I stayed home with them, and we knew it would be better to live here for them overall....(family, great community, good schools, good health care, etc....) so our priorities were me staying home, and moving back to canada. thus, our savings are next to nil! Now with me in school, we are having a harder time than ever saving...


We are not great savers, but we don't waste money either...

I hope this post is ok....I don't know if anyone has any advice, but I will take it all with a grain of salt...you wont hurt my feelings...

Sandi