Retirement – You May Need A Little or A Lot

   

Retirement – You May Need A Little or A Lot simple money man

 

We’re all at different places when it comes to retirement: some of us have a long way to go, some of us are in the middle, some of us are almost there, some of us are RETIRED, envious :-), and some of us are semi-retired and may be working part-time for other reasons. But for many of us who aren’t retired sometimes do wonder if the number we are thinking of may be enough. We also may also be wondering if we need to make adjustments to save more, or maybe live a little because we are presently surprised that we are over-exceeding.

 

This from U.S. News Money is chock full of useful information.

 

Retirement Assumptions

 

I’m sure many have read that that we should shoot to replace 70 to 80 percent of your pre-retirement income during retirement. Well according to Forbes, economist Teresa Ghilarducci argues that Americans need retirement savings equal to 20 times their final salary”. The author of the article itself, however, doesn’t really agree with this multiplier and mentions 11-12 times based on a consulting group. So I’m thinking right in the middle is good and saying that we may need 15 times our final salary to be comfortable in retirement.

 

So I put together SMM’s Free Retirement Estimator & Budget worksheet. Just by completing your name and email, you can  get the download link – (you won’t get spam from me):

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The worksheet is super easy to use doesn’t have all those inputs like many calculators you will find online, and flexible to add different income levels and even change the percentile if you find out your grandparents are living past 100 so you may be too! I’ve started it out with some fake me out numbers, but still realistic. Back in 2014, the average household income as reported by the U.S. Census Bureau was $73,298. Now in 2017, if we assume a 3% increase in income each year, that average goes up to $77,761 so I’ve averaged up the income level in column A to $78,000 for the purposes of this spreadsheet.

 

This is meant for early starters to get a very rough idea of how much they may need as it doesn’t take into account any money you have saved thus far (maybe I can create a spreadsheet for that in the future). Please note that it also doesn’t take into account where you will live, inflation, how long your retirement may last, and if you may have other sources of income. By the way, I added a monthly retirement budget where you can enter the estimated income and expenses to see how things could potentially play out. It too is very simple and flexible.

 

 

What’s Your Retirement Lifestyle Going to Be?

 

When you reach retirement, you may want to travel often, eat out all the time, and go to movies and concerts and shows. In order to do ALL of that, yes you’ll probably need 90% of your income. But what if you want to spend more time with your family and friends – some of whom also may be retired? What if you just want to relax on your porch, do some volunteering, nap twice a day and take a couple shorter trips per year? Well, then you may not need as much. I think I’d keep a balance between being an adventurer and a relaxer 🙂

 

Of course, it’s better to overestimate rather than under to reduce your anxiety about retirement funds needed.  And don’t forget that people are living longer too; close to and over the age of 100 in lots of cases. I recently read that you can purchase something called a qualified longevity annuity contract or QLAC. This is like a pension as it pays you a fixed monthly payment for as long as you live. It’s like insurance for when you become really old and may worry that your funds may not last your entire life.

 

It could be a good idea if your ancestors have a history of living past 90 or 100. And according to an insurance professor from the Wharton School of Business, this is a way to get great protection.

 

Bigger Expenses in Retirement

 

Healthcare – According to U.S. News, healthcare can double from age 50 to 80. They also note that dental expenses will go up too. Think of a car which you had a loan on, but five years later it is now finally paid off. But guess what; pretty soon other expenses related to wear and tear come up like replacing brakes and rotors, timing belt, radiator leak, oil gasket, and other common maintenance expenses that result in usage over time. Well, your body goes through wear and tear as well.

 

And even if you are in good health, the amount you spend on healthcare will be more than what it was when you were working.

 

This is consistent with Motley Fool as they believe that 15% is needed in continuous savings throughout your career with the main cost being attributable to healthcare. They’ve quoted estimates of $400,000 retirees at 65 today with need in their healthcare budget for the duration of their retirement.

 

Housing – I was a little surprised to see this one published both on U.S. News and Forbes as I was thinking most retirees have their home paid off. In the Forbes report, housing cost was based on the Bureau of Labor and Statistics identified as 46.89% of the elderly’s budget. But this is an expense that can be controlled much better than Healthcare. Why not downsize to a smaller home? Even if your house is paid-off, will you have the energy for its upkeep?

 

Travel/Entertainment – this could be a big expense. You’re retired. Is it time to have fun and reap the benefits of working and saving all those years right? You may want to travel a few times a year.

 

You may want to go out and eat several times a week. Or you may not. This expense can vary month by month, year by year. And you have the most control over this category. So earn your retirement glory days now by saving and investing wisely!

 

BONUS for people who are almost retired – recently I learned that you can get a whole lot more money if you tap into Social Security a few years later. Per U.S. News & World Report, a person could potentially get $320 more per month by waiting until age 70 instead of 66 in the example they mentioned. Since more people are living longer in our time, this delayed payout maybe something to seriously consider. And in the meantime, use your dividend income from your nest egg!

 

So what percentage of your salary do you think you’ll need in retirement income (70, 80, or 90)? Do you think you’ll be an adventurer or relaxer? If you’re already retired, are there activities you’d like to do more of?

 

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I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 

Simple Money Man (SMM)

20 Comments

  1. I’m pretty sure you know my thoughts on this SMM. I like to track my expenses every month. That way I know what we spend and can it adjust it for future considerations (health care, less work commuting, travel, etc.). This way we do not have to rely on any rules of thumb and can exit the paid working world with confidence whenever the time comes. Great post to start the new year. Tom
    Tom at Dividends Diversify recently posted…The 1 Resolution I Would Make – If I Were You (Part 1)My Profile

  2. Hey SMM, I love the offer of the spreadsheet.

    One thing I’ve been focusing on, is when I created a freebie, I use it as a lead magnet on my site. I’m not sure what email service you are using, but you can use a pop-up or some sort of email collector and offer this as a freebie.

    You can see how I do it on my site – let me know if you need any help with this.

    • Thanks for the tip! I need to look into how I can use a freebie as a tool to generate leads – perhaps a plugin? I’ll definitely let you know if I need a hand and I’m glad you like the spreadsheet 🙂

    • $1 million is definitely not as large as we may think. After taxes, it’s much less. And when we get older, healthcare gets super-expensive. That is also due to inflation in a big way.

  3. SMM,
    Here’s another issue with housing when you retire. Real estate taxes. Even though your house is paid off but you happen to live in one of those high real estate taxes communities, you’re screwed. Plus you add car insurance and medical expenses to that.

    With regards to SSS, I just look at my SSS numbers and it showed that my full retirement age is 66 years and 7 months old. If I don’t collect at age 62, it will be higher by more than $600.

    • Maybe that’s why so many people downsize or move to places with lower taxes after they retire. You’re right, it’s a big issue that deserves a lot of thought. With regards to SSS, it may be worth it to stay healthy and active and take the benefits at 66+ 🙂

  4. It is tough to know exactly how much one will need. I think I will try to control as much as I can in terms of low overhead. Then I will save more then needed if I ever pull the full retirement plug.

    I hope I am always working on something.

  5. You are right in putting health care at very first biggest retirement expenses, SMM! Most people often underestimate the weight of health care costs in retirement, worst is, some of them even forget to include it in their retirement plans. Health care expenses, if you don’t have the proper preparation and plans to handle it, will beat you up and tore your finances down. Why are Americans raiding their retirement savings? The top answer is healthcare! Take this matter seriously and plan for the future.

    • Healthcare costs are increasing every single year. And there are more follow-ups people are attending to stay on top of their health. Who doesn’t want to continue to stay healthy and do everything they can to avoid becoming sick? I’m glad you feel the same way 🙂

  6. I agree that expenses will go up once retirement kicks in, which is opposite of what other people have imagined. It’s best to prepare for healthcare, housing and travel/entertainment expenses to avoid financial woes and becoming a burden to your loved ones. In addition to these expenses, one of the most overlooked retirement expenses is long term care, which can deplete everyone’s retirement income. People should prepare for this as early as possible by saving money, making wise investments and by buying long term care insurance. Thanks SMM for sharing these tips that can help people prepare for retirement.

    • Long-term care insurance is vitally important as people are living longer in today’s society. There’s a whole assortment of sub-costs associated with long-term care and yes I agree they can quickly eat up your retirement savings.

  7. Great post! Yes, that’s why I think NW numbers are variable. Some people can retire on $1 million whereas others need a lot more. It totally depends on where you want to retire, healthcare costs etc. Retiring in Thailand will be much more economical than retiring in Victoria, BC.

    • Absolutely location is key no matter where you are in life. Even if you are in a smaller home, the location makes all the difference in your recurring costs. And in retirement, fixed expenses especially the housing and healthcare, ideally should be kept low, although the later may not always be possible.

  8. Valuable tips you shared here. I would love to retire early and travel a bit. I really don’t want to be in my 60s and retired. My body won’t be able to handle travel lol. But I’d be happy if I could retire at all. It’s a dream that I want to make happen 🙂

    • With planning and continuous estimating you can definitely make the dream a reality and be able to retire early as well. We are at an advantage simply due to our interest in Personal Finance which helps us to propel our planning to the next level!

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