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Message
Is my retirement thinking flawed?
Posted on 4/21/19 at 7:15 pm
Posted on 4/21/19 at 7:15 pm
I’m sure I’m looking at this the wrong way so I wanted to get the advice of the board. This is long so I apologize in advance.
I contribute 10% to 401k (employer matches the first 6%). I will receive a pension from our employer at retirement and the usual social security benefit. Going by the “401k tracker” on my Merrill lynch work account it says that my annual payout will be 95% of my current salary. I accounted for 1% investment return and 1% pay increase (I put in low numbers to be extremely conservative) in this scenario. My question is if I’ll be at 95% of my current salary at retirement why do I need to save more than this for retirement? My house should be paid for so I’ll be without a mortgage and I put at least 1k in savings and month now. So I have a mortgage now and I’m still able to put away over 12k a year. I just don’t understand why I’d need more money in retirement. I should be spending less then. What am I missing?
I contribute 10% to 401k (employer matches the first 6%). I will receive a pension from our employer at retirement and the usual social security benefit. Going by the “401k tracker” on my Merrill lynch work account it says that my annual payout will be 95% of my current salary. I accounted for 1% investment return and 1% pay increase (I put in low numbers to be extremely conservative) in this scenario. My question is if I’ll be at 95% of my current salary at retirement why do I need to save more than this for retirement? My house should be paid for so I’ll be without a mortgage and I put at least 1k in savings and month now. So I have a mortgage now and I’m still able to put away over 12k a year. I just don’t understand why I’d need more money in retirement. I should be spending less then. What am I missing?
8
Posted on 4/21/19 at 7:17 pm to GAFF
New hips will be extremely expensive in a few decades
Posted on 4/21/19 at 7:22 pm to Chad504boy
I assumed healthcare would be my biggest expense. My thinking is the amount I was putting towards my mortgage would roll into my health insurance premium. So I’m where I’m at now financially, essentially.
Posted on 4/21/19 at 7:55 pm to Chad504boy
Assumed a 1% return?
That’s pretty low, you should try a few more scenarios with better returns. Hell the high interest checkings are 1% return almost.
Look up what the historic average is and check that scenario as well
That’s pretty low, you should try a few more scenarios with better returns. Hell the high interest checkings are 1% return almost.
Look up what the historic average is and check that scenario as well
Posted on 4/21/19 at 7:56 pm to GAFF
A few reasons to at least consider:
-You said you're being conservative, but there's always a chance your projection is off
-Retire earlier
-Build Generational Wealth
-I have no idea your time horizon but you can always keep socking away like you are now and once you know for sure you have enough put aside you can just cut off all retirement after that point
-You said you're being conservative, but there's always a chance your projection is off
-Retire earlier
-Build Generational Wealth
-I have no idea your time horizon but you can always keep socking away like you are now and once you know for sure you have enough put aside you can just cut off all retirement after that point
Posted on 4/21/19 at 8:15 pm to SLafourche07
quote:
Eng08
The low assumption was intentional. I framed it as if I ONLY gained 1% and underperformed in return and pay where I’d be. The fact I should have a higher percentage helps my logic.
quote:
SLafourche07
Early retirement crosses my mind. It’s actually how this all started. I was considering opening a Roth so if I did retire early I could use my contributions in it to bridge the gap until my 401k went into effect.
As for generational wealth I have a 500k life insurance policy. It’s not millions but it’s more than I could likely save before I die.
I just fear of spending my younger years overly saving when I could be enjoying life
Posted on 4/21/19 at 8:29 pm to GAFF
Your excess thousand a month savings should be in a Roth now regardless of anything else.
Posted on 4/21/19 at 9:01 pm to GAFF
quote:
annual payout will be 95% of my current salary
Is that 95% of your current salary in 2019 dollars, or dollars in the year you plan to retire. Maybe I missed it but I’m not sure how inflation is factored in your calculations.
Having said that, you can over save for retirement and find yourself in a higher tax bracket than you anticipated. The best solution to that is a Roth IRA.
Posted on 4/21/19 at 9:18 pm to GAFF
quote:what you need to look at, is the math behind their 95%. You're taking it right now as gospel.
My question is if I’ll be at 95% of my current salary at retirement why do I need to save more than this for retirement?
My employer uses principal, and it has a similar estimator. If I rely on the VERY cushy number it displays, I'll be fricked for sure because my own math shows a much lower amount.
Posted on 4/21/19 at 9:28 pm to GAFF
Start buying dividend stocks?
Posted on 4/21/19 at 9:30 pm to GAFF
Yes that’s true, but you should look at the different rates so you know your options.
Also what’s your age currently? That has a big factor in the calculations.
For example I’m mid 30’s and my family has saved well so far for retirement. If I run a few simulation at varying average return rates (2.5, 5, and 6.5) I have like $4 mil, $10mil or $30mil if I work until 65 with a 80%, 50%, and 30% likelihood.
I mean hell - if I catch it right and get the 30% one - I’m quitting early and going fishing. Do I think it’s likely to happen, no. However I know I’m potentially on the right track to change my kids and grandkids lives drastically (if I want to).
Also what’s your age currently? That has a big factor in the calculations.
For example I’m mid 30’s and my family has saved well so far for retirement. If I run a few simulation at varying average return rates (2.5, 5, and 6.5) I have like $4 mil, $10mil or $30mil if I work until 65 with a 80%, 50%, and 30% likelihood.
I mean hell - if I catch it right and get the 30% one - I’m quitting early and going fishing. Do I think it’s likely to happen, no. However I know I’m potentially on the right track to change my kids and grandkids lives drastically (if I want to).
Posted on 4/21/19 at 9:35 pm to GAFF
quote:
I just fear of spending my younger years overly saving when I could be enjoying life
That’s a big reason we are looking to get a affordable house near the beach. I ran a simulation with that purchase in there as well.
I can’t afford the house on the beach, but I definitely can get the one 1/2 mile away and walking distance in the X flood zone.
Posted on 4/21/19 at 10:49 pm to GAFF
quote:
So I have a mortgage now and I’m still able to put away over 12k a year. I just don’t understand why I’d need more money in retirement. I should be spending less then. What am I missing?
Mainly, the big risk is inflation. Also, if you're health is relatively good, you might want to travel more, do more than you're doing now.
Frankly, it's a good problem to have. I would absolutely not stop saving if I were you.
Posted on 4/21/19 at 11:17 pm to GAFF
quote:
As for generational wealth I have a 500k life insurance policy. It’s not millions but it’s more than I could likely save before I die
This makes me wonder if your calculations are off if you're not already well on the path to saving millions. If I read correctly, you save 10% which is over $12k so you're making $120,000+. Using 4% rule you'd need to have $3 million to replace $120,000 income and that won't be sustainable w/ 1% rate of return.
Does the pension die with you? If so you may want more insurance if family is dependent on your income.
Posted on 4/22/19 at 5:54 am to TorchtheFlyingTiger
No, I put 10% into 401k. Salary is 80k base but I usually average 90-100k a year with bonuses and OT. Once everything is paid for the month I put 1k into my personal savings. The 12k number came from what I put into savings.
Posted on 4/22/19 at 7:08 am to GAFF
Sounds to me like you are in a wonderful position overall.
Congratulations.
Congratulations.
Posted on 4/22/19 at 7:34 am to GAFF
Does your calculator assume you are going to keep contributing at the same rate? If not:
1) Inflation
2) Taxes are unpredictable.
3) Long Term Care expenses
4) Items not covered by Medicare
5) Bringing your paid up house up to snuff (kitchen and bath remodels)- almost all retirees end up wanting to do something with their house
6) Changing around your house again when you are 85 and it’s hard to walk or step into your shower or into your garage.
7) Grand children
8) Possibility of poor sequence of returns at the beginning of retirement.
9) Poor choices of your kids (bad spouse, dui, bankruptcy, drugs) that cause you to either support them financially or raise their kids.
10) Unexpected emergencies.
11) Cuts to Social Security or your pension.
12) So when you have gone 20 years without a paycheck you can sleep at night knowing you are self sufficient with a large cushion.
If you have a large monthly surplus in your budget I’d spend half now on things that bring fulfillment to your life and save half for later.
1) Inflation
2) Taxes are unpredictable.
3) Long Term Care expenses
4) Items not covered by Medicare
5) Bringing your paid up house up to snuff (kitchen and bath remodels)- almost all retirees end up wanting to do something with their house
6) Changing around your house again when you are 85 and it’s hard to walk or step into your shower or into your garage.
7) Grand children
8) Possibility of poor sequence of returns at the beginning of retirement.
9) Poor choices of your kids (bad spouse, dui, bankruptcy, drugs) that cause you to either support them financially or raise their kids.
10) Unexpected emergencies.
11) Cuts to Social Security or your pension.
12) So when you have gone 20 years without a paycheck you can sleep at night knowing you are self sufficient with a large cushion.
If you have a large monthly surplus in your budget I’d spend half now on things that bring fulfillment to your life and save half for later.
This post was edited on 4/22/19 at 7:38 am
Posted on 4/22/19 at 8:06 am to GAFF
Open a Roth and/or a taxable brokerage. If you're considering retiring before 59 1/2 you'll want access to funds to augmented your pension. Taxable may work well since under current tax code you pay 0% long term capital gains if your income is below certain thresholds. Also, no required minimum distributions and balance is inherited at a stepped up basis.
Posted on 4/22/19 at 9:25 am to GAFF
quote:
Salary is 80k base but I usually average 90-100k a year with bonuses and OT.
What is your formula for the pension? My wife is a physician employed by LSU (academic/state job). She has the exact same base pay as you. She contributes a mandatory 8% with a 5.9% or 6.2% match... I can't remember.
She also gets paid for supplemental clinic duties to make up for the rest of her salary.
Pension formula is 5yr avg/highest base x 2.5% x 25 years = pension/yr.
It's a nice payout and should exceed Social Security.
Posted on 4/22/19 at 11:32 am to TheWiz
quote:
TheWiz
She has me beat.
Highest 3yr avg x 1% x 35 years. Still should be a nice chunk tho.
Earlier a poster said put the excess savings into a Roth. I’m more than likely going to go that route as well as try to start establishing a 509 for kids college. I’ve read into the Roth’s and everything I’ve read says to fund it for 20 or so years then move it to a high yield account. The example given gave a rate of return of 8%. Is this accurate? I’ve never seen a 8% return offered. Is there something I don’t know about? Also are you allowed to roll money out of a Roth into a different account without penalty?
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