problem with retirement spending

[LivingAlmostLarge]

So chatting with my mom last night explaining that it's hard to retire when you don't have a pension. She said "no one should retire without a pension...I told you to go get a job with a pension. Now you will never be able to retire." I said if you have $5m (today) and were to retire that would be enough without free medical for life or pension. Her answer? No you can't retire, you have to pay for your medicare supplement and everything not covered. You'll be drawing on your retirement.

I pointed out that you don't need $5M and most people don't. She freaked out and said you aren't supposed to use your retirement savings in retirement. Hence why you needed SS and Pension and free medical for life. You can't afford to retire on a fixed income. I pointed out you saved this money and you need to use it. You need to draw it down.

She said "you are going to run out. Nobody unless they are bill gates or jeff bezos or facebook man has enough money to really retire. Everyone else without pensions are eeking out. The average joe needs a pension and free medical for life. You can't afford to retire. And people don't even have $1m saved. How can they retire?

I think it's a big thing that people have this fear about retirement because the idea of spending what you saved, even though you saved it is horrifying. I can't help but wonder if that is a problem for people?

[disneysteve]

I think a lot of people have the impression that you need a ton of money, well into 7 figures, to retire, because that's what every article and story seems to say. While the intent is to encourage people to save, I think it often accomplishes just the opposite and makes people feel like they'll never have enough so why bother trying.

I'm a little baffled by her comment that "you aren't supposed to use your retirement savings in retirement". What else are those savings for? Maybe she just means you're supposed to live off the income and not touch the principal because that's certainly a common thought. In that case, you do need to start with a larger nest egg.

[Fishindude77]

Here views are a bit outside the norm.
The average American simply doesn't care, saves almost nothing, makes almost zero plans for retirement and still gets along OK on a meager savings, SS, and government assistance.

People that are too lazy or undisciplined to save, plan and invest would be much better served to try to find a career that has a pension plan.

[kork13]

Personal savings, pension, and Social Security was the 3-legged stool supporting retirement for most people. LAL, I think your mother is simply un(der)informed, and panicking because one (or two) of those legs are missing for many people.

According to the SSA, the average SS payment is $1550/mo for an individual, or $2550/mo for a retired couple. Assuming a married couple retiring at FRA, that means at least $30k is covered for basic survival expenses. Medicare is there if needed. It really doesn't take a whole lot to supplement a $30k/yr income to cover pretty much all of a retired couple's expenses. Federal Bureau of Labor Statistics says the average retiree spends $45k/yr, so we just need to supplement SS by $15k/yr. That's pretty easy. Any combination of a small part-time income source, a rental property or two, or simply having $400k saved in retirement accounts will cover that (per the 4% rule). BTW, Federal Reserve data shows that the average 65-74 y/o has roughly $426k in savings.

All of that deals with averages, and median account balances for that age group is much lower ($165k). But the point is clear -- it's not all doom and gloom, and plenty of people are going to do JUST FINE without a pension. It won't be a luxurious retirement if you're not saving more intentionally for it, but so be it.

[LivingAlmostLarge]

She said I don't get how expensive it is to retire. I was saying you don't need that much and that people with $5M as an exaggeration have no worries. She kept saying they don't have enough. Trust me I know my mom is bad with understanding money and in general finances. But I don't think her mentality of how much you need or needing a pension is out of the normal weirdly enough. I bet a lot of people of the older generation think that way.

[disneysteve]

I don't think her mentality of how much you need or needing a pension is out of the normal weirdly enough. I bet a lot of people of the older generation think that way.

Well certainly pensions were much more common a few decades ago, but there were also still plenty of people who didn't have one. Any business owner, for example. My father didn't have any pension as he owned his own business. He retired just fine (although died early) and my mom has been living fine on their nest egg for the past 30 years. They never had anywhere near $1 M.

[Scallywag]

Here views are a bit outside the norm.
The average American simply doesn't care, saves almost nothing, makes almost zero plans for retirement and still gets along OK on a meager savings, SS, and government assistance.

People that are too lazy or undisciplined to save, plan and invest would be much better served to try to find a career that has a pension plan.

I am assuming you are referring to government (state / federal) pensions? I don't know how stable or trustworthy a corporate pension would be. There have been a few companies (including mega corps) whose pension plans have gone belly-up. So I wouldn't put too much store on private pensions. State / federal pensions, now... sure, although I don't know if I would want people who can't balance their own budgets to be running my country / state!

I am on the fence about non-profit pensions but would treat them "on par" with corporate pensions. If the company or non-profit is able to honor their pension obligations when it's time for you to collect, then great! If not, then too bad, hope I've saved enough up to be just fine without that "icing on the cake".

[Fishindude77]

I am assuming you are referring to government (state / federal) pensions? I don't know how stable or trustworthy a corporate pension would be. There have been a few companies (including mega corps) whose pension plans have gone belly-up. So I wouldn't put too much store on private pensions. State / federal pensions, now... sure, although I don't know if I would want people who can't balance their own budgets to be running my country / state!

I am on the fence about non-profit pensions but would treat them "on par" with corporate pensions. If the company or non-profit is able to honor their pension obligations when it's time for you to collect, then great! If not, then too bad, hope I've saved enough up to be just fine without that "icing on the cake".

There are still a few other places outside of government employment where you can get a retirement pension. Many unions still provide a pension. A buddy of mine retired as a UPS driver, Teamsters union at 50 with full pension till death, and medical coverage until medicare age. He's one that gets by fine on his pension, SS, and doing a little side work.

[LivingAlmostLarge]

Military pensions are a big one and federal government or state worker pensions. And the military pensions seem very high, so I assume it's the same with federal workers. I mean my mom's state pension of $6k/month if you had two state workers pulling in $6k/month plus SS (like my aunt and uncle school teacher!) they are making like $150k/year and no drawing on savings. They have no retirement savings and $1m in cash in the bank (literally sitting in savings account). Two teachers who taught high school. Make more than most private sector workers with their pensions and SS.

Union workers also seems to have pretty substantial pensions. I think even now about 1/3 of the population has a pension. Down from an all time high but that means like potentially 1/3 of workers if they were military, union, federal, state workers do they need savings outside of their monthly money coming in? Probably not.

https://www.cnbc.com/2018/04/16/how-...americans.html Paul Ryan has an $85k/year pension from the federal government

Average pension private is $9200 and $22k for state/local/government pensions. That plus the average SS is $1543/month or $18k/year per person. So a couple with a 2 federal pension and 2 SS looks at $44k+$36k = $80k/year combined. Not terrible and not much is needed probably saved.

[kork13]

Military pensions are a big one and federal government or state worker pensions. And the military pensions seem very high, so I assume it's the same with federal workers. I mean my mom's state pension of $6k/month if you had two state workers pulling in $6k/month plus SS (like my aunt and uncle school teacher!) they are making like $150k/year and no drawing on savings. They have no retirement savings and $1m in cash in the bank (literally sitting in savings account). Two teachers who taught high school. Make more than most private sector workers with their pensions and SS.

...... potentially 1/3 of workers if they were military, union, federal, state workers do they need savings outside of their monthly money coming in? Probably not.

Having a pension definitely makes retirement significantly easier.

This is a big part of DW & I having the flexibility to not work at all once I retire from the military in 2028. I think the most exceptional thing with active duty military pensions is that they start immediately upon retirement, not at 60 or 65 or whatever else.

[Drake3287]

To a certain degree your mom makes some sense. I'm luckier than most people with having both a large pension, free medical/dental for life along with a life time of savings. But, and this is a big but, many people have no idea how to "save" or invest for retirement. They literally go through life buying new cars, boats and every other type of toy before putting retirement first. These people basically live pay check to pay check all their life and never save any considerable amount of money.

Although most of my work-related friends have the same retirement as me, few actually saved along the way and many are now forced to rely on the monthly pension check with nothing else as a back up or supplement.These are the exact people that would be forced to work until old age simply because they never saved or thought about the future.

Retiring comfortably starts at an early age and unfortunately for many people that start late, they'll be playing catchup the rest of their lives.