When Is It Enough? (Retirement Funds)

[disneysteve]

http://money.cnn.com/2006/02/16/pf/expert/ask_expert/index.htm

Here's an article about the pros and cons of reverse mortgages.

 

[disneysteve]

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?

If you Google "retirement needs calculator" you'll get links to various online calculators for this purpose.

For example,
http://cgi.money.cnn.com/tools/retirementneed/retirementneed_plain.html

If you've read this thread, you'll realize that not everyone agrees with the statement that appears on this page, "You'll need at least 70% of the amount you earned during your peak earning years for every year of retirement." But I think that is a good figure to work with - 70-80% of preretirement income.

I'd also recommend David Bach's book "Start Late, Finish Rich."

 

[sandraB]

I did the online calculator for how much we would need....and it's really scary!!!

I worry there is no way we will be able to save that much!!!

I put in my husbands salary only, and 75%. THe result was 1.3 million.

WOW.

 

[MrsPete]

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.

I disagree. I think we're going to see many people who want to retire (or whose health will not allow them to work), yet they won't have the money to retire. The bank knows that they're going to pay these folks for a while, but then they're going to get the entire house, which can be re-sold for a huge profit. Remember, someone else said they will only give 80% the value of the house at most. Plus we'd assume that the house would continue to appreciate in value.

The bank stands to make BIG BUCKS from this deal; without having number to crunch, I suspect this will be more profitable than regular mortgages. People who have not saved for retirement will take the deal (even though they know the bank's going to make money hand over fist) because they won't have other options.

I suspect the lender would ONLY lend for people who were already rather elderly (so they wouldn't have to pay as long) and would ONLY lend to people whose houses are very valuable and located in top spots.

As for house sales increasing, I don't know. Everyone still has to live SOMEWHERE. So if a retiree sells his house, unless he's moving in with his children, he has to use that money towards something new. Even if he downsizes, chances are good that the lion's share of that money can't be used for everyday expenses but will go towards new digs.

 

[dcfromva]

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??

Sandi

Sandi,
The answer to this question is different for each person.
I think it is a 3 step process.

1. You need to think about what your dreams are for your retirement. Do you want to travel? Do you want a second home in FL? Do you want to stay home and take up a new hobby? Are you planning to live simply? et'c. et'c. The purpose of this step is for you to figure out how much money your are going to need.
I attended a retirement planning workshop and one of the planners said one way to estimate what you will need in retirement is to take what your taking home now and subtract what you are saving--the resultant figure will be what you are spending right now and the figure you should target (keep in mind that I am only 5-10 yrs from retirement and my current income is probably pretty close to what I will be making when I retire--you have a few years to go and your income will most likely be significantly higher in 20+ years from now.) Of course, if you have an ambitious retirement planned, you might have to save more. On the other hand, there may be other expenses which you will not carry into retirement such as Union Dues. Will your house be paid off? If so, that will be one less expense you will have to pay. Will your kids be on their own by then?

2. Figure out how much money you have already saved. Will you have a pension of any kind? If you receive a pension, then you will only have to make up the difference between what the pension pays and what you will need to derive from your savings. Anyway, this is where you figure out what you will need to save to replace your income.

3. The next step is save money for your retirement goal. If you don't meet it 100%, you are still closer than you were before. If you take a snapshot and you aren't meeting your goals, it might mean delaying retirement a little bit.

You are already taking the first step--trying to figure out what you will need.

-DC

 

[MrsPete]

I did the online calculator for how much we would need....and it's really scary!!!

I worry there is no way we will be able to save that much!!!

I put in my husbands salary only, and 75%. THe result was 1.3 million.

WOW.

Well, scary depends upon your age. If you and your husband are young and have years of compound interest ahead of you, this is very do-able.

 

[sandraB]

I ended up using a few of the other calculators on the web site....

I felt a little better after I did one that estimated how much more we would have to save over what we are doing now in order to have 70% of our current income.

I did it with me working (which I will be by next year), and I didn't even include my pension (as a teacher) because it is set up in US with SS. and I am pretty sure SS is a lot higher than canada pension.

Anyway, with what we are saving now through hubby's work, we only have to increase our savings by 4800/year. Which doesn't sound near as scary, because I will be making almost 40,000/year when I start teaching.

It is a wake up call though........I am glad I even just did that....It makes me think that there is hope...LOL

I guess it is a little different here though...with health care , etc.....

Sandi

thanks for the help.

 

[bellarella]

One thing I wonder about with the 70% number that gets thrown around (or the similar recommendations) --- do they look at your gross pay, net pay, or "available" income?

For example, if someone is saving 50% of their income for retirement, they aren't going to need 70% of their income when they retire, since they were already living on just half of their income.

I think these percentages break down pretty quickly, just like the ones that tell you how much you "should" spend on housing -- people who are living closer to the edge will probably need much closer to 100% of their income in retirement because there probably won't be much to cut when they retire. People who are making more, will probably do just fine with a much lower percentage, if they have been used to living off of less than they make anyway.

 

[dvcgirl]

If you've read this thread, you'll realize that not everyone agrees with the statement that appears on this page, "You'll need at least 70% of the amount you earned during your peak earning years for every year of retirement."

I'd also recommend David Bach's book "Start Late, Finish Rich."

LOL...well Steve, that would be the understatement of the day .

 

[KelNottAt]

If you Google "retirement needs calculator" you'll get links to various online calculators for this purpose.

For example,
http://cgi.money.cnn.com/tools/retirementneed/retirementneed_plain.html

If you've read this thread, you'll realize that not everyone agrees with the statement that appears on this page, "You'll need at least 70% of the amount you earned during your peak earning years for every year of retirement." But I think that is a good figure to work with - 70-80% of preretirement income.

I'd also recommend David Bach's book "Start Late, Finish Rich."

YIKES! I used this CNN calculator and it says we'll need $4.41M to retire at 65 and live to 90 on 70% of today's income.

Our house could be worth $1.5M when we retire in 2030 (4% appreciation). So, if they let us count that, we'll be OK, even a little ahead. But, since I'd like to remain in the house until we lose our independence, I'm reluctant to put it in the equation.

Oh well. Que sera que sera. We are agreessive savers (20%+) and have been for nearly 20 years. The retirement we get will be the best that we can get and we'll enjoy it without any regrets. At least we'll go into it knowing we CAN retire; it will just be a question of whether it's a modest or cushy retirement.

Unfortunately, I know too many people who won't have a retirement at all.

 

[dvcgirl]

I did the online calculator for how much we would need....and it's really scary!!!

I worry there is no way we will be able to save that much!!!

I put in my husbands salary only, and 75%. THe result was 1.3 million.

WOW.

One comment I wanted to make after reading your post sandra....very smart move going for a job that will provide a pension. You guys are getting a late start on your retirement saving, and that's okay as long as you know what you are facing as you move forward. And so a pension for you is a big, big benefit. For example, let's say that your future pension provides you with 30K income per year in retirement. Someone without a pension would need to save nearly $750,000 to provide that same income.....that's how valuable a pension is!

 

[DMRick]

You've said this very well, and it doesn't sound as scary as some of the figures that have been on these threads. As dcfromva mentioned, if you have children, you need to take away some of that expense as well. Those kids can be costly and you prob won't have those kid expenses once you retire (unless you plan on being a very generous grandparent).

The answer to this question is different for each person.
I think it is a 3 step process.

1. You need to think about what your dreams are for your retirement. Do you want to travel? Do you want a second home in FL? Do you want to stay home and take up a new hobby? Are you planning to live simply? et'c. et'c. The purpose of this step is for you to figure out how much money your are going to need.
I attended a retirement planning workshop and one of the planners said one way to estimate what you will need in retirement is to take what your taking home now and subtract what you are saving--the resultant figure will be what you are spending right now and the figure you should target (keep in mind that I am only 5-10 yrs from retirement and my current income is probably pretty close to what I will be making when I retire--you have a few years to go and your income will most likely be significantly higher in 20+ years from now.) Of course, if you have an ambitious retirement planned, you might have to save more. On the other hand, there may be other expenses which you will not carry into retirement such as Union Dues. Will your house be paid off? If so, that will be one less expense you will have to pay. Will your kids be on their own by then?

2. Figure out how much money you have already saved. Will you have a pension of any kind? If you receive a pension, then you will only have to make up the difference between what the pension pays and what you will need to derive from your savings. Anyway, this is where you figure out what you will need to save to replace your income.

3. The next step is save money for your retirement goal. If you don't meet it 100%, you are still closer than you were before. If you take a snapshot and you aren't meeting your goals, it might mean delaying retirement a little bit.

You are already taking the first step--trying to figure out what you will need.

-DC

 

[DMRick]

The banks have been doing this for awhile now, and I guess I should say in our area, it's no longer an easy type of loan to get. We have three houses on our street right now (well, two, one was finally resold for a pittance..$13,000!) that are bank owned from reverse mortgages. The elder people who lived there stopped doing any kind of maintenance (they had no incentive, since the house wouldn't be going to their inheritance), and the homes have fallen into disrepair. The one two doors from me was actually leveled when the people were able to buy it so cheaply and built a brand new house in it's spot. Good for us!
The other two are a mess (I just saw one, at an open house..the other looks forlorn from the outside). The bank sends people to mow and then shovel (they have been for sale for a long time) and they are paying the taxes, but it was no bargain for them. We have a realtor in the family, and she says it's not the bargain it used to be for the banks (again, I only know about our area). I think assuming a house will continue to appreciate in these circumstances, is a lot to assume. I can see very little advantage for an elderly person (which is who you think they would give the loans to) to hold onto a house that needs upkeep, versus going into housing where that is taken care of for them.

I disagree. I think we're going to see many people who want to retire (or whose health will not allow them to work), yet they won't have the money to retire. The bank knows that they're going to pay these folks for a while, but then they're going to get the entire house, which can be re-sold for a huge profit. Remember, someone else said they will only give 80% the value of the house at most. Plus we'd assume that the house would continue to appreciate in value..

 

[disneysteve]

Unfortunately, I know too many people who won't have a retirement at all.

Same here. I have many patients still working full time jobs in their 70's and even quite a few in their 80's. Its sad because many of them have various medical problems but have no choice but to keep on working until they die beause they simply couldn't afford to live otherwise.

 

[disneysteve]

One thing I wonder about with the 70% number that gets thrown around (or the similar recommendations) --- do they look at your gross pay, net pay, or "available" income?

For example, if someone is saving 50% of their income for retirement, they aren't going to need 70% of their income when they retire, since they were already living on just half of their income.

The 70% is percent of gross pay.

And you are correct about your example, though I don't know anyone who is saving 50% of income - that's kind of an extreme example but makes the point.

Also, keep in mind that most of these calculators don't include social security benefits or any pension you might have. The calculators are still fun to play with - see what effect working an extra year or two would have, or change the income percentage by a point or two.

There are also calculators that show how much you need to be saving to reach a particular savings goal. Once you have the need number, use one of those to see what it would actually take to get there. That can be a lot less scary, especially if you are young.
Here's one of those:http://www.bloomberg.com/analysis/calculators/retire.html

 

[MrsPete]

The elder people who lived there stopped doing any kind of maintenance (they had no incentive, since the house wouldn't be going to their inheritance), and the homes have fallen into disrepair . . . I can see very little advantage for an elderly person (which is who you think they would give the loans to) to hold onto a house that needs upkeep, versus going into housing where that is taken care of for them.

Hmmm. I assumed that there would have been some sort of contract-agreement about maintenance. I can see how that'd make a big difference.

Most of the elderly people I know personally are very adamant about wanting to stay in THEIR OWN HOUSE until they can't do so any longer. My 94-year old grandmother lives in a single-family dwelling; she pays someone to mow her yard, but that's about the only thing she doesn't do herself. My husband's 91-year old grandmother just went into a nursing home, but prior to that she was living in the house she's been in for 60-odd years.

I'm basing my guess upon the idea that baby boomers aren't savign enough for retirement, so they're going to look for ways to finance retirement. Reverse mortgages are one way to do that.

 

[allison443]

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.

My parents are considering a reverse mortgage..I agree the fees are high...but I don't understand where you state "they will only loan you 80% of the value, so you lose 20% right there." Also, that you wouldn't "give the bank 20% in equity." Our understanding was that you could tap 80% of the equity with a reverse mortgage, but when the house is sold in the future, the bank would be repaid (the 80% amount) and the 20% would go to the homeowners. So the 20% is not really lost, is it?
Thanks for your help!

 

[MrsPete]

Same here. I have many patients still working full time jobs in their 70's and even quite a few in their 80's. Its sad because many of them have various medical problems but have no choice but to keep on working until they die beause they simply couldn't afford to live otherwise.

I think we're going to see more and more of that in the future, and I think somehow society, business, and/or government will have to make some changes to fix the problem -- individuals aren't going to do it, and historically society has changed when huge numbers of people have been in the same economic trouble.

Examples: In the Great Depression, when people couldn't find work, the government invented jobs like the WPA and it got people going again. In the 1950s-60s when large families became a financial liability rather than a financial asset, people adjusted their idea of an ideal family size. The point: If large nubmers of retirees are unable to support themselves, something in our society will change.

Maybe the extended-family lifestyle will come back into vogue, and we'll all be living like the Waltons. This would cure the problem of unaffordable daycare along with the problem of senior housing costs. (Okay, that probably won't happen, but it's the only idea I could throw out there right now.)

 

[disneysteve]

I think we're going to see more and more of that in the future, and I think somehow society, business, and/or government will have to make some changes to fix the problem

Another thing that could happen is they will punish those who did save and prepare for retirement by reducing SS benefits or raising taxes on capital gains and investment income to raise money to pay for more social programs to support those who didn't prepare adequately.

 

[MrsPete]

One comment I wanted to make after reading your post sandra....very smart move going for a job that will provide a pension. You guys are getting a late start on your retirement saving, and that's okay as long as you know what you are facing as you move forward. And so a pension for you is a big, big benefit. For example, let's say that your future pension provides you with 30K income per year in retirement. Someone without a pension would need to save nearly $750,000 to provide that same income.....that's how valuable a pension is!

Yep. Though they're dying out, pensions are great. As a teacher, my paycheck is small, but my husband and I consider my financial contribution to be as valuable as his for two reasons:

1. I have a pension, which makes retirement easier. Though some companies have screwed their pension holders after retirement, working for the state is about as safe as you can get in the pension world.

2. I am always off work when the kids are out of school, so it saves big bucks for us in child care costs. Summer care alone costs thousands!

Teaching isn't always easy,but it is a great job for a mom who wants to do a good job with her family but who also wants a paycheck.