Amount needed vs Amount wanted for retirement

[Smilinggirl]

I've been reading this and other financial forums on and off for years, and I've appreciated what I've learned, but I find I'm sometimes taken aback by the conversations about money needed for retirement. Some of you, maybe many of you, have millions set aside or you're on track to have millions. It makes me wonder, do you really anticipate needing that much in retirement? I keep a monthly budget and can anticipate roughly how much I'll need as I grow older, but it's not nearly the amount most of you have or are planning to have. I feel like maybe I'm missing something obvious.

[HundredK]

I think it depends on your own personal retirement goals. But the reason many have millions is because they plan to live off of the earnings of those millions, and then probably pass most of those millions along to an heir when the time comes. Me, I plan to spend every last dime since there is no one I want to leave money to. But I am still saving aggressively because I still want the earnings from my money to fund as much of my life as possible, and hopefully I'll know at some point that the end of life is near and I can go have one hell of a spending party. Otherwise, some random charity will be very happy.

[disneysteve]

I think most of us use the basic rule of thumb 4% rule, meaning in retirement you can withdraw 4% of your nest egg in year one, then adjust annually for inflation. The corollary to that is that your nest egg needs to equal 25 times your annual spending. Those figures are based on simulations showing that maximizes your chances of not running out of money later in life.

So if you anticipate your annual spending being $50,000, you need a nest egg of at least $1.25 million. You also need to account for how much of that nest egg will be taxable upon withdrawal, so you may need even more to end up with 50K.

Also, many of us, especially those planning to retire before full retirement age, don't count Social Security in our planning. If you want to retire at 60 or 55 or even earlier, SS isn't going to be there.

Until this country joins the rest of the world and institutes universal health care, that's also a reason why we all plan to have so much saved before retirement. Health care costs as we age can easily sink our finances. You need a few hundred thousand just for that, especially if you're retiring somewhat early. If you need to pay your own way for 10 years until Medicare kicks in, you're going to need a big chunk of money set aside for that alone.

[Smilinggirl]

You both make good points. I’ve really been thinking about finances for my older years lately. It’s scary to know that I’m most likely going to be alone, so I really can’t afford to mess it up.

[disneysteve]

I plan to spend every last dime

That's great. What date is it that you're going to die? Having that knowledge would make planning so much easier.

I'm joking, of course. None of us know how long we're going to live or what will happen to us in the future. Will you live to be 80 or 95 or 70 or 102? Will you develop any health issues that require costly care or perhaps renovations to your house to make it more accessible.

Saving as much as you can just makes you as prepared as possible for whatever may lie ahead.

[moneybags]

Until this country joins the rest of the world and institutes universal health care, that's also a reason why we all plan to have so much saved before retirement. Health care costs as we age can easily sink our finances. You need a few hundred thousand just for that, especially if you're retiring somewhat early. If you need to pay your own way for 10 years until Medicare kicks in, you're going to need a big chunk of money set aside for that alone.

This! We are planning on retiring by age 60. That leaves us at least 5 years of covering our own medical.

[kork13]

Steve summarizes my thoughts fairly well. We plan to retire in our 50s, ignore SS (if it's there, gravy), and are roughly targeting the 25x expenses mark, with almost all of it tax free in Roth accounts..... Though we're likely to end up with well more than that

Our baseline expenses are only around $40k, but plan toward $80k-$100k/yr to provide for travel & comfort. So we need a minimum of $1M, but $2.5M is a better figure. My actual projections point toward having ~$5M by age 55, and should be significantly supplemented by military pensions for DW & I. All of this means that we'll likely have far more than we need, so we'll be able to be very generous with our time & money while enjoying our retirement as we choose.

But that doesn't mean you or anyone else needs to amass a huge amount of wealth to do just fine in retirement. If you're approaching retirement, you can likely count on SS providing some support. Working until 67-70 helps alot of people top off their savings, and increases their SS amount. Assuming $40k annual expenses with an average ($1500/mo) SS check, you really only need savings to produce $22k/yr, with a nest egg of about $550k.

Saving up $550k is totally achievable for almost anyone with some discipline & focus. A person can get realistically save that in just 11 years by saving $33k/yr (admittedly pretty aggressive, maxing Roth IRA + 401k + catch-up contributions), 15 yrs saving $20k/yr, 20 yrs saving $15k/yr, or 30 yrs just maxing a Roth IRA ($6k/yr).

[HundredK]

That's great. What date is it that you're going to die? Having that knowledge would make planning so much easier.

I'm joking, of course. None of us know how long we're going to live or what will happen to us in the future. Will you live to be 80 or 95 or 70 or 102? Will you develop any health issues that require costly care or perhaps renovations to your house to make it more accessible.

Saving as much as you can just makes you as prepared as possible for whatever may lie ahead.

That's why I said I'll either have some indication that death is near and go on a fantastic spending spree, or a random charity will be very happy. Things like home renovations as we age are another reason we just don't want to own. Who knows what type or size of house I'll want when I'm older? Who knows what accommodations I'll need? Will I be able to climb stairs? Will I need a wheelchair friendly place? Will I need to live on a first floor or in a place that has elevators? Who knows! I'd rather us be flexible and go where our needs point us without the lead weight of home ownership holding us back. That's not the only reason we don't own, of course, it's really not something we're at all interested in. But it's worth considering how different things become as you age and how much your needs change.

[disneysteve]

That's why I said I'll either have some indication that death is near and go on a fantastic spending spree, or a random charity will be very happy.

I hope that when death is imminent, we're all well enough to enjoy that spree.

The reality is that studies show spending in retirement tends to increase in the first few years, then it levels off, then it drops in the later years due to illness and just plain getting old. I can tell you that my mom is 90 and even before COVID hardly went anywhere other than the supermarket, a store or two, and an occasional stage show. She would love to take a cruise but we don't see how she could possibly get around on a big ship. I'd be afraid of her falling and getting injured out in the middle of the ocean somewhere.

[HundredK]

I hope that when death is imminent, we're all well enough to enjoy that spree.

The reality is that studies show spending in retirement tends to increase in the first few years, then it levels off, then it drops in the later years due to illness and just plain getting old. I can tell you that my mom is 90 and even before COVID hardly went anywhere other than the supermarket, a store or two, and an occasional stage show. She would love to take a cruise but we don't see how she could possibly get around on a big ship. I'd be afraid of her falling and getting injured out in the middle of the ocean somewhere.

Awww, I bet she'd do just fine on a ship. I think the cruise lines are well equipped to handle old folks since that's probably a huge number of their customers. And they have medical staff on board. It might be a super fun thing for her to do! Or for you to do with her perhaps? I hope when I'm 90 I can still be doing things like that, and honestly if I had to just sit around and do nothing because I was old, I'm not sure life would be much worth living. I'm an adventurous sort though. Maybe something like one of those Viking river cruises through Europe? Then at least she'd always be near a major city if something goes wrong.

[Fishindude77]

We were decently high earners during our working careers and were able to amass a pretty nice portfolio of real estate, cash, etc. We didn't want to reduce spending by much in retirement, so it takes a pretty large stash to generate income close to what we were earning via work. Our goal is to continue to spend at pre-retirement levels and to be able to pretty much do everything we want while still hanging on to our real estate and large assets to give to the kids or grandkids.

Time will tell how this plan works out, but after three years of full retirement it feels like it's going to work.

Not much you can do about the health insurance issue with ACA other than; keep working a W-2 job for insurance, keep income low and live below the ACA income threshold to keep this cost low, or just suck it up and pay the full price without any discounts. We're paying full price as we are above the income level to get any ACA discounts, so cost runs around $17,600 annually for us as a couple, plus the out of pocket cost if you need to use it. As a couple we'll pay for 7 years of it, then the wife only for a couple more years after I've reached Medicare age. Between the insurance and out of pocket over this time period we could easily spend $150,000 for health insurance coverage. Pretty cheap, when you consider that one procedure could easily cost that amount.

Planning ahead is the key. Start looking into things like health insurance costs, what your social security income will be, how much income your investments might generate without depleting them, what your cost of living will be, etc.

[disneysteve]

Awww, I bet she'd do just fine on a ship. I think the cruise lines are well equipped to handle old folks since that's probably a huge number of their customers. And they have medical staff on board. It might be a super fun thing for her to do! Or for you to do with her perhaps? I hope when I'm 90 I can still be doing things like that, and honestly if I had to just sit around and do nothing because I was old, I'm not sure life would be much worth living. I'm an adventurous sort though. Maybe something like one of those Viking river cruises through Europe? Then at least she'd always be near a major city if something goes wrong.

We've cruised with her a few times but it's been a number of years. If we do one, we'd go for something that stays in the US/Canada like a fall foliage cruise. We live about an hour from the cruise port here in NJ so we wouldn't have to fly and we wouldn't be visiting any 3rd world countries.

[bjl584]

I've been reading this and other financial forums on and off for years, and I've appreciated what I've learned, but I find I'm sometimes taken aback by the conversations about money needed for retirement. Some of you, maybe many of you, have millions set aside or you're on track to have millions. It makes me wonder, do you really anticipate needing that much in retirement? I keep a monthly budget and can anticipate roughly how much I'll need as I grow older, but it's not nearly the amount most of you have or are planning to have. I feel like maybe I'm missing something obvious.

It really depends on individual circumstances and anticipated or wanted lifestyle.
I could technically "retire" on very little if I was able to replace my income with something like dividends or a few rental properties.
Financial independence probably could be achieved much sooner than millions of dollars.
But, having millions of dollars would be a nice nest egg

[disneysteve]

It really depends on individual circumstances and anticipated or wanted lifestyle.

Totally. My dad died 28 years ago. My mom's been living on their nest egg for nearly 3 decades and never had anywhere near $1 million. Not even half a million. But she had a paid off home. 13 or 14 years ago she moved to a subsidized senior apartment building. She gets SS. She collects dividends from a small stock portfolio. She gets interest from a bond portfolio. And she owns a couple of mutual funds. Her expenses her really low. She doesn't need 40K or 50K/year so she never needed to have a 7-figure portfolio to support herself.

It all depends on how much you want to be able to spend.

[cypher1]

At age 39 I can get by with necessities around 2000 per month, but more realistically I'd say 2500 (which is still 30K baseline per year). So roughly 30K * 25 yrs = 750K for target amount. But I simply round up to 1 million for goal.

However, like the original poster mentioned, it's hard to determine what other unknown expenses are missing. The biggest unknown is medical/prescriptions expenses for me. The rate of saving for retirement I could probably retire in early 50s, but I'm simply not in any hurry to follow FIRE movement. In fact, I'd actually be willing to prolong retirement and continue with more active traveling now, than later.