View Full Version : Calculating retirement income
I am sure there's an archived chain of posts on this issue... I'd appreciate any suggestion y'all have about how to do this.
This week, I am taking a VERY deep breath, and beginning to pay back my 6 figure student loan debt for my MA. It has doubled in 10 years due to forbearances, and it freaks me out... to the point of incapacity. I'm trying to get a handle on how much I need to be saving for retirement, and how much I can put towards this overwhelming debt.
I am very sad that I was in such financial insobriety for the first half of my adult life. I cannot change the past, however, so I'm doing the best I can to move forward.
Thanks in advance for any suggestions.
Hi, redfox,
I'm in a similar situation--long story that I won't go into--but I have been chipping away at a lot of debt, including student loan payments I pledged to my daughter. I have just finished paying off credit cards, and also two cars (my husband's and mine), and I have business debt from my husband and those student loans left, for close to $100k.
I'm also about to turn 60, and because of another unfortunate financial event, my 401k went down the tubes, and I have nothing saved. My husband has a modest inheritance ($60k cash; about $150k equity in real estate) which I'm assuming he will share with me at some point (especially given I'm paying off his business loans), but I'm pretty vulnerable in terms of what is legally mine right now. If you just went with that, it amount to pretty much 0 in savings, and $100k in debt, and a freelance career that is only going to get harder to maintain over time as my clients start retiring and younger clients consider me over the hill.
So, yes, I know how you feel. I go in and out of anxiety about it, but I figure worrying isn't going to help. It is what it is.
Anyway, I've been very diligently doing the Dave Ramsey program to pay off debt. In the DR way, you're supposed to pay off debt before saving money. Doesn't matter how old you are or how much you have saved.
But I just can't do that and sleep at night. So once my CCs and cars were paid off, my MO has been to continue keeping my expenses low, not doing any crazy spending, and with whatever I can pull together as a debt/savings snowball at the end of the month I'm splitting between savings and getting out of debt--50/50. I'm hoping to have a fully paid off house in 7 years. Perhaps I should move now to a cheaper home, but right now, I'm not going to do that. I'm also planning on working for at least 10 years.
So, I'm not the best one to offer you financial advice, but I can commiserate and share what I'm doing.
Since there is no way the debt can be discharged and it is going to follow you wherever you go as long as you live, I would focus on trying to pay off the student loan debt as priority #1, with the possible caveat that if your employer does any kind of match to retirement savings, it might be a good idea to contribute enough to get that benefit (which is essentially a 100% return on your savings prior to any earnings.
I don't agree with Dave Ramsey politically or socially on many issues, but I do think his financial advice is generally solid for people with large amounts of debt. i actually listen to his podcast because even though we don't have debt other than our mortgage I find the "we're debt free!" bits to be so inspiring and the rest of his common-sense approach to be refreshing.
good luck and keep coming back for support -- we're behind you here as you tackle this issue!
lhamo
Thanks for posting, redfox (and catherine and lhamo)...three voices I appreciate a lot here.
I am a bit freaked out about retirement. My dear partner told me on Saturday that he expects to retire no later than age 60. He's 55. I'm 56, self employed (newly) with little saved, and he's got a government pension...BUT a teenage daughter. We are just now having the conversations about her education. I can't see how he can expect to retire and send a kid to school but what do I know? We are (thank goodness) without debt except the house which will be paid off this year. But I just can't even imagine how you plan for retirement income. I hope I can continue to work at my profession for a long time but one never really knows what will happen.
Catherine, your debt payoff story is inspiring. Obviously it CAN be done. I also listen to Dave Ramsey for the stories. I fervently hope my adult children are listening, too, though I doubt they would make it through his political/religious parts.
Best to all three of you wise women.
Mr money mustache is a good alternative for those who want ramseys advice without the religion.
Well, I have done my homework today. All day!
1. Found a federal student loan consolidation program that is income based, and after 120 on time, full payments, will write my loans off if I have been in public service or the non profit sector for that whole time. The payments will be a manageable amount.
2. Spoke with TIAA-CREF about my two small accounts, and will be converting them to one SEP IRA. My DH also will roll his tiny 401K into an IRA with them.
3. Calculated our social security income, and it is adequate as a baseline for a modest retirement - no trips to Rome, alas, but no homeless shelters, either...
4. Calculated what we need to save in order to reach a reasonable retirement goal. After I sell my car, eliminating that expense plus the insurance, that will go into retirement savings.
5. Have an aggressive plan to finish off CC debt, and we can retire that this year if we are VERY rigorous. That will prep us for putting the same amount into retirement as of 2013.
6. DH was so pleased with all my research and conclusions that he has decided to ask for a raise!
7. Spoke with my father about an eventual small inheritance, and he thinks it will be larger than I had assumed. He is investigating putting it into trust to protect it. Since my mom has longevity on her side, I don't expect to see anything till my 70's, which is actually great timing for retirement purposes. They have really good long term care insurance, so they are confident that their funds are protected.
8. Reduced car insurance as I no longer drive it to work, and that reduction is retroactive back to the startof the year.
9. Waiting to hear from accountant about what is due for self employment taxes. We have extra, enough to seed next year's bill, and I will use a portion of that to knockout a CC. Psychologically helpful, as well as letting us snowball that payment.
10. I will be selling my floor loom that I am not using, and bought at Salvaton Army for $100. It's a current model, retailing for $1500. I will list it for $1000, and take $800. I am continuing to ID stuff I can sell - like vintage Fiesta, $50 here & there, which adds up!
11. This weekend when we do the books, I am going to advocate for the envelope system, and create wall charts for debt payoff & retirement savings.
12. I am looking for additional consulting work.
I feel MUCH better... Was up till the wee hours, and am quite toasted today. I was glad to find out what I did. Will keep y'all posted... Please keep those helpful hints coming!
iris lily
3-12-12, 10:01pm
girl, you did a whole hellova lot today! I think that knowing the amount of social security that you'll be getting is a good place to start.
WOW! Way to go -- huge progress for one day! If you can have one day like that a month, you'll be well on your way to a prosperous retirement before you know it.
Great news about the non-profit loan repayment option. Now THAT is the kind of program I am happy to fund as a taxpayer....
lhamo
Holy cow! Excellent work! Action is a great anxiety-reducer!
I forgot that my son also signed up for that student loan program that will be forgiven in 10 years--he is a State employee. Great idea.
flowerseverywhere
3-13-12, 8:37am
redfox, great work on your retirement and facing the music. Because the band is playing on, we just all have to listen to it.
You are so right. None of us can dwell on the past and the mistakes we have made, especially financially. The other day a good friend and I were talking about this subject, and what would happen if our spouses died. You know you then only get one social security, whichever was higher. She was very nervous that it would be so tight for her in that case. I told her I wasn't worried about it, because I know so many women who are really stressing this retirement thing that if I had to I would sell my house and find somewhere to rent. It might share an apartment with another woman. That is my worse case scenario and that really isn't bad when you think about it. I checked a local senior apartment complex and a small apartment is only a little more than what I pay in taxes for my house, and I would have all the house money, social security and savings.
Getting out of debt to me is the best thing anyone can do in my opinion. I like to tell the story when we decided to pay off the house I was so agressive that I would pick up a can on the side of the road and be excited because it was a nickel deposit towards the mortgage. We were both relentless and literally did not buy a scrap of clothing (except for shoes), did not eat out, drink alcohol, or spend one penny we did not have to. Even now it is hard for us to spend money- we've been saving up for a new car, ours has almost 200,000 miles on it and people don't understand why we just don't go to a dealer and get one. Well now that our tax return is back we are starting to shop for a new or used car, whatever we can find. Life goes on, you know, even driving a junker.
So hang in there and work towards your goal.
Leslieann, do you track your expenses? It might be helpful if you did to show DH how much you need to retire on.
Good luck everyone.
Leslieann, do you track your expenses? It might be helpful if you did to show DH how much you need to retire on.
Good luck everyone.
This was the biggest thing in helping me to determine that amount I needed to live on when I quit my job. Hpwever, after actually taking the big leap (for a 5 year sabbatical from work rather than retirement) I discovered that many of expenses I had while working evaporated once I quit. Mainly commuting costs (fuel, tolls, need for more maintenance more often, tires, etc.. and even replacement of my car sooner than when not working/commuting), but also the little things like eating meals out, buying work clothes, taking classes, having to hire people to do repairs and maintenance that I didn't have time for, etc... I did some very moderate tweaking (i.e. gave up that latte and bagel out every morning) and happily was able to cut my projected "work-free" expenses by $1,000/month!!! Then I eventually chose to downsize my housing to a much less expensive (but MUCH nicer) area and home. Those things turned my sabbatical into permanent retirement. So tracking expenses - and finding places I could make cuts that didn't effect my overall lifestyle - as well as downsizing my housing were the biggies to me in terms of being able to afford retirement. Of course I do have paid for medical (from military/VA) and that was the REAL biggie in terms of monthly savings. But I had already budgeted a portion of my monthly income to cover paying for my health insurance - which I did for awhile after I quit working anyways - but knowing I had medical care covered if I didn't want to have to pay a monthly premium was a huge factor in me deciding to retire! If you can have that covered, the rest can be fairly easy IMHO.
Congrats on finding ways to cut your student loans debt Redfox (and others), sounds like you are on the right track to retirement. As for what i'd do - pay off student loan debt first or save for retirement - I'd probably split it 50/50. Set aside $X amount of dollars each month towards retirement, and set aside $X amount towards student loan debt each month. Then try to find all those little (and some big) expenses you can pare down (no more dinners out, cut the cable TV, vacations are camping close to home rather than Rome, etc..) and apply that extra to the debt until it's gone. While I'm also a fan of Dave Ramsey financial info (not so much the other stuff) and don't like debt, I disagree with him on paying off student loan debt vs. saving for retirement. Student loan debt is different then consumer debt - especially consumer debt brought on by excessive spending - in that it's usually fairly low interest, has a low monthly payment, and you won't be adding to that debt (unlike many with consumer debt do once it's close to being paid off). Plus it's a big debt, like a mortgage, and can be paid off slowly. Just make it part of your monthly "gotta pay it" expenses like a mortgage, and whittle it down with extra money you find rather than money set aside for retirement or emergency funds.
Spartana, I'm curious, what on earth were you spending money on that you could save $1000/month in your workfree existence??? When I look at my expenses I've only got about $150 that are tied to work, but some, such as transit (currently $62/month) would only partially go away if I stopped working since it's not like I'd just become homebound if I quit my job. The second biggest job expense I have would go away entirely, dry cleaning my suit pants, $40/month.
fidgiegirl
3-20-12, 10:26pm
Mr money mustache is a good alternative for those who want ramseys advice without the religion.
+1 And need some comic relief, too.
fidgiegirl
3-20-12, 10:34pm
redfox, think of how much money you earned, figuratively, in that day's work. All that information! I want to go back and read your list when I'm a little more awake. I wonder if there are some things in there that DH and I could do even right now.
We have a small amount of debt now, but when I shoveled out of mine the first time (admittedly, not six figures, but a daunting $30K for a single young professional) I made a chart. I am figuring out how to make one this time around for the mortgages, too, but haven't quite gotten to a manageable size yet :). I know some people would see this as utterly cheezy, but it was literally a chart that I filled in any time I made a payment of ANY size. Oh how I looked forward to making that payment or extra amount. I had to put monies to my accounts several extra times a month. For example, if I were to sell something like your loom, I immediately applied it to the debt repayment - otherwise I knew myself, and it would have disappeared. But even small additional payments of $25 went on the chart. And pretty soon, that snowball kept rolling . . . . there were times when I wasn't dedicated, and would poo-poo that the extra little bits could do anything. But the chart helped keep me on the straight and narrow - it really made a difference. I am going to try to see if I can find a picture of it. Not sure if the chart itself still exists.
ETA: Here it is. You can see that life changed along the way and I had to add things to the chart. I should mention that I had important savings goals on there as "debts" and worked them into the snowball. So some of the columns are building up savings even if during that time I wasn't paying down debt. It made the whole thing take longer, but once I committed to paying off debt, I did not take on ANY additional debt at all. I paid cash for things like the remainder of my master's program (which I had already started - and incurred loans for - and was a guaranteed increase in income, so it was silly not to finish it) and we paid cash for our wedding (about $6000 in all). The two greens are the size of the payment. Every box was $100. I am glad I did it that way, because at the end of the snowball, you could really see that in the beginning especially, those little payments made a HUGE difference.
http://farm8.staticflickr.com/7109/7001802457_0a66937abe.jpg (http://www.flickr.com/photos/7733846@N05/7001802457/)
debt chart (http://www.flickr.com/photos/7733846@N05/7001802457/) by fidgiegirl (http://www.flickr.com/people/7733846@N05/), on Flickr
P.S. You all have reminded me why I want to get back into tracking income. Retirement isn't so much my goal right now, but part-time work supplemented with some of my own profit centers or even full out self-employment. Still very helpful to know those spending numbers.
God for you, red fox!
I'm glad you found the student loan program that allows for consolidation and discharge!
The rest of it looks great as well!
We track everything on our spreadsheet -- our income each month, our expenses and expenditures. I have two running spreadsheets -- one for home, one for business (of course!).
We currently have one debt: my student loans. My current process is make the monthly interest payment, and then put any 'extra' money that I make (on my teaching alone, not for the business, not for our household expenses that come out of the business -- but things like if I teach a private lesson or specialized workshop) into the savings account, which I then roll into the high-interest CD at the end of the year, after retaining the monthly payment amount for the next year into the checking account where the auto-payment is made. I'm on track to pay it off in 7 years on the outside (I'll be 42 then); 3 if i'm very aggressive (the last two years have not been very aggressive).
We have a modest retirement in an IRA that's then invested in mutual funds that are quite. . . conservative. We did our 401k conservatively for the decade that we diligently put into it -- and we lost nothing when the recession hit, and we've grown since we've rolled it over into the IRA. It's not enough to support us now -- but it will be fairly considerable in another 25-30 years when we head toward 'retirement age.' (60-65) My husband has a decent amount of SS, but mine is not much at all (something like $150? Being self-employed and not earning much, I simply never put in. I'm ok with this. I'm not planning on needing it).
We haven't been putting much into it since we left the US. Our focus has been on building our current business, and then using the income from the business to support ourselves and then begin to feed into the various savings and retirement accounts as we go. If things continue to progress as they are, we should be able to start putting money into savings at the start of 2013. Which will both pay ourselves back for what we invested, plus put into retirement and then into our emergency savings (monthly expenses for an additional two years).
We also have a rolling CD for DS. We put in a small amount each year, and we put in a portion from all of the christmas/birthday/etc money that he gets from others. The remainder we spend on activities for him that are enriching such as swimming lessons, music lessons, trips to the zoo, or similar. Our plan/hope for this account is to have a small bundle of money set aside to facilitate DS if he wants to go on for higher education. When we have more income, we'll put more money toward this.
With luck and hard work, the debt will be gone in 7 years, the business will be very healthy by then and paying us comfortably, so that we can save as much as we would like.
Have to say that each of you with such clear plans for financial debt payoffs, retirement income and living within your means are an amazing example of what can be done. Congratulations on your efforts!!!!
We didn't do this in total in our working lives but focused very strictly on living within our means. I wish that we had had more planning of the kind that you are doing though as that would have helped a lot in peace of mind along the way and given greater direction to our investments.
Thank you for sharing so others may learn.
Bastelmutti
3-21-12, 12:43pm
Redfox, that's GREAT! You really did a lot of positive things in just that one day. Reminds me that I need to take a day and do the same. Every little bit saved or extra paid would help.
Retirement is a worry for me as well, with me eventually getting Soc. Sec. and DH a precarious teacher's pension (he pays into it and is ineligible for Soc. Sec. in our state, one of the most broke in the US). I'm glad to have stories like this to read that I can relate to, first of all. I live in a wealthy area, so it is easy to feel that I should have enough to have a decent standard of living, buy a house, save for retirement and fund kids' college - not to mention student loans: parents paid for those, right? Well, "pick two" is more like our reality! We have chosen to have the "decent standard of living" - including self-employment for me so I can take care of our kids, healthy food and regular travel to see distant relatives - and "save for retirement" pieces over "buy a house" - we rent from family - and "pay for college" - kids will boot-strap it like we did. This is all after student loan payments, but we are diligent about paying those with an automatic debit each month. They do feel overwhelming sometimes, but with a plan it all seems more do-able.
Keep on truckin!
dado potato
3-21-12, 3:26pm
Kudos to redfox, as well others who are facing up to the simple fact that eliminating debt and accumulating savings are normally the basis for self-sufficient income post-participation in the work force. Theoretically there are exceptions for lottery winners, inheritors of substantial wealth, and entrepreneurial late-bloomers. ...or "The Beverly Hillbillys".
It may be an antidote to fretting and worry to focus on making progress in the near term. The debt-reduction chart posted by fidgiegirl seems like a splendid example of how to visually record and track progress.
Along with others who have commented, I add my congratulations.
Spartana, I'm curious, what on earth were you spending money on that you could save $1000/month in your workfree existence??? When I look at my expenses I've only got about $150 that are tied to work, but some, such as transit (currently $62/month) would only partially go away if I stopped working since it's not like I'd just become homebound if I quit my job. The second biggest job expense I have would go away entirely, dry cleaning my suit pants, $40/month.
It wasn't just commuting expenses but things like the bagel and fancy coffee out every morning. That alone was probably $5/day plus tip. $150/month savings right there since now it costs me the amount the tip was (probably less) to eat the same thing at home. I also had a long SoCal commute of about 40 miles each way and had 2 toll charges of approx $6/day (not to mention fuel costs) which I almost completely eliminated since I bike ride alot and commute much less each day then when working. And with driving so much I had to spend so much more in maintenance costs each month - more oil chamges, new tires more often, more repairs, and the cost to replace the vehicle after about 5 years instead of 10 like I can do when not commuting everyday (that is probably a savings of over $10K or more every 5 years right there). Also giving up paying for things like lunches and dinners out with co-workers, classes to keep up my skills, work clothes, having a gardner or hiring people to do maintence and repairs on the house, etc...Those are cost savings that many people don't even consider but add up to big savings when all totalled up - and not just commuting/work related things to consider too. YMOYL has really good example of many of the things you do while working that you'd save money on by having the time to do yourself once retired. Of course much of the foodie things could be reduced even while working but the commuting costs - of which mine were huge (and would be close to $20/day with the current fuel costs plus toll road increases - YIKES) - really add up when you consider ALL the expenses. Of course your situation may be vastly different from mine - you might live close to work and be able to use public transit, bike, walk or carpool to work (I couldn't and I couldn't move) and you might already do alot of cost-saving things like bring food from home, etc..
ok, that all makes sense. And, no, I don't have any of those expenses. Generally Monday-Friday 4:30pm are no spend days for me. Except dinner out friday we make all of our food at home. Work buys good coffee so I drink that. Roughly once a month I go out with a friend from work for lunch, but that's $7-8. Professional Ed classes are either provided for by work or paid for by it. And like I mentioned, my commuting costs are a flat $62/month. I've always used feet/transit to get to work so I often forget that lots of people have significant commuting expenses like yours were.
The ironic thing to me is that my work expenses would actually probably go up if I start telecommuting. I'd still have to buy the monthly transit pass since it's a huge discount from the $2 one-way fare. And I'd have to start making my own coffee at home. And I'd need to run the heat (at least on cloudy days) and lights and whatever while home all day. The only expense to go down would be my drycleaning expense, but that's only $40/month or so and would go down by maybe half. Maybe enough to offset the additional utilities and coffee, but probably not more.
we are the same, JP. we make all food at home except for one meal a week, which is $35 for the three of us in the budget. BUT, we normally don't even do that one! So, at the end of the month, we usually have $70-$105 resting in our account! :D
Good for you figuring all of that out redfox! I am impressed!
We were having a conversation with my dad last night, who is 64, about his hopes to retire in 3 years. He's been on his birthday self-pity kick, but now that the birthday is over (last week) he's taken stock of where he actually stands in retirement and it's actually pretty good stuff. Between social security, pensions and 401(k) he'll have about $4000 a month, no debt and a nearly new paid-off car. He has us to pay the taxes, association fee and utilities, pay for house maintenance and buy groceries, which is more than fair because we get the benefit of being mortgage free in our late 20s-early 30s. His expenses will be about $200 a month for his iPhone and insurance plus incidentals. He eats out a lot, but not $3800 a month. :) He'll be free to do pretty much what he wants and his job is the kind of thing he could do as a part-time contractor if he was bored or wanted to make extra money.
I don't entirely know how to plan for retirement, myself because it is so far off and there are so many variables between now and then. My DH, Zach, is 29 years old. Zach has a pension through his union, which is reportedly in pretty good shape compared to many, but at the moment we've been focusing on getting debt free, building an EF and getting Zach through school debt free rather than saving for retirement. In the same three year period we are talking about with my dad, Zach and I will also be completely debt free (one student loan left). I don't know where we will go from there.
Things aren't looking too bad for us, though. We'll be completely debt free (including mortgage) by the time Zach is 32 with a decent EF and some pension benefits. I'm not going to consider social security in the equation until closer to retirement time. It's not in good enough shape to know where it will stand in the 40 years from now until Zach would qualify.
jennipurrr
3-23-12, 2:41pm
Woah Redfox, that is a crazy amount of work in one day! You should be super proud of yourself. For us, when we were tackling DHs large student loan debt, just starting, finding out exactly where we stood and making a plan was half the battle. It sounds like you are well on your way.
As for us, retirement income/FI seems to have these these nebulous what ifs, like Iris Lilly said health care, or like Stella we are around the same age so it seems far off, who knows about inflation, etc? if DH and I decide to have children, that throws in different issues. We have been putting 10% of our income into 403bs and using the extra savings to pay off our mortgage. We both felt like a paid off home would offer us the security we wanted more so than putting that money in investment accounts right now. JMO, it may be better for others to contribute more to their retirement plans. I guess we will assess the situation when we hit that milestone.
jennipurr,
I think it sounds solid.
we invested less in our home (could have paid it off more quickly) because we saw the tax benefit of keeping it under mortgage plus our resale value was high (return on investment) -- and this is because we saw ourselves as *mobile*.
Our plan was -- at the time we were living there -- that if we didn't move, then we would pay it off more quickly, use it as a rental property, and buy our next home (single family dwelling with small yard within our means -- after we'd paid off school debt.
We still put max into retirement, which served us well, but we were not being aggressive. This was between age 25 and 35 for DH -- 21 and 31 for me.
At this point, all of our assets are in some form of cash (or our business) -- though we have retirement savings in mutual funds and CDs and such. I still look at these as "cash" assets.
Our current plan is to 1. pay off debt; 2. pay ourselves back for our business investment; 3. begin saving in earnest. What to do with 3 is variable.
We are happy being untethered and renting, but if we were to buy a house, we'd want to buy it out-right, or with a minimal, 5-year mortgage. Here in NZ, you can get a fixed rate only for that long, then you go variable with a cap. It's a mess, to be honest. And you have to have at least 25% down no matter what. Considering the average house in our neighborhood (ok, the small fixer-uppers) cost about $500,000, that's a lot of cash on hand, isn't it? LOL
And so we go "do we really want to spend that on a house? or save it? or invest it? or travel with it? or what?" So many options.
And, we openly started talking about adopting -- perhaps a sibling group of 2-3 children even -- after the debt is paid off and we can see where we are financially. I'm starting to see that children = wealth too. :)
So many ways that this can go.
Powered by vBulletin® Version 4.2.5 Copyright © 2024 vBulletin Solutions Inc. All rights reserved.