Anonymous wrote:The best rule is a 4% annual draw. This is based on actual research. Essentially, tally up you spending requirements. Let’s say it’s $100k. The savings you’ll need to sustain that inflation-adjusted $100k is $2.5 million (100k/.04). Don’t forget that SS and other pensions reduce the amount you need and they typically have a COLA.

As for the 4% rule, it assumes a 60/40 stock /bond split, a 30-year retirement, and an annual adjustment for inflation (if you take 100k in year one and inflation is 2.5% that year, you’ll take $102.5k next year).

This is the best and most complete answer. OP, if you can’t figure it out from this, see a financial advisor.

Anonymous wrote:My 2 largest expenses by far are my kids’ private school and my mortgage, both of which will be gone when I’m in my early 50s. I’m not sure why I would project those expenses going into my retirement. If I’m anything like my own parents my expenses will go way down in retirement.

My parents expenses haven't gone down that much. The mortgage is dwarfed by increases in property taxes/insurance premiums with house appreciation and the memories of private school were distant memories by the time they were retired. They travel a lot more and spend a lot more on healthcare.

My 2 largest expenses by far are my kids’ private school and my mortgage, both of which will be gone when I’m in my early 50s. I’m not sure why I would project those expenses going into my retirement. If I’m anything like my own parents my expenses will go way down in retirement.

Anonymous wrote:Apparently we need $11 million to retire haha! Not going to happen. We’ve saved since we were first working but this area is $$ and we paid for our first mortgage while paying off student loans and paying for daycare.

You need over $500k a year to retire? ($11,000,000x .04= $440,000 then add low $60k estimate for Social Security)

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:how come all these tools are income based not spending based?

There are plenty that are spending based--rules of thumb like the average person spends 85% of their final income in retirement. But if you are 32 years old it's a bit hard to project what you will be spending when you are 70, so income benchmarks --based on average patterns--along the way are easier.

That’s income based too. Base it on your real spending- review CC statements and bank accounts. Will give you much clear pic of true needs.

think you need to look at your real spending AND the benchmarks. Every year there's an estimate of how much they estimate the average retiring couple will spend on healthcare expenses outside of long-term care and it's now nearing 300k. If I based it on my own spending now (i.e., virtually none) I'd likely be way off. Similarly I currently have 2 weeks vacation that tends to get eaten up by family obligations, my vacation spending will be way different when I have all the time in the world to travel. How many roof repairs, HVAC replacements, car replacements etc. will I have in retirement? It's really hard to estimate all this and if you only have your spending records for a couple years you will likely be wildly off.

DP. I get all this but if it gets too complex, most people can't deal with it and stop planning.
My take,
- your expenses today (assuming normal family, couple of kids in school, etc.) won't change much in retirement. Kids'/school/college expenses/mortgage will be replaced by others - travel, healthcare, etc. So, if you are spending 100K/year today assume a certain inflation rate and just project that out.
- add in periodic capital expenses - car, remodel, roof replacement, etc. This will be over and above your regular expenses in line 1. As easy as penciling in 30K every 5 years or so..
- Plan for a withdrawal rate of 3% (or 2.5% if possible). I know conventional wisdom says 4% but the extra 1-1.5% is the cushion that you can use for catastrophic healthcare or other expenses.

If you keep it as simple as the above, that should provide you with a reasonable plan to take care of things you didn't think about..

I think this is why the income-based benchmark approaches work--they keep it simpler. As you get closer to retirement, then is the time to figure out the spending.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:how come all these tools are income based not spending based?

There are plenty that are spending based--rules of thumb like the average person spends 85% of their final income in retirement. But if you are 32 years old it's a bit hard to project what you will be spending when you are 70, so income benchmarks --based on average patterns--along the way are easier.

That’s income based too. Base it on your real spending- review CC statements and bank accounts. Will give you much clear pic of true needs.

think you need to look at your real spending AND the benchmarks. Every year there's an estimate of how much they estimate the average retiring couple will spend on healthcare expenses outside of long-term care and it's now nearing 300k. If I based it on my own spending now (i.e., virtually none) I'd likely be way off. Similarly I currently have 2 weeks vacation that tends to get eaten up by family obligations, my vacation spending will be way different when I have all the time in the world to travel. How many roof repairs, HVAC replacements, car replacements etc. will I have in retirement? It's really hard to estimate all this and if you only have your spending records for a couple years you will likely be wildly off.

DP. I get all this but if it gets too complex, most people can't deal with it and stop planning.
My take,
- your expenses today (assuming normal family, couple of kids in school, etc.) won't change much in retirement. Kids'/school/college expenses/mortgage will be replaced by others - travel, healthcare, etc. So, if you are spending 100K/year today assume a certain inflation rate and just project that out.
- add in periodic capital expenses - car, remodel, roof replacement, etc. This will be over and above your regular expenses in line 1. As easy as penciling in 30K every 5 years or so..
- Plan for a withdrawal rate of 3% (or 2.5% if possible). I know conventional wisdom says 4% but the extra 1-1.5% is the cushion that you can use for catastrophic healthcare or other expenses.

If you keep it as simple as the above, that should provide you with a reasonable plan to take care of things you didn't think about..

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:how come all these tools are income based not spending based?

There are plenty that are spending based--rules of thumb like the average person spends 85% of their final income in retirement. But if you are 32 years old it's a bit hard to project what you will be spending when you are 70, so income benchmarks --based on average patterns--along the way are easier.

That’s income based too. Base it on your real spending- review CC statements and bank accounts. Will give you much clear pic of true needs.

think you need to look at your real spending AND the benchmarks. Every year there's an estimate of how much they estimate the average retiring couple will spend on healthcare expenses outside of long-term care and it's now nearing 300k. If I based it on my own spending now (i.e., virtually none) I'd likely be way off. Similarly I currently have 2 weeks vacation that tends to get eaten up by family obligations, my vacation spending will be way different when I have all the time in the world to travel. How many roof repairs, HVAC replacements, car replacements etc. will I have in retirement? It's really hard to estimate all this and if you only have your spending records for a couple years you will likely be wildly off.

Anonymous wrote:Great question. I just read an article that said at my income (300k) I should have 6.2 times my salary saved at age 45. I’ve always been a diligent saver and I’m not even close to that number.

Same. I’m a single parent and make 275. Try as I might, I don’t stand a chance of hitting those benchmarks with full financial responsibility for 2 kids. Yes, if I dialed way back on 529s and overpaying my mortgage, I could get closer, but being mortgage free in retirement and loan free for college is more important than having a projected $20,000/month in retirement.

Apparently we need $11 million to retire haha! Not going to happen. We’ve saved since we were first working but this area is $$ and we paid for our first mortgage while paying off student loans and paying for daycare.

I also always find income-based calculations to be strange.

We could live on one of our salaries now, based on spending habits. The second salary is just used to add to our investments. All of the calculations we have done for retirement are based on spending. I couldn't even tell you a ratio or formula, I have a schedule, month by month, of expected investment returns vs. budget. When those returns are greater than the budget, we can consider retiring. It considers inflation, raises, etc.

Anonymous wrote:

Anonymous wrote:An advisor is not going to tell you this either..

A good rule of thumb (assuming you are retiring at 65) is to have 25X your annual spend (the year you will retire) in savings (or 4%). The assumption is that it will last you at least another 25 years even if your net worth grew just enough to keep up with inflation.

This will automatically take care of the reduced spend associated with a LCOL area.

Our advisor took a deep dive into our costs and lifestyle. We’re older and have already bought our retirement home. She told us we are fine. I’ve had the same advisor for a long time - it’s an employment benefit for me. So she was able to really get a handle on how we spend.

THIS!
Yeah, OP, let the professionals do basically a forensic of your finances, it is reassuring to look at the write-up when it’s all laid out clearly. Good luck.

Anonymous wrote:

Anonymous wrote:how come all these tools are income based not spending based?

There are plenty that are spending based--rules of thumb like the average person spends 85% of their final income in retirement. But if you are 32 years old it's a bit hard to project what you will be spending when you are 70, so income benchmarks --based on average patterns--along the way are easier.

That’s income based too. Base it on your real spending- review CC statements and bank accounts. Will give you much clear pic of true needs.

These types of questions are almost impossible to answer because life is so unpredictable. Investing (assuming you have a decent job) is a mindset and your success has more to do with your willingness to sacrifice and take risk than anything else. But how much to save? Nobody knows. A good friend is a former investment banker. Safe to say he has 5+ mil, and he lives like a king in latin america on 30k a year. If he still lived in the US with his former wife, they would probably need 10 mil to maintain their lifestyle in a high cost of living area.

Anonymous wrote:An advisor is not going to tell you this either..

A good rule of thumb (assuming you are retiring at 65) is to have 25X your annual spend (the year you will retire) in savings (or 4%). The assumption is that it will last you at least another 25 years even if your net worth grew just enough to keep up with inflation.

This will automatically take care of the reduced spend associated with a LCOL area.

Our advisor took a deep dive into our costs and lifestyle. We’re older and have already bought our retirement home. She told us we are fine. I’ve had the same advisor for a long time - it’s an employment benefit for me. So she was able to really get a handle on how we spend.

The best rule is a 4% annual draw. This is based on actual research. Essentially, tally up you spending requirements. Let’s say it’s $100k. The savings you’ll need to sustain that inflation-adjusted $100k is $2.5 million (100k/.04). Don’t forget that SS and other pensions reduce the amount you need and they typically have a COLA.

As for the 4% rule, it assumes a 60/40 stock /bond split, a 30-year retirement, and an annual adjustment for inflation (if you take 100k in year one and inflation is 2.5% that year, you’ll take $102.5k next year).