View Full Version : Conventional Retirement Advice Is Finally Passe
I'm beginning to see articles in the mainstream that admit conventional retirement advice no longer works. For example,
http://www.nytimes.com/2012/05/19/your-money/managing-risk-in-your-nest-egg-your-money.html
suggests aggressive savings to cover decades of bare necessities, before proceeding to suggest that's not realistic.
That is a well thought piece, thanks for posting.
That's really a good article! I read a small handful of traditional and respected retirement finance books before taking early retirement four years ago. My conclusion is that these books are no longer relevant in the current investment environment. This article is one of the best I've seen that makes good sense to me. I especially liked the section about TIPS and I-bonds. I think these hidden bargains in the world of low risk investments.
One of my issues with conventional retirement planning is the idea that we need 75% or more of pre-retirement income to consider retiring.
This seems unrealistic beyond a couple of years immediately after retirement when younger retirees might get the travel bug or be setting up a new house. In retirement, we aren't going to be supporting a teenager, doing a combined 110 miles a day of commuting, paying $200+ a month to park in a downtown office building, or putting over 15 percent of salary into Social Security and retirement savings.
I believe this is especially true in our case, since we don't plan to retire in our current area (suburban DC) with its high cost of living.
ApatheticNoMore
5-19-12, 1:12pm
One of my issues with conventional retirement planning is the idea that we need 75% or more of pre-retirement income to consider retiring.
This seems unrealistic beyond a couple of years immediately after retirement when younger retirees might get the travel bug or be setting up a new house. In retirement, we aren't going to be supporting a teenager, doing a combined 110 miles a day of commuting, paying $200+ a month to park in a downtown office building, or putting over 15 percent of salary into Social Security and retirement savings.
I believe this is especially true in our case, since we don't plan to retire in our current area (suburban DC) with its high cost of living.
This may be if you wait until you are eligible for Medicare. Otherwise the health care costs tend to far exceed any costs of working. Really the only thing I wouldn't pay if I was retired that I do now is gas money (and that's not that much - around $100 a month, and savings for retirement, and yea I probably would move. I can barely afford to live here as is frankly).
I don't find the "safe approach" in the article the slightest bit unrealistic on my current income (but I do question how many more years I can do these jobs as they are driving me crazy - may go midlife crisis at any time and flee to something lower paying), what I do find unrealistic is that it doesn't seem to really take into account inflation! I still find it more realistic than the stock market projected return approach.
One of my issues with conventional retirement planning is the idea that we need 75% or more of pre-retirement income to consider retiring.
This seems unrealistic beyond a couple of years immediately after retirement when younger retirees might get the travel bug or be setting up a new house.
We found our "burn rate" dropped sharply a few years after "retirement" because we were no longer spending lots of money on restaurants, expensive toys to de-stress, and all that sort of thing. If I'd thought this through, we could have retired years earlier.
I keep saying it: health care is the big unknown. I'm not going to give up a known source of income lightly without having a pretty good idea where that healthcare thing is going.
One of my issues with conventional retirement planning is the idea that we need 75% or more of pre-retirement income to consider retiring.
This seems unrealistic beyond a couple of years immediately after retirement when younger retirees might get the travel bug or be setting up a new house. In retirement, we aren't going to be supporting a teenager, doing a combined 110 miles a day of commuting, paying $200+ a month to park in a downtown office building, or putting over 15 percent of salary into Social Security and retirement savings.
I am pretty amazed at how little I can get by on in retirement. I was maxing out my 401K contributions when working and up until my last year or two was making payments on my home, which is now paid off. If you only take those two things off my gross working income, it's already down to 50% or so. I think that 75% figure comes from people who carry a decent amount of debt and may have expensive post-retirement hobbies like fancy travel or daily golf rounds.
I agree health care is the big question of being able to retire early. We were able to retire early because my wife's employer allowed us to stay in their large group plan until we qualified for Medicare. We had to pay the full cost which was about $1,500 hundred a month but with my preexisting condition I would not have been able to get health insurance at any price. We were very lucky!
I am on Medicare now.
simplelife4me
5-19-12, 6:02pm
Says who, the author? It reads like an advertisement for financial books and annuities.
1. Eliminate most risk- I-bonds OR TIPS ladders (brings up annuities)
2. Reduce risk- stock/bond diversified portfolio OR hedging techniques
3. Share risk- annuity
For those who are saving large portions of their income already, the 75% number is completely ridiculous. We are currently saving 45-55% of our income, much of it into retirement savings. And we still make two international trips a year to visit family. Without those, the savings level would be more like 60-65%. So if we took the conventional advice, our post-retirement spending would jump an incredible amount.
The 75% number might be accurate if you are saving the more typical 10-15%. Otherwise, the best way to estimate post-retirement needs is to look at current spending levels, subtract out anything work-related (commuting costs, work related destressing, etc.), add in a healthy budget for a high deductible health insurance policy, and bump up the categories where you really get enjoyment out of a bit more spending (travel, hobbies, etc.)
lhamo
frugal-one
5-19-12, 9:44pm
I retired in the last year. As Rogar stated, I cannot believe how LITTLE we need to live. Granted our home is paid for and we have no debt. I believe that is the way to retire. I retired as soon as I could and am TOTALLY HAPPY that I did.
SteveinMN
5-19-12, 10:51pm
My wife and I have been talking about retirement in light of my career change. My previous employer had a "retirement income" calculator on their employee Web site which estimated how much you would need in assets at different times of your life. Somehow it always suggested that we would need $1+ million to retire. In discussions with our financial planner, we're finding we need much less than that (half, maybe) in present and future assets.
Calculating retirement income needs is, IMHO, a crapshoot. Certainly work-related expenses will go away. The mortgage will, too, soon. Certainly insurance will cost more because we're losing membership in larger younger groups which currently form our insurance pools. But how much will inflation cost us over 20-30 years? Unexpected medical costs? Will our lifelines follow the longer-lived side of the family? It's kind of scary. Fortunately we don't need a lot to live on.
Gonna be an interesting few decades coming up....
What is scary to me is the vast number of people with nothing planned but SS. I meet them all over. Total denial.
One friend took her whole pension as a lump sum and not has to manage it. So many have taken out or borrowed their 401ks for something new and now that they "had to have". And I am not talking about high medical bills here.
This may be if you wait until you are eligible for Medicare. Otherwise the health care costs tend to far exceed any costs of working. Really the only thing I wouldn't pay if I was retired that I do now is gas money (and that's not that much - around $100 a month, and savings for retirement, and yea I probably would move. I can barely afford to live here as is frankly).
Without considering Social Security or pension contributions, I can easily come up with $1200 a month we wouldn't spend if we weren't working.
As far as Medicare, I will carry health insurance from my current job. Even if I didn't, I may well work until I get within COBRA distance of 65 if we decide against relocating to retire.
I'm sure we will slow down some, but we are currently spending much more than we did before retirement. I havn't stopped and figured the percent of former income, but we kept track of spending and we are having some fun now, and we have bought some expensive toys. When I was working my health care was paid for, and I always had a company vehicle and gas card, of coarse this was all part of my income, just not on my take home check. We are now doing a lot of traveling, gone on a cruise, bought a travel trailer and truck, taking flying lessons and bought a plane. I go golfing several times a week and my wife likes to have lunch with her friends at various places and is spending a lot of time, and money, on the yard and house. We are also planning on having a couple of hundred people over for a back yard barbeque this weekend. We use to put in a lot of hours at work and we are now catching up on a lot of the things that we missed out on. We cant keep spending like this forever, but we are burning through some savings now. But that is what we were saving for.
I also spend alot less retired than when I was working. I also over-budgeted when first took off work because I thought I would need more - and because I wasn't planning on retirering, just taking 5 years off work while I was young still. But in a very short period of time I realized that I didn't need anywhere near the amount I thought I did. So I just left that money alone and extended my temporary sabbatical a few years longer... and into early retirement. My hobbies and activities happen to be very low cost or free, and I just don't spend money on anything but the basics because that's all I want and need. I do travel and have fun, but it's low budget fun. Not because I'm frugal and trying to save money, but because those are the things I prefer to do irregardless of how much money I have.
awakenedsoul
5-23-12, 11:50pm
I have been able to retire young, which I didn't expect. My house is paid off, and I spend very little. I can easily live on under $1,000. a month. I've started growing my own food, so that number will go down this year. I traveled all over the world as a dancer in my twenties and thirties, so I'm fine with staying home. I have no need for new clothes. My hobbies are inexpensive, and I keep myself in shape. I have catastrophic health insurance, which just went up to $125. a month. I do a lot of self care to stay healthy and balanced. I live 3 miles from everything I need: post office, credit union, grocery store, drug store, and thrift stores. I use my bicycle and the bus. It's totally worth it to me to live frugally and not have to work in an unhealthy environment. I am looking at land as an investment right now. That feels much safer than stocks to me...
Says who, the author? It reads like an advertisement for financial books and annuities.
1. Eliminate most risk- I-bonds OR TIPS ladders (brings up annuities)
2. Reduce risk- stock/bond diversified portfolio OR hedging techniques
3. Share risk- annuity
I thought so too. I find such fluff from articles like this to be totally bogus. TIPS are useless right now as you make no interest, I Bonds, same thing. Thankfully I bought 30 year bonds when they were giving 4.5 to 5% interest and we will have them for many more years to come. We invested in 7 year CDs that earn between 4.5 to 6% and hopefully some day we will see those interest rates again some day. I also go short or long on corporate or municipal bonds that I get through Zions Direct, always looking for the good interest rates.
I retired in the last year. As Rogar stated, I cannot believe how LITTLE we need to live. Granted our home is paid for and we have no debt. I believe that is the way to retire. I retired as soon as I could and am TOTALLY HAPPY that I did.
No debt, is the way to go. You can see our monthly expenses on our website. I am updating it now. Most months for two people living in resort areas, is around $3K some month higher, some months lower. I figure when we can finally tap into DH nest egg, we won't need it in any way. It is unfortunately in a lower 3.5% 7 year CD but it has been earning interest rather than losing principal like so many of DH friends who invested in the stock market.
My wife and I have been talking about retirement in light of my career change. My previous employer had a "retirement income" calculator on their employee Web site which estimated how much you would need in assets at different times of your life. Somehow it always suggested that we would need $1+ million to retire. In discussions with our financial planner, we're finding we need much less than that (half, maybe) in present and future assets.
Calculating retirement income needs is, IMHO, a crapshoot. Certainly work-related expenses will go away. The mortgage will, too, soon. Certainly insurance will cost more because we're losing membership in larger younger groups which currently form our insurance pools. But how much will inflation cost us over 20-30 years? Unexpected medical costs? Will our lifelines follow the longer-lived side of the family? It's kind of scary. Fortunately we don't need a lot to live on.
Gonna be an interesting few decades coming up....
I think it can be a crapshoot for those that do not track their income and expenses. We still do even though we are FI. We do not plan on having SS or Medicare when we are old. But old is far away for us. I think too, most folks think that inflation will kill them. Literally! But really, while cost of bread might have gone up, back in the "olden days" it was white bread, now people are buying gluten free bread or multi-grain bread or something else. Inflation has not made much of a difference to us year to year. If something costs too much, don't buy it. normal simple living stuff.
Wildflower
5-28-12, 12:27am
We've found it takes very little to live in retirement, as long as you have no debt and a desire to live very frugally. Location is important too. We live in the midwest and cost of living, housing, is much cheaper here.
Inflation has not made much of a difference to us year to year. If something costs too much, don't buy it. normal simple living stuff.
I think that's much easier to say than it is to do. I can track my income and expenses from the days of dirt till now; that still won't tell me if my wife or I may suffer a serious illness (or even a bad fall or car accident) requiring, say, home remodeling or a wheelchair van instead of our subcompact car (and the van will have additional expenses like lower fuel mileage and higher insurance costs). Medical expenses are one of the primary reasons for bankruptcy today. Not that I approve of that ending, but I can easily see how a serious medical problem could wipe out years of saving and good intentions.
Inflation is much easier to ignore when you have a supposedly-endless income stream that at least roughly keeps up with it. Meanwhile real purchasing power for "median" households has not increased since the early 80s -- maybe even since the 60s, depending on whose numbers you use. Sure, we can quit buying "boutique" bread and maybe ditch the cable (though broadband internet is the phone service of the 21st century). But suggesting that people simply no longer purchase largely-fungible products like fuel and insurance -- especially without the capital to reduce those costs long-term -- doesn't seem to me to be terribly realistic.
Related to this topic, I'd like to pitch one of my favorite retirement books: "Get A Life, You Don't need a Million to retire well" by Ralph Warner.
It's about creating an overall successful retirement, and doesn't discuss money til later in the book. The investment numbers are out of date but the basic principles are there. He interviews retirees in different circumstances who all made the transition.
One fascinating tidbit: it seems the people who were just a little odd over their entire life also did better as retired people than their more conformist peers. One woman in her 70's said "I am the first to admit that I have always been a little odd. ...Thus I was better adapted to being old in America, a country where everyone over 60 is fundamentally considered to be weird." All anecdotal of course, but so interesting.
I have been able to retire young, which I didn't expect. My house is paid off, and I spend very little. I can easily live on under $1,000. a month. I've started growing my own food, so that number will go down this year. I traveled all over the world as a dancer in my twenties and thirties, so I'm fine with staying home. I have no need for new clothes. My hobbies are inexpensive, and I keep myself in shape. I have catastrophic health insurance, which just went up to $125. a month. I do a lot of self care to stay healthy and balanced. I live 3 miles from everything I need: post office, credit union, grocery store, drug store, and thrift stores. I use my bicycle and the bus. It's totally worth it to me to live frugally and not have to work in an unhealthy environment. I am looking at land as an investment right now. That feels much safer than stocks to me...
Awanedsoul, do you mind if I ask where you live? Your lifestyle sounds really nice. Sounds like it is a low-cost area, but many low cost areas do not have consumer services within biking distance.
I agree that retirement has become a huge question mark for many of us, even the longtime savers. I read that article twice and it struck me that it was basically saying "Pick your poison."
I am a longtime 401K-maxer-outer, and have no debt--BUT--I live in a high cost metro area and love it. Do NOT want to move to a farm in the country and grow my own vegetables!!! (I have nothing but respect for people who do, it just wouldn't be for me.) My solution is to hope I can keep working for a long time and to manage my attitude and my time so that I enjoy my life now, while I'm still working.
Does anyone know of a really cool city with good public transport, historic architecture, green spaces, and lots of music, dance, art--yet reasonable cost of living? This is the magic formula, I guess lots of people are looking for this. I refuse to ever buy another car again and I have a medical condition that precludes bike riding.
Does anyone know of a really cool city with good public transport, historic architecture, green spaces, and lots of music, dance, art--yet reasonable cost of living?
I know! I love investigating places like that.
How about:
Asheville, NC
Burlington, VT
Austin, TX
Portland, OR
I'd love to hear others' takes on this. I know we've had similar threads in the past. Anyone know how to resurrect one?
Does anyone know of a really cool city with good public transport, historic architecture, green spaces, and lots of music, dance, art--yet reasonable cost of living? This is the magic formula, I guess lots of people are looking for this. I refuse to ever buy another car again and I have a medical condition that precludes bike riding.
Minneapolis
old people wear the same shirt for a week. they will not travel if the temp is a degree or two above or below their ideal temp. their entertainment is playing cards and they like to watch birds. of course it is cheap to retire. lol
just making a joke, not wanting to offend. i'll be the first to follow these traits. hehe.
My wife and I have been talking about retirement in light of my career change. My previous employer had a "retirement income" calculator on their employee Web site which estimated how much you would need in assets at different times of your life. Somehow it always suggested that we would need $1+ million to retire. In discussions with our financial planner, we're finding we need much less than that (half, maybe) in present and future assets.
Calculating retirement income needs is, IMHO, a crapshoot. Certainly work-related expenses will go away. The mortgage will, too, soon. Certainly insurance will cost more because we're losing membership in larger younger groups which currently form our insurance pools. But how much will inflation cost us over 20-30 years? Unexpected medical costs? Will our lifelines follow the longer-lived side of the family? It's kind of scary. Fortunately we don't need a lot to live on.
Gonna be an interesting few decades coming up....
This, of course, is the basis of Obamacare. Everyone plays so everyone pays. That way you don't have insurance pools of all over 60's. The young pay in because someday they too will be old. Of course they don't believe it, but it will happen! :0!
Hopefully the republicans won't trash the plan before it even gets started.
Even though we have government health care, we have a family plan through my husbands work because we have a 24 year old daughter still in school who wouldn't have health care otherwise. So until she graduates and gets a job with benefits, we will keep this plan. (again, thank you Obamacare) We might keep a smaller supplemental plan even after she moves on in addition to the government plan.
My husband won't retire for another 10 years or more, he really likes his job. But we are working towards that with paying off the house and doing the big improvements and things we want before he retires while he is still making the big income. Hopefully with all that out of the way, we won't require much to live on. At least that's the plan! ;)
I know! I love investigating places like that.
How about:
Asheville, NC
Burlington, VT
Austin, TX
Portland, OR
I'd love to hear others' takes on this. I know we've had similar threads in the past. Anyone know how to resurrect one?
I think that Portland's architecture is mediocre. Sorry. It's nice enough but that's not a town for building huggers. I know because I used to yearn to move to Portland, and when I finally visited there, the streets were not paved with gold and the buildings were not half as interesting as the ones in my neighborhood.
Well, it may not have cool architecture, but based on one visit to Portland, I think it fit the "cool city" requirement. I stayed up in the NW section (near the old Montgomery Ward factory) and it was so cool (although the cab driver I had was really kind of bummed about the gentrification of that area. He said a lot of his friends had been bought out by people making a profit there)
But I must say, the Japanese Garden is amazing, as is the park it is adjacent to, Washington Park, with the Rose Garden.
Iris Lilly, which small cities do you think have the best architecture? I love architecture, too, so I'm curious.
Well, it may not have cool architecture, but based on one visit to Portland, I think it fit the "cool city" requirement. I stayed up in the NW section (near the old Montgomery Ward factory) and it was so cool (although the cab driver I had was really kind of bummed about the gentrification of that area. He said a lot of his friends had been bought out by people making a profit there)
But I must say, the Japanese Garden is amazing, as is the park it is adjacent to, Washington Park, with the Rose Garden.
Iris Lilly, which small cities do you think have the best architecture? I love architecture, too, so I'm curious.
That's a great question, not sure I've got good answers. Santa Fe is gorgeous with interesting architecture (but not a place to retire--real estate is hideously expensive for the size of the city.) Pittsburgh architecture always looks to me like St. Louis, so I'd say I would like Pittsburgh even though I've not been there. Same for Baltimore. I did like Austin because it had some old neighborhoods and there were southern influences in the buildings. Then speaking of The South: Charleston and New Orleans and Savannah, of course--fabulous places for building huggers. Midwestern Mississippi river towns have some cool Victorian architecture like Dubuqe, Quad cities (Davenport etc)
Eureka SPrings in Arkansas is hugely wonderful!
My Portland has cool architecture, old New England style - great old brick and granite buildings. I don't know about that other Portland.
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