Are you saving enough for retirement?

[bizaro86]

Originally Posted by Slava

$40k, after tax and factoring in inflation, and that $200k portfolio is not surviving. I haven't run the numbers, but it's not sensible to me unless you're using a return rate that's high.

He said $40k income with $15k per person of other income. So the $200k only needs to throw off $10k/year. If you're fine to spend down the principal I think that would almost certainly be fine for a normal length retirement.

Edited to add: it looks like firecalc is a monte Carlo using actual past US stock market returns.

[GGG]

The question is will tomorrows retirey own their own home. In Cliffs typical person it’s missing a paid off house which is the equivalent of somewhere between a 12k and 24k cash flow. This is worth the equivalent of a 250-500k additional retirement savings.

Otherwise paid off house two people 40k isn’t a terrible lifestyle.

[Slava]

Originally Posted by bizaro86

He said $40k income with $15k per person of other income. So the $200k only needs to throw off $10k/year. If you're fine to spend down the principal I think that would almost certainly be fine for a normal length retirement.

Edited to add: it looks like firecalc is a monte Carlo using actual past US stock market returns.

Yeah and I'm definitely jaded because I think that the entire fire movement is questionable. For instance, $2500/month after tax (which is essentially what this is), for two people s fine if you don't actually plan to do much of anything. If you want to pursue any hobbies or travel though, it's not much money. And the bigger concern is that relying on CPP/OAS is all well and good, until one of those two people die. Suddenly that $2500/month gets reduced further.

And as far as that calculator itself goes, there are a number of assumptions made there. One is that the equity exposure is 100% throughout retirement. That said, there is a darker issue lurking for a lot of these types of models. Bonds and Fixed Income was a good contributor to retirement plans for the past thirty years; you could get a good yield, stability in price and everyone was thrilled. Interest rates also declined from say %6-7 down to under 1% though, so you had a nice longer term tailwind for the retiree to ride down. How does that look going forward with rising rates and less of a contribution from that FI sleeve? Suddenly those 60/40 balanced mandates that gave you a nice even 7-9% a year and made that projection work on a historical basis are giving you more like 3-5% a year (say 7-8% from the equities and 1-2% from the FI). And make no mistake when people retire they're not super interested in seeing the markets decline 13% (which is the longer term average that we see on the S&P 500 each year). It's quite a conundrum.

Anyway...tl;dr: I personally wouldn't prepare for retirement based on $200k in savings and $40k/year pre-tax income, but YMMV.

[CaptainYooh]

Originally Posted by Slava

...It's quite a conundrum...

It is. The answer is - have a solid growth portfolio of assets beating inflation including stocks paying good dividends by the time you're ready to retire. That's it; easy enough. Reminds me of the old SNL skit "Be attractive. Don't be unattractive!"

[Slava]

Originally Posted by CaptainYooh

It is. The answer is - have a solid growth portfolio of assets beating inflation including stocks paying good dividends by the time you're ready to retire. That's it; easy enough. Reminds me of the old SNL skit "Be attractive. Don't be unattractive!"

Lol, yeah no problem. Just make more money in retirement than you spend, including inflation and you're all set.

[bizaro86]

Originally Posted by Slava

Yeah and I'm definitely jaded because I think that the entire fire movement is questionable. For instance, $2500/month after tax (which is essentially what this is), for two people s fine if you don't actually plan to do much of anything. If you want to pursue any hobbies or travel though, it's not much money. And the bigger concern is that relying on CPP/OAS is all well and good, until one of those two people die. Suddenly that $2500/month gets reduced further.

And as far as that calculator itself goes, there are a number of assumptions made there. One is that the equity exposure is 100% throughout retirement. That said, there is a darker issue lurking for a lot of these types of models. Bonds and Fixed Income was a good contributor to retirement plans for the past thirty years; you could get a good yield, stability in price and everyone was thrilled. Interest rates also declined from say %6-7 down to under 1% though, so you had a nice longer term tailwind for the retiree to ride down. How does that look going forward with rising rates and less of a contribution from that FI sleeve? Suddenly those 60/40 balanced mandates that gave you a nice even 7-9% a year and made that projection work on a historical basis are giving you more like 3-5% a year (say 7-8% from the equities and 1-2% from the FI). And make no mistake when people retire they're not super interested in seeing the markets decline 13% (which is the longer term average that we see on the S&P 500 each year). It's quite a conundrum.

Anyway...tl;dr: I personally wouldn't prepare for retirement based on $200k in savings and $40k/year pre-tax income, but YMMV.

Yeah, 100% US equities is definitely more risk than the average retiree could handle I suspect. 30 years of dropping interest rates probably also increased the average equity market return, if you compare the market multiple now to the multiple in 1982 it seems like there could be some upcoming sequence of returns risk...

[Enoch Root]

Originally Posted by bizaro86

Yeah, 100% US equities is definitely more risk than the average retiree could handle I suspect. 30 years of dropping interest rates probably also increased the average equity market return, if you compare the market multiple now to the multiple in 1982 it seems like there could be some upcoming sequence of returns risk...

Definitely, but 1982 was the bottom, so that doesn't seem like a very good comparison. Better to use long term historical averages. And by that metric, the US market - specifically the S&P500 - is quite high as you say, but not as insane as it would look against 1982.

The rest of the market, BTW, and the rest of the world equity markets, are not at all expensive, by way of their multiples. It's just those damn 100 or so, ridiculously priced tech stocks.

Anyway, sorry, back to retiring on $40k/year.

[bizaro86]

Originally Posted by Enoch Root

Definitely, but 1982 was the bottom, so that doesn't seem like a very good comparison. Better to use long term historical averages. And by that metric, the US market - specifically the S&P500 - is quite high as you say, but not as insane as it would look against 1982.

The rest of the market, BTW, and the rest of the world equity markets, are not at all expensive, by way of their multiples. It's just those damn 100 or so, ridiculously priced tech stocks.

Anyway, sorry, back to retiring on $40k/year.

Oh for sure, it just happens that 40 years ago was 1982. I completely agree there are bargains elsewhere, even extreme bargains (Hong Kong has profitable businesses trading less than net cash).

However since firecalc uses US market data, coming at what could be the end of a 40 year period of significant multiple expansion will skew the results, as more of the periods in the simulation end at high multiples.

I also completely agree with ggg. $40k pretax with a paid off house is probably comfortable. It's not around the world first class caviar and champagne, but you could probably swing a shoulder season cruise every year or two if that was a priority. (Or golf regularly, or whatever)

But if rent or a mortgage is coming out of that $40k it's a different story, and things would be very tight.

[Slava]

Originally Posted by bizaro86

Oh for sure, it just happens that 40 years ago was 1982. I completely agree there are bargains elsewhere, even extreme bargains (Hong Kong has profitable businesses trading less than net cash).

However since firecalc uses US market data, coming at what could be the end of a 40 year period of significant multiple expansion will skew the results, as more of the periods in the simulation end at high multiples.

I also completely agree with ggg. $40k pretax with a paid off house is probably comfortable. It's not around the world first class caviar and champagne, but you could probably swing a shoulder season cruise every year or two if that was a priority. (Or golf regularly, or whatever)

But if rent or a mortgage is coming out of that $40k it's a different story, and things would be very tight.

My perception is pretty skewed on this, but $40k is pretty low. It depends on your living arrangements and situation, and of course what you want to do. And god forbid anything go wrong, because there's not a lot of leeway there.

[bizaro86]

Originally Posted by Slava

My perception is pretty skewed on this, but $40k is pretty low. It depends on your living arrangements and situation, and of course what you want to do. And god forbid anything go wrong, because there's not a lot of leeway there.

Yeah, but with income splitting, age amount, etc that $40k is probably close to $3k/month net. If you have a reasonable place that should leave you at least $2k after shelter costs, maybe more if you defer the property taxes (as a senior) I agree its not luxurious, but lots of people in this country live on less than that. CPP/OAS are also indexed, which helps a great deal, as does prescription coverage for seniors.

My personal goals are higher, but I absolutely plan to travel extensively and drive newish vehicles.

[The Fisher Account]

I know you can never have enough money, but paid off house and two gov't DB pension plans? How aggressive would you save towards retirement?

[Sliver]

$40k for two people? That's madness. Even with a paid-for house. Like, you're going to have to do your roof once during retirement. That alone would be 25% of that year's retirement income. Forget it. That's living insanely tight.

[Sliver]

Originally Posted by The Fisher Account

I know you can never have enough money, but paid off house and two gov't DB pension plans? How aggressive would you save towards retirement?

What's a gov't pension? 70% of the average of your highest-earning five years? If you were two teachers making 100k/year at retirement, your pension will be $140k/year for the two of you, plus insane health coverage until the day you die. I fataing hope you could live a comfortable retirement off that.

[Slava]

Originally Posted by bizaro86

Yeah, but with income splitting, age amount, etc that $40k is probably close to $3k/month net. If you have a reasonable place that should leave you at least $2k after shelter costs, maybe more if you defer the property taxes (as a senior) I agree its not luxurious, but lots of people in this country live on less than that. CPP/OAS are also indexed, which helps a great deal, as does prescription coverage for seniors.

My personal goals are higher, but I absolutely plan to travel extensively and drive newish vehicles.

But there are all kinds of other considerations. Like prescriptions are covered, but not 100% depending on what you're on (and of course that's really not that predictable). And as far as shelter costs, it depends on what your situation is. Like fully able bodied, living in a paid off house, I can see it. But living in a condo means condo fees, and it really depends on where that is as far as what that ends up costing. Then you have that other potential burden of needing to pay for care. Yes, that could just come from the sale of your house, and certainly people do that, but there are several moving parts.

And as you allude to, a lot of people have things they want to do when they retire. It doesn't really matter what those things are (hobbies/travel/experiences), they all cost money. Travel is super common as something that my clients want/plan to do, and travel at say 65 is completely different than at 25. When you're 25 you can kind of slum it and do the "Europe on $10/day" kind of trip. People who are 65 aren't doing that; they want a good bed, they want tours and they want good meals. It's not a cheap undertaking, and that's almost any kind of travel as you age. I don't think that's a stretch to suggest that this kind of thing applies to a lot of things as people age either...they like nice things and they're not going to live forever.

And finally...don't forget about kids/grandkids. I know there are a lot of people who think "the kids can fend for themselves because I had to" and that's up to personal preference and such. I'll just say that peoples thoughts on these matters can change pretty quickly when they're in that situation and debating whether they should help their kids out with whatever the issue is.

Of course, if you're perfectly healthy, don't want to do anything that costs much money and have no kids/don't plan on helping them in any manner and things like that, $40k/pre-tax might be great.

[I_H8_Crawford]

Originally Posted by Slava

But there are all kinds of other considerations. Like prescriptions are covered, but not 100% depending on what you're on (and of course that's really not that predictable). And as far as shelter costs, it depends on what your situation is. Like fully able bodied, living in a paid off house, I can see it. But living in a condo means condo fees, and it really depends on where that is as far as what that ends up costing. Then you have that other potential burden of needing to pay for care. Yes, that could just come from the sale of your house, and certainly people do that, but there are several moving parts.

And as you allude to, a lot of people have things they want to do when they retire. It doesn't really matter what those things are (hobbies/travel/experiences), they all cost money. Travel is super common as something that my clients want/plan to do, and travel at say 65 is completely different than at 25. When you're 25 you can kind of slum it and do the "Europe on $10/day" kind of trip. People who are 65 aren't doing that; they want a good bed, they want tours and they want good meals. It's not a cheap undertaking, and that's almost any kind of travel as you age. I don't think that's a stretch to suggest that this kind of thing applies to a lot of things as people age either...they like nice things and they're not going to live forever.

And finally...don't forget about kids/grandkids. I know there are a lot of people who think "the kids can fend for themselves because I had to" and that's up to personal preference and such. I'll just say that peoples thoughts on these matters can change pretty quickly when they're in that situation and debating whether they should help their kids out with whatever the issue is.

Of course, if you're perfectly healthy, don't want to do anything that costs much money and have no kids/don't plan on helping them in any manner and things like that, $40k/pre-tax might be great.

So what is a good range for annual spend in retirement? $100K? $200K?

Just curious as to your opinion

[Enoch Root]

I have clients who think they need $40k, and clients who think they need $400k.

Life is choices.

But I agree with Slava - $40k leaves VERY little wiggle room

[Slava]

Originally Posted by Enoch Root

I have clients who think they need $40k, and clients who think they need $400k.

Life is choices.

But I agree with Slava - $40k leaves VERY little wiggle room

Yeah there's a pretty diverse range. It depends on how you live, what you want to do and of course it will depend on how much you make/made while working. Like no one is going to feel bad for someone retiring on $100k/yr, but if they're making $250k and they are retiring on that, it's an adjustment!

[Jason14h]

Retiring on $40k doesn’t leave a lot of room for Dome beers and Flames tickets

And that’s not a world I want to retire too !

[blankall]

Originally Posted by Sliver

$40k for two people? That's madness. Even with a paid-for house. Like, you're going to have to do your roof once during retirement. That alone would be 25% of that year's retirement income. Forget it. That's living insanely tight.

Who is doing roofs for $10k?

[Sliver]

Originally Posted by blankall

Who is doing roofs for $10k?

Did I lowball it? I had to do my roof in 2009 and it was $7k or something on a ~1500sf bungalow. I was just going off of that.

Edit: Okay, just looked back in my spreadsheet and yeah, that would have been low even back then. Actual price was $7700 and I bought the shingles myself direct from a supplier and paid a roofer guy I knew cash for the installation. I didn't even cheap out on the shingles...they're really nice and beefy looking.