Do you seriously think you can afford to retire? (Walmart, rating, expenses)

[mathjak107]

every plan has the devil in the details. we all need a starting point to at least know whats possible .

the problem is many just have no concept what these starting points represent.

you hear the figure 4% thrown out alot .

you really need to understand the details with rules because they are only rules if you meet the parameters and those parameters are the devil sometimes.

the 4% rule does not mean you can just take your savings , take an inflation adjusted raise every year and have your money last 30 to 40 years.

that rule is just a success rate you may have if you use certain equity allocations and if markets dont exceed the worst conditions those before us saw.

you may not want to commit to a 50 or 60% equity allocation in retirement. in that case your potential success rate may be quite lower then someone who does.

they may require alot less in savings with a 70% allocation to equities then you will with none to achieve that same level of income.

in fact bill bernstein says using tips and short term bonds and no equities that only 2% is a bullet proof inflation adjusted amount that can be counted on 100%.

thats 50% less income a year compared to the proverbial 4% which is based on having equity positions since each 1% in withdrawal rate represents about a 25% difference up or down in income..

thats why no one can speak for anyone elses base amount . all it shows is you have no clue what retirement planning is about .

the fact is someone may need double the savings you do if they are not going to be using much in the way of equities or other assets that contain more risk just to achieve the same level of income with the same potential success rate. .

the more conservative you are away from a 50/50 allocation the more in savings you may need to safely get that same income amount.


the amounts you need to save will be based on your own individual plans as far as what you will be using to generate that income.

[hartford_renter]

Originally Posted by FrmlyBklyn

One should aim to save about 25-30x their annual expenses less Social Security. You manage to tuck that away and you can retire comfortably. Don't pay no mind to the scare tactics of you must save 80% of gross income. Imagine if you are currently working and are saving 10% in a 401k - from the begininng you are starting out with 84% of gross (salary-10% 401k - 4.2% Fica - 1.4% Medicare), then deduct 15-20% for federal,state,local taxes, medical benefits - you now are living on 64% of gross. If you can swing it on 65% of gross today, why would you need 80% tomorrow - you don't. Even if you didn't save a dime in the 401k, you still would be coming home today with 75% of gross.

Remember, it's all about having enough savings/investments less any Social Security and/or pensions to cover expenses.

This is a great point

Most people have only 65% of their gross incomes after basic taxes! The 80% figure is thrown out and it has no reasonable basis to it.

Again its just a scare tactic

[Mr_Geek]

Every generation seems to say X amount of money today won't be enough to retire in year X. However, people seem to keep retiring and doing ok as long as they do a bit of planning. I'm not going to shoot for a number and go crazy trying to meet that number. I'll do my best and go from there.

[mathjak107]

Originally Posted by hartford_renter

This is a great point

Most people have only 65% of their gross incomes after basic taxes! The 80% figure is thrown out and it has no reasonable basis to it.

Again its just a scare tactic

Living on 65- 85% of your income isnt the same as saving enough to generate 65-85% of your income.

Your mixing up 2 different issues.

Generating that amount is based on your return each year,the sequence of those gains and losses ,inflation and the amount you have.

You may find 50% of your working income is enough but if its in a low return poor sequence scenerio you may have to save 2x what the person taking 85% needs to generate their income with higher returns and better sequencing.

You cant really link the percentage of working income you need to the amount you need to save without taking your potential returns,sequencing and inflation into the equation.

Maybe you need only 40k inflation adjusted out of the 80k you earned on the job. But tucked away in a cd you may need 2 million to generate it with negative real return interest rates.

On the other hand someone who needs 80k inflation adjusted and has a 60/40 mix that merely sees a scenerio that isnt any worse then history has thrown at us yet may need the same 2 million for their 80k as you do for your 40k with the same level of success rate.

[hartford_renter]

Originally Posted by mathjak107

Living on 65- 85% of your income isnt the same as saving enough to generate 65-85% of your income.

Your mixing up 2 different issues.

Generating that amount is based on your return each year,the sequence of those gains and losses ,inflation and the amount you have.

You may find 50% of your working income is enough but if its in a low return poor sequence scenerio you may have to save 2x what the person taking 85% needs to generate their income with higher returns and better sequencing.

No I'm not confusing anything. The 65-85% is simply wrong, it ignores taxes and savings. Everyone has pointed this out I don't think its hard to grasp.

You can guarantee a stream of income that is inflation adjusted with a withdrawal rate of 6%. I wouldn't do this because I would rather invest in stocks and bonds with the flexibility to change my withdrawal patter.

If you retire at age 65 your life expectancy is about 18 years. Inflation will not greatly affect your withdrawals you could buy insurance to protect against inflation but this probably isn't a smart idea.

You are not making any sense. Are you saying that if my returns are low my withdrawals will drop, well duh.

You haven't made a coherent argument you sound confused.

[mathjak107]

believe me im not confused .

do you just make stuff up in your head or what?

you need to do a lot of learning , there is a definate link between your withdrawal rate and your returns each year, the sequence of those returns and inflation. your withdrawal rate succes and the amount you need to save to succesfully pull that amount are dependant on it...

in fact 85% of your entire retirement outcome is determined by what the above do the first 15 years of your retirement.

are you telling us that none of the above parameters matter and you can just pull what you like or the size of your savings you will need is not dependant on the above??.

of course they are ,its not even disputable.

today an inflation adjusted annuity at 62 that passes to a spouses pays out about 3.5% at 65 for an inflation adjusted annuity and 3.2%at 62.

non inflation adjusted is a little over 5% for a couple at 62.

there is a big difference between the annuity vs doing it on your own .

in the end there is no money left with the annuity which may or may not be a concern for you .

a 60/40 mix would let you take the same 3.2% inflation adjusted withdrawal for over 30 years and 95% of the time have more money left then you started with . thats has held true for 146 years.

even pulling 5% inflation adjusted from that mix gave you 90% success so self rolled can beat an inflation adjusted annuity by a big margin..

i dont think anyone is forking all their money over for an annuity and quite frankley they would be idiots to do it. large expenses dont follow your annuity check and when you need a lump sum of money for an expense you need a well to go to so you can get it.


in many cases i can see up to 25% in an immeadiate annuity to go along with other investments you do on your own.

so you dont think 3 or 4% inflation over 20 years is going to be much? great for for you.

your life expectancy is wrong too. the 50% point for a married couple is 87 and for a single male 82. that means 50% go on longer.

flip a coin , which one are you and a spouse going to be?

for those who want to understand a little better the math that goes into determining savings size and amounts that can be safely withdrawn a good place to start is here.

you can click at the top where all the menus are and see or enter all the things that will play a part.
in the calculations.

FIRECalc: A different kind of retirement calculator

[mathjak107]

Originally Posted by hartford_renter

No I'm not confusing anything. The 65-85% is simply wrong, it ignores taxes and savings. Everyone has pointed this out I don't think its hard to grasp.

You can guarantee a stream of income that is inflation adjusted with a withdrawal rate of 6%. I wouldn't do this because I would rather invest in
__________________________________________________ __________________________________________________ _________________________
stocks and bonds with the flexibility to change my withdrawal patter.

If you retire at age 65 your life expectancy is about 18 years. Inflation will not greatly affect your withdrawals you could buy insurance to protect against inflation but this probably isn't a smart idea.

You are not making any sense. Are you saying that if my returns are low my withdrawals will drop, well duh.

You haven't made a coherent argument you sound confused.

show us that 6% inflation adjusted annuity for a couple at 62 or even 65. even a single at 65 i bet only exists in your head. they are in the 3% range


again i dont care if you only want 50% of your income , you still need a certain amount of money to do it. whether you do it with an annuity or on your own who cares.

you still need enough dough saved to get that income and that income withdrawl rate from savings will still depend on all the parameters above and then some..

did you know those that retired in 1921 could have taken an 11% withdrawal rate and not run out of money over their 30 years of retirement .

did you know those that retired in 1966 could have only taken 3.50 % over their 30 years and survived. 20 years of crappy returns and then getting hit with double digit inflation hurt retirees big time.

while the 1966 group had their income stand up fairly well at 3.5% the fact is unlike other retiree periods where there was even more money left at the end of the 30 years then they started with, the 1966 group was pretty much broke at the end of 30 years at just 3.5% and had a hard time going longer.

the reason is the yearly returns, the sequence of those returns ,inflation , interest rates and the valuation level of equities when they retired.

according to dr wade pfau those that retired in 2000 and have at least a 50% allocation to equities are on track for only a 1.8% withdrawal rate if things dont change over the next 2 years.

85% of that withdrawal rate you could take is formed in the first 15 years and so far with negative interest rates, low interest rates and a poor stock market for those who pulled the plug in 2000 it does not look like a pretty picture for them.

if they saved what they thought was enough enough to draw a 4% inflation adjusted amount and get 50% of their working income they may have to cut that income way way down to below what they projected.

they may have needed almost double the savings to safely draw that level of income they wanted.

remember no one follows these rules like a robot . everyone adjusts dynamically to whats going on around them and whats in their life.

projecting 85% of your working income may leave enough slack to cut back withdrawals if things are not going well. cutting your projection to 50% your working income and only saving an amount to give you that may leave you with no slack for cutting back or unexpected big financial bills..


there are no set rules, everyone has to do what they belive fits them. there are risky ways of calculating cutting things to the bone with no slack and there are overly conservative ways that leave to much on the table if we dont have scenerios as bad as some of the past.

the choice of whats for you is your own choice.

the important thing is to understand just where that the choice you make falls out and how much slack is in that plan.

you CAN NOT take one of those simple how long will my money last calculators and use them. they dont take the biggest factor into consideration.

that is the sequence of the gains and losses coming in. whether you are in equities or your in fixed income you will have years of negative real returns and they put a spin on the outcome those simple calculators can't deal with.

the difference that makes in the outcome is mind blowing.

i prefer firecalc and the fidelity income planner but im sure there are other good ones out there as well.

hartford if you dont understand the concept i cant help that but you really should at least understand the numbers you throw out.

on another note maybe you dont think 20-30 years of unknown inflation is not something that needs addressing but im sure many feel very different about it.

[FrmlyBklyn]

Originally Posted by mathjak107

the difference that makes in the outcome is mind blowing.

i prefer firecalc and the fidelity income planner but im sure there are other good ones out there as well.

hartford if you dont understand the concept i cant help that but you really should at least understand the numbers you throw out.

on another note maybe you dont think 20-30 years of unknown inflation is not something that needs addressing but im sure many feel very different about it.

Best one I've seen thus far is the aft-casting calculator developed by Jim Otar - retirementoptimizer.com Read his book, very lengthy "Unveiling the Retirement Myth" and expensive ($60). It will be the best $60 you ever paid. Another good calculator is TRowePrice Retirement Income Calculator. I've used Firecalc and others mentioned, they work, but I would not rely on them vs. your own stress-testing. Create a spending budget - outflow vs. expected inflow. Can you make it, if not, you may have to work longer, obtain public assistance if available, rely on relatives if available.

Mathjak makes several good points - it is the sequence of returns that can either make or break a retirement. Let's assume your income "floor" (absolute minimum level of income at retirement) dervived from Social Security is the average yearly payout received today (source: SSA.gov) - $1,238 per month (pre-tax) or roughly $15K, if that is your only income you won't owe tax. You will need to generate the remaining income from your investments/savings, at today's rates and given you want to retire with 25x expenses, most folks will need to have somewhere between 10x-15x gross income at retirement. Many will not - that will require a step down in lifestyle and/or public assistance, it will not be pretty. Saving 3% of gross in the early stages of career is okay, but it's not sufficient if you wish to retire at age 65, you'll have to increase it overtime to about 15% by age 40-45 including placing it in a diversified investment (equities/bonds/cash), parking it in a 1% CD will not work. Inflation is the wildcard, low inflation is good, high inflation will rob you of your savings.

[mathjak107]

the sequencing is very very key and thats why a simple how long will my money last calculator is so wrong.

as bill bernstein points out ,imagine a hypothetical retirement where the sequencing is the first 15 years your up 30% a year and the next 15 years your are down 10% every year.

you would have been able to draw 24.6% a year over 30 years and not run out of money. in fact you would have quite a bit left.

thats an 8.17% average annual return.

now put 15 years of -10% first followed by 15 years of up 30%

same exact 8.17% average return in both cases but if you drew more than 1.86% you would have gone broke within 30 years.

thats an amazing range.

sequencing risk even exists with money in the bank not just equities.

historically cd's returned about 1 to 1.5% real returns before taxes but many times rates have turned negative . negative real returns have you spending down more and more principal just to get the same income. that cuts next years income and causes even more principal erosion.

[FrmlyBklyn]

Originally Posted by mathjak107

the sequencing is very very key and thats why a simple how long will my money last calculator is so wrong.

as bill bernstein points out ,imagine a hypothetical retirement where the sequencing is the first 15 years your up 30% a year and the next 15 years your are down 10% every year.

you would have been able to draw 24.6% a year over 30 years and not run out of money.

thats an 8.17% average annual return.

now put 15 years of -10% first followed by 15 years of up 30%

same exact 8.17% average return but if you drew more than 1.86% you would have gone broke within 30 years.

thats an amazing range.

sequencing risk even exists with money in the bank not just equities.

typically cd's returned about 1 to 1.5% real returns before taxex. they have instead returning negative real return rates the last years taking its toll while your spending down more and more capital to get the same income.

Most folks will not survive 30 years in retirement. So don't worry about that. Keep your expenses low and save throughout your career and you'll likely be fine - not eating out, but you will have human food as opposed to Alpo.