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Discussion about retirement spending and how much you should save...
Posted on 7/21/15 at 12:09 pm
Posted on 7/21/15 at 12:09 pm
I am in my early 40's so I suppose I won't be retiring any time soon, but I have been giving retirement savings more attention lately and have been trying to do some research online. I know about all the retirement calculators and you can get varying results from each one.
I really have no clue how I will live in retirement, and it is doubtful I will spend what some of these sites suggest (eg, 80% of my current spending). I would like to think that I will simply adapt to my situation.
I have read about the magic "4% withdrawal rate of savings" and how only spending 4% of your nest egg each year should allow your savings to last 30 years. Do you agree with this? Is this truly the best metric to run with? It seems like something I can wrap my arms around since I know what I spend per month now and I know what I can trim from the spending once I am an empty nester.
what I am not sure if is this 4% rules accounts for Social Security payments.
I really have no clue how I will live in retirement, and it is doubtful I will spend what some of these sites suggest (eg, 80% of my current spending). I would like to think that I will simply adapt to my situation.
I have read about the magic "4% withdrawal rate of savings" and how only spending 4% of your nest egg each year should allow your savings to last 30 years. Do you agree with this? Is this truly the best metric to run with? It seems like something I can wrap my arms around since I know what I spend per month now and I know what I can trim from the spending once I am an empty nester.
what I am not sure if is this 4% rules accounts for Social Security payments.
12
Posted on 7/21/15 at 12:18 pm to Chicken
The 4% rate is simply a rule of thumb that you can withdraw at to allow for long term withdrawals.
After you get the number of how much you will recieve in your first year of retirement from a 4% withdrawal, you add this to SS payments to get your annual budget.
Keep in mind that the 4% may not stay at 4%, it's only for the first year. You might have to increase the percentage to account for inflation.
After you get the number of how much you will recieve in your first year of retirement from a 4% withdrawal, you add this to SS payments to get your annual budget.
Keep in mind that the 4% may not stay at 4%, it's only for the first year. You might have to increase the percentage to account for inflation.
Posted on 7/21/15 at 12:25 pm to Chicken
Inflation and the reality that SS may not be around leave me very dumbfounded. I plan to just do the best I reasonably can and worry more as I get closer.
Posted on 7/21/15 at 12:39 pm to Chicken
quote:
I have read about the magic "4% withdrawal rate of savings" and how only spending 4% of your nest egg each year should allow your savings to last 30 years.
I would think it would last longer at that rate.
Posted on 7/21/15 at 12:46 pm to Chicken
quote:
I have read about the magic "4% withdrawal rate of savings" and how only spending 4% of your nest egg each year should allow your savings to last 30 years. Do you agree with this? Is this truly the best metric to run with? It seems like something I can wrap my arms around since I know what I spend per month now and I know what I can trim from the spending once I am an empty nester.
what I am not sure if is this 4% rules accounts for Social Security payments.
first off, if you are in your 40s the chances of you seeing SS are pretty slim. At least for any substantial portion of your retirement.
The 4% rule works on paper, but the unknown factor is inflation and are we going to see interest rates up to close to 4% anytime soon? Will we see market swoons like 2000/2008 again? I don't know the answer to that.
I think its a good planning metric to start with, but if you are conservative 3% might be a better withdrawl rate to plan around.
There are much more complicated planning scenarios. Googling 4% will bring up critiques and alternatives.
One thing I will say is you should plan around the budget you think you will spend, not what you currently spend. This may be more or less.
Finally, don't you think you might have income streams above and beyond your retirement savings? I know I plan to retire at 46-48, depending on the market. But I also know that i will continue to do some sort of work until my early 60s, as will the wife.
This post was edited on 7/21/15 at 12:48 pm
Posted on 7/21/15 at 1:00 pm to Chicken
I've done an absurd amount of research on this topic for my own situation. It's quite interesting.
The 4% rule is often misunderstood. It isn't 4% of the nest egg each year. It is 4% of the amount of your nest egg in the first year, which is then adjusted every year thereafter for inflation over a 30 year period. If done correctly, you stand a 98-100% chance of having some money left over after 30 years. Asset allocation does make a difference (i.e. 98-100% is lowered if you have little/no exposure to equities)
See these for more info LINK and LINK and LINK
the 4% rule doesn't account for Social Security payments, nor does it assume you might cut back your spending in a recession - both of which would help keep a nice cushion that much more
FWIW, I plan to go with ~3.25% just to be totally safe
The 4% rule is often misunderstood. It isn't 4% of the nest egg each year. It is 4% of the amount of your nest egg in the first year, which is then adjusted every year thereafter for inflation over a 30 year period. If done correctly, you stand a 98-100% chance of having some money left over after 30 years. Asset allocation does make a difference (i.e. 98-100% is lowered if you have little/no exposure to equities)
See these for more info LINK and LINK and LINK
the 4% rule doesn't account for Social Security payments, nor does it assume you might cut back your spending in a recession - both of which would help keep a nice cushion that much more
FWIW, I plan to go with ~3.25% just to be totally safe
Posted on 7/21/15 at 1:18 pm to Chicken
Will your mortgage be paid off at your retirement age? For a lot of people that is 20% of their income right there. Add in a few other things you won't need anymore, such as commutes to work, tuition for kids, etc, and I bet that number for most people can actually be around 70%. Also, those sites do not seem to include SS payments. I wouldn't be surprised if in the next 10-15 years an entirely new Social Security Plan is implemented anyway. It will never completely go away, imo.
Posted on 7/21/15 at 1:59 pm to Hawkeye95
quote:yes, I am sure I will stay busy in some way...but I can't predict what I will do and if it will generate me any income.
Finally, don't you think you might have income streams above and beyond your retirement savings? I know I plan to retire at 46-48, depending on the market. But I also know that i will continue to do some sort of work until my early 60s, as will the wife.
Posted on 7/21/15 at 2:17 pm to Chicken
I'll just work in some capacity until I die. Will help keep the alzheimer's away(if not cured by then) and keep me a little busy so I don't croack from boredom. I'll leave "work" whenever I damn well please and do every thing I want it life.
This post was edited on 7/21/15 at 2:18 pm
Posted on 7/21/15 at 2:58 pm to Teddy Ruxpin
quote:
I'll leave "work" whenever I damn well please and do every thing I want it life.
its called frick you money. I am pretty close to having it, and the closer I get the more I want it.
If I could actually live off 80% of my current spend, I could retire next year. Retiring at 42 sounds really nice but also fricking ridiculous. Prime earning years and all.
I don't think I can do that. I think my spending will actually go up.
Posted on 7/21/15 at 3:46 pm to Chicken
I sent you the spreadsheet I made. Although it's probably lost in the tdemail junk already. 
Posted on 7/21/15 at 3:48 pm to Hawkeye95
Y'all know chicken is just trolling, right?
He's in his private yacht right now and his Victoria secret secretary is typing all this out for him.
He's in his private yacht right now and his Victoria secret secretary is typing all this out for him.
Posted on 7/21/15 at 10:07 pm to white perch
quote:
He's in his private yacht right now and his Victoria secret secretary is typing all this out for him.
Sounds hawt
Posted on 7/22/15 at 7:07 am to Chicken
My philosophy is to maximize every tax-advantaged account possible - Roth, 401, and HSA. Plus the company stock plan. That's quite a bit on its own and anything I have above that I will spend on hookers and blow without feeling a bit guilty.
If you max everything like that (and I realize TD may not provide a 401) then you're fine.
Consider also that increasingly there are many places around the globe where one can retire quite comfortably which welcome Americans. Panama is one - politically stable but you can retire on about half the income that it would take to do so in the US. Of course, knowing Spanish helps but there are plenty of American expats doing the same thing so you won't be by yourself by any means.
BTW, while I wouldn't *count* on SS I'm fairly sure it'll be around, though in perhaps somewhat altered form. Ten years ago I was more pessimistic.
If you max everything like that (and I realize TD may not provide a 401) then you're fine.
Consider also that increasingly there are many places around the globe where one can retire quite comfortably which welcome Americans. Panama is one - politically stable but you can retire on about half the income that it would take to do so in the US. Of course, knowing Spanish helps but there are plenty of American expats doing the same thing so you won't be by yourself by any means.
BTW, while I wouldn't *count* on SS I'm fairly sure it'll be around, though in perhaps somewhat altered form. Ten years ago I was more pessimistic.
Posted on 7/22/15 at 8:21 am to Chicken
The 4% distribution rule is considered the gold standard by those who represent the gold standard.
4% is typically calculated as the rate of return in those types of distribution models and the principal is left untouched. This strategy provides minimal income during your distribution phase. This move also overlooks future inflationary expenditures.
Try a principal and interest distribution calculation using the 4% rate of return and let know which one is more enjoyable. (Use your 30 yr. timeframe). And consider owning life insurance until the claim is made.
4% is typically calculated as the rate of return in those types of distribution models and the principal is left untouched. This strategy provides minimal income during your distribution phase. This move also overlooks future inflationary expenditures.
Try a principal and interest distribution calculation using the 4% rate of return and let know which one is more enjoyable. (Use your 30 yr. timeframe). And consider owning life insurance until the claim is made.
Posted on 7/22/15 at 8:29 am to BestBanker
Downvoted by the intelligent one.
Posted on 7/22/15 at 8:46 am to Chicken
My life goal is to spend 95% of everything I make each year and work until I'm 99
Posted on 7/22/15 at 12:07 pm to Chicken
Of you save (actually save, not save to spend) 20% of your income for your entire working career, you will be good to go.
Things included in savings:
Tax advantaged accounts
Savings accounts
CDs
Brokerage accounts
Equity buildup in home (this cannot be mark to market). It is best to assume zero appreciation for the asset and only assume principal pay downs as savings
Not included:
Early car payments (you can book the savings when you no longer have a note)
Vacation Homes
Random valuables in your house
Social security payments
Things included in savings:
Tax advantaged accounts
Savings accounts
CDs
Brokerage accounts
Equity buildup in home (this cannot be mark to market). It is best to assume zero appreciation for the asset and only assume principal pay downs as savings
Not included:
Early car payments (you can book the savings when you no longer have a note)
Vacation Homes
Random valuables in your house
Social security payments
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