ASU2003

1-million-doesnt-cut-it-for-retirement: Personal Finance News from Yahoo! Finance

After reading this, I'm not sure if I buy what they think I need. $2-3 million would allow me to retire today. If I ever get to that level, I will pretty much quit and be done with the 'game' at any age.

But I live in an area where $1 million is still something. I don't have a million dollar house, 4 kids, a wife, expensive hobbies, or any of that. I would like to have some of those things, but I still think you could retire with a lot less if you lived a moderately self sufficient lifestyle and do a lot of free things.

GreyWolf

So much of this depends on the individual. You need to take into account your family situation... will the kids be gone & on their own (don't assume you won't be supporting them at least partly through age 30 at least); what do you plan/want to do when you retire (travel, buy a retirement home, watch tv); your genetics (is your family long- or short-lived, are there histories of degenerative diseases); plans for your estate (spend it all or give it all to the kids); when you want to retire; and a host of other things that a competent adviser will get you to think about.

A safe plan, and a conservative one (i.e. more savings), is to plan to replace your salary at retirement through pensions/savings. If you can do that just off your investment income & pension, you're pretty much golden. You can continue your lifestyle into infinity (inflation is usually offset by lower spending as you age, but you might need to consider it if you're a long-lived family). This doesn't take as much as you might think... a million dollars should be able to safely generate $70,000 to $100,000 a year in investment income (yes, that's 7% - 10%, but it can be done).

Less conservative is assuming you're going to die and won't need any money after that. Then all you need to do is figure out when you will die, and plan an annuity which will run out at that time. If you do this, make sure your planned date of death is met. Otherwise, you will probably achieve death shortly later, but in a much less comfortable fashion.

__________________
The secret to great marksmanship is deciding what the target was AFTER you've shot.

Xerxys

If you are retired (59 1/2 years old) I assume you have been working for 30 years and hence paid off your house. So, no mortgage, just monthly bills. $2,500/month should cover that and you now need enough money to buy medicine, for when your bones give out and you break a hip. I am not taking into account things like Alzheimer's or cancer. You also want to live till your 80, comes to slightly 900,000 a year. You also want to go to vacations and potentially get heart attacks looking at 25 year olds. So yes, 1 Million bucks is cutting it way too close for a single person to survive on till they're 80.

2 Million on the other hand would do just fine. 2.5 would cover diseases too. I think 3 Million would be the ideal number.

I freakin' love you man!

BadForm

Everything is going to be more expensive in the future so you have to remember to account for inflation.

I strongly disagree with GreyWolf - you cannot safely expect to generate 7-10% a year. One bad year, say 2008, and you can lose half your savings.

blahblah454

That was a horrible written article, it didn't tell me anything other than a few peoples opinions.

I just save as much as I can humanly get away with. I honestly don't think that I have a target in mind, I just put money away. I am 25 so I figure I have plenty of time to figure more exact things out as it gets closer to the time. I have also been saving since I was 18 so I figure I have a decent head start on most of the people in my age bracket.

Baraka_Guru

You should be able to safely generate 4 to 6% a year, which is well ahead of inflation in most instances.

During your retirement, it becomes more about not losing money than it does about growing it. This is why many portfolios gradually shift away from a high proportion growth stocks to a balance of fixed-income and longer-term dividend-paying stocks as you approach retirement.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

genuinegirly

We've been giving this a lot of thought recently, and I'm still not sure how much Tt and I will need to retire. We've been saving for a while now, and have even been able to save a hefty chunck of change while we've been living off grad student stipends. Depending on the area where we decide to retire, our monthly expenses will be extremely different. It depends on things like inflation, property tax and food prices. Also have to take into account longer lifespans and medical costs. Oh, and if we have any children/grandchildren that'll be a factor as well.

If we live someplace in the midwest with the same expenses we face today and no inflation, we could easily live on $14,000/year. If we wanted a 20-year retirement, that would only be $280,000. If we wanted a 40-year retirement, we would need $560,000. That's far less than a million dollars, but it will still take us some time to save that much.

We deal with the uncertainty by putting away what we can when we can and not adding any unecessary expenses. We're doing pretty well so far.

__________________
"Sometimes I have to remember that things are brought to me for a reason, either for my own lessons or for the benefit of others." Cynthetiq

"violence is no more or less real than non-violence." roachboy

ASU2003

The thing to factor in though is that your expenses will change, somethings will go up, others will go down. I won't have to pay $14,000 for my mortgage in 14 years. I will only have to pay $2,000-$3,000 in property taxes & insurance at that point, but I might want to go on a month long trip that costs $2,000.

And getting into that mindset that after saving for 20-30 years, it is ok to spend it if I don't have a paycheck anymore will be hard for me I'm sure.

Salem

We should get married. We'd be rich old people. I'm the same way. I have no idea how much I'm going to need, all I know is it's gonna be a lot and I don't have it. I'm almost 19, and I havn't started saving, entirely. The minute I get out of school however, I'm starting. I wont need a million dollars, but I'd like to have it. I'd like all the money I can get. I'd also like to have al ucrative career to help this along.

Baraka_Guru

I think something like this should be featured prominently in my retirement plan—just replace Midwest with Western Canada: Saskatchewan or Manitoba maybe. This is mainly because I'm hitting my mid-thirties and I've yet to start saving for retirement.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

RogueGypsy

Those I know who've had the most success in providing a comfortable retirement for themselves all started investing early. That's different than saving. They all bought homes, investment properties, collectible cars (before they were collectible) as well as building fat 401K's and hefty muni's. To me, this also seems to be the better balanced way to go about it as well. Think about it. If you have a home, a small vacation property even just land to park an RV, a nice car and an employer matching or contributing to your 401K. You get to enjoy all those things on the way to retirement. When you retire, sell it all off, buy a little condo in your favorite area, buy more muni's and live off the interest.

Or you can scrimp, save and sacrifice throughout your career to keep every penny you can. Then retire and be to old and miserable to do any of the things you would have liked to do in your youth, die at an early age, leave a huge inheritance to the kids and create a generation of trust fund idiots like Paris Hilton.

__________________
Methods, application and intensity of application vary by the individual. All legal wavers must be signed before 'treatment' begins. Self 'Medicating' is not recommend. However, if necessary, it is best to have an 'assistant' or 'soft landing zone' nearby. Any and all legal issues resulting from improperly applied techniques should be forwarded to: Dewy, Cheatum & Howe, Intercourse, PA 17534. Attn: Anonymous.

CandleInTheDark

Rogue has the right idea: It's investment, not savings, that create wealth for retirement. Savings typically generate low returns, and are intended for short to medium term savings needs for emergencies or planned purchases (down payment for property)>

__________________
Where there is doubt there is freedom.

ASU2003

I'm investing in products that reduce my cost of living though. If I invest in a few solar panels and energy efficient products, I won't have to worry about monthly electric bills. If I borrow DVDs from friends and the library, I won't have a monthly cable bill. If I pay off my mortgage, I won't have that large bill.

Willravel

$5m.

snowy

Retire? What's that?

Also, bear in mind that if you are going to have children, you have to anticipate additional expenses, even after they're grown. Then, there will be grandchildren you wish to spend money on. Further, many of you aren't considering that catastrophic illness can wipe out your savings in a flash if you don't have good health insurance.

__________________
If I am not better, at least I am different. --Jean-Jacques Rousseau

macmanmike6100

there are two ways to look at it: 1) you can estimate what the future holds, and 2) you can't estimate with the future holds.

i argue the latter. this blog post about <a href="http://youarealreadyfound.wordpress.com/2010/04/15/convergence-in-the-moment/">random matrix theory</a> talks about those implications. in short, the future is ours; and I firmly believe this. isn't that what all of this "positive thinking" is about?

with that said, it doesn't mean that we don't want to be prepared for the future. after all, it's coming :-)

i think more than anything is not assuming these rates of inflation, etc. etc. -- our financial system itself may not even look like it does right now -- but instead thinking about what you can reasonably save and, hopefully, invest in the good ideas of others (via the market, from the NYSE to <a href="http://www.microfinancecongress.com/">microfinancing</a>).

i try to put away at least 15% of my net income so I have a cushion and also have savings to dig into for those big purchases/trips/gifts.

Cynthetiq

I haven't the foggiest idea. I'm trying to generate different revenue streams so that I have multiple ways of generating income. This is the ultimate diversification.

I try to invest in things things that will generate more income for me, thus I have been buying property that generates rental income. If the rental doesn't produce enough money, I can sell the house and realize the increase in value from what I paid for it.

I try to invest the maximum into my 401k. I should have over the years, still contributed to a Roth IRA or any IRA but I haven't.

I also have a small pension from an employer that I rolled over into an annuity. If you are a union type, you should be looking at long term 20 year plan to get your pension.

how much? I don't know, I just know I'll need more than what I know I'll be able to save for, so I'd like my money to grow and spawn more money.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

wing870

enough to blow your mind..should do it ..thats my plan

Merlocke

There's actually a calculation done by a few investment advisors that I partner with called the FIN number, or Financial Independence number. If I can find the presentation, I'd be happy to share it... now the only issue is finding the darn thing.

__________________
-=[ Merlocke ]=-

Projectguru

It's a fine line between saving for retirement and spending now. In my opinion, I would prefer to have a little of both. If i contribute all this money when I'm younger to retirement...it limits my ability for fun when I am capable of having it. Then when I'm older and can't do as much...I'll have all the money in the world. For me, I'll save conservatively, and hope that my 4-8% per year will grow and I will be able to sustain the level of lifestyle I have now. But if you think about it 2 million doesn't take long to go through if you medical expenses and hope to leave anything to your family!

Wandrin

One thing suggested to me a long time ago was to buy into a long-term care health insurance policy when you are young. The current estimates are that the average person will need $200k in such a policy to cover things not covered under Medicare or health care insurance. Like any other insurance, it is considerably less expensive to buy the policy long before it is needed.

A financial planner would ask you to define 3 types of retirement, where one is the little house in a low cost of living state, another is traveling the world, and the third is a mix. The numbers that the planner comes up with would be for each of the 3 scenarios.

__________________
If ignorance is bliss then why are the ignorant so angry? - Shannon Wheeler

Willravel

I had a chance to sit and visit with a family member who's retired recently and the whole thing has me rethinking the concept of retirement.

Up until recently, I figured retirement would happen around 65, and then I'd exist in a retired state for however long I lived. My life expectancy is somewhere in the neighborhood of 88, which means a solid 23 years (from birth to a college graduate) of living off money I've saved. That's how I came up with the $5 million number above.

Now, though, I'm starting to see retirement as something different. For whatever reason, I saw vacation as a decades-long vacation, where I get to travel and build a car from scratch and spend time with my family and learn to sail, but I've found a job that I truly love and that fulfills me and that I control. And I've seen what retirement is really like for a lot of people. This family member is a great person, someone who's worked very hard in life, dealt with some terrible tragedies and was in the truest sense of the world self-made. Now? Boredom. There's a lot of lounging around the house, watching TV and surfing the internet, eating a bag of chips. A vibrant life has become lethargic and aimless. This person does travel a bit, and has a few hobbies, but filling 15 hours a day every day with hobbies and traveling is, from a practical standpoint, impossible. It's not only financially taxing in a way I didn't really figure, but it's truly difficult to find that much stuff to fill your time with. I've really started taking an inventory of the lives of people I know who are retired, and the majority of all of their time is spent at home with a spouse, just sort of existing.

I'm starting to think, now, that retirement for me will happen when I am no longer mentally and physically capable of doing fulfilling work. Judging by my family's medical history and life expectancies, that's going to be something like 78-80. If i can stave off arthritis and dementia, it could be even later. I've got hobbies already, and now that I'm my own boss I can arrange for my own (within reason) vacations. There's no reason I can't go buy a classic car frame and start spending weekends with friends finding parts and putting together a car. I think if I spent 23 years not working, I'd either turn into a little gray lump of nothingness or I'd go insane.

Having said all of that, I am going to amend my number above. Living for 10ish years, maybe from 2063 until maybe 2075, will likely require maybe $500k, depending on how much the medical system has changed between now and then. $500k is a lot easier than $5m.

Wandrin

Willravel, you mentioned being your own boss. I presume that means that you are self-employed. If so, you might want to investigate organizing your business as a class-C corporation. That gives many advantages for retirement planning. You can pay yourself a lower salary than what you take in, thus reducing the tax burden. Since class-C corps are allowed to build wealth, the remainder can be invested and all investment and financial planning advice is a tax deduction for the corp. When you decide to retire (or semi-retire), you can continue to pay yourself a salary, even without income in the door. There are many such advantages.

__________________
If ignorance is bliss then why are the ignorant so angry? - Shannon Wheeler

Cynthetiq

I've been following this method for about 10 years now and I see that it applies to many of my "retired" friends even though they won't admit it.



1. Quit Today. That is, consider your present job a stepping stone to greater earning potential at your next job. Your employer has no undying loyalty to you; you should have no undying loyalty to him or her. While I agree with the idea (that is, don't get stuck somewhere you don't necessarily enjoy when you could be earning more and being happier somewhere else), I don't agree fully with the attitude. I believe that I should do my best where I'm working and have enough commitment to the company that I don't become viewed as being disposable.

2. Pay Cash. The author believes we spend too much money on stuff that really doesn't bring us any happiness. And unfortunately we tend to spend money we don't have to get it. The result is a bunch of rusting computers, cars and stereo equipment and a mountain of consumer debt. The author goes too far, however, in recommending that we get rid of our ATM cards and go back to standing in line at the bank for cash (to teach us the value of cash). I think you can get into the practice of paying off your credit cards every month and tracking your bank balance without this much inconvenience.

3. Don't Retire. Retirement was invented for a past generation and doesn't make sense for us. A lot of people fall for the retirement myth and end up bored and depressed. You'll end up working to keep your mind sharp anyway. So don't spend your life building up this pile of money as if you're going to live off of it starting at age 65 or sooner. (He also points out that the retirement age of 65 was set at a time when people seldom lived beyond that age!)

4. Die Broke. Use your money while you're alive. Building up a pile of money to pass on to your kids is built on the mistaken notion that money has value in and of itself. The reality is that money is a tool; a means to an end. Use it while you can appreciate it. Plus, giving a pile of money to your kids can ruin them.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

ASU2003

I like the idea of setting three different monetary goals to reach based on the minimum and maximum amounts you might need. There are a lot of unknown variables in my life right now though.

And I should define what 'I' mean as retirement as; "Not having to work at a 9-5 job, or need to be employed by someone else". I have hobbies and ideas that I would love to work at and start a business. But, I worry about not being able to make $20k a year at first, and I would rather not lose my house. And finding time to do both is very hard. Yet, at the same time, not being able to control your own schedule is getting annoying to me... I like the concept of working hard for one week and relaxing for a week or two.

Willravel

This is really interesting information. My accountant, literally the most helpful man in America, has been providing me with advice about stuff like this. It absolutely astounds me how difficult it is to run a business under American laws. There are more loopholes and cheats than there are stars in the galaxy.

Wandrin

I didn't mention any of the loopholes and cheats because I don't use them or think that they are ethical. A class-C corp is the only form that doesn't pass all income on for personal income tax, as opposed to corporate income tax (which is lower). Some of the things that accountants have suggested to me would be laughable, if so many companies didn't actually do that slimy stuff.

I forgot one additional benefit of a C corp. You get to decide what portion of health insurance is paid by the corp and what is paid by the employee. To the corp, it is a legit business expense and therefore deductible.

But the advantages in retirement planning for a self-employed individual are worth looking into.

__________________
If ignorance is bliss then why are the ignorant so angry? - Shannon Wheeler