How much money do you need?

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TommyIV

TommyIV

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How much money do you need to save in order to live a comfortable and typical life in retirement? This behavioral economist says you should save enough to have 130% of your working salary each year. His argument is working is cheaper than retirement because you spend less time doing things that would cost you money. Seems logical but not something I've never really heard others talk about.

Does anyone, either saving for retirement or in the midst of their retirement concur with this number? Or disagree?


Retirement is expensive – here’s how much you really need to save for it
 
Seems a little much to me, though with inflation and such, I’d rather have too much than not enough. For me, I’m probably only going to downsize in my wants and needs as I get older.


Scott Harrison
Senatobia, MS
 
(My first guess was he lost a bet before he explained.)

Agree that it comes down to your psychological profile. How much of an impulsive spender are you? Retirees have all time on their hands and many want to spend to fix up their house, buy a "vacation home",travel, eat out, etc. It's easy to look at that 401k as a lump sum wind fall for having a good time, but when you look at it as what it is, a means to support your next 30+ years, it has different context.

Due to "sequence of return" risk, splurging a little bit in the early retirement years could haunt you down the road. If you're going to go that route, picking up some kind of part time work is a good option in the early years.

I think 130% is ridiculously high and mostly unattainable under normal inflationary circumstances. The reason 75% is a good number is because 25% of your salary is no longer going to government programs or 401k contributions. Just don't set those return expectations too high.
 
Bullitt said:
The reason 75% is a good number is because 25% of your salary is no longer going to government programs or 401k contributions. Just don't set those return expectations too high.
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Very true, he's overlooking the money that is set aside in the first place.
 
Ideally you want the mortgage and any large debts to be be paid off by then, which is another reason why you shouldn't need as much of an income as before.
 
My Financial Adviser uses 80% as the baseline ratio and the year my wife turns 95 as the grand finale. I think are good numbers. Bullitt's 75% ratio is right there in the same ballpark - so two smart folks are saying 130% is a bit extravagant...

Also, if trying to save for 130% of your final salary leads you to take a lot of risk in the last five years of income earning than things could easily go south. For example, if you could fund 90% in 2005, but wanted to get to that 130%, then what would you be invested in. Yup, C, S, and I. In 2009 you would be broke and looking for a Walmart greeter position. However, if you were trying to fund to 75% of your last annual income you could have camped the G-Fund. A better move would have been something like 60% G, 40% C/S/I, and live the TSPTalk Motto of 'Never Let Friends Buy and Hold'. When things started going south in a hard way you had staying power. If you wanted you would have had the time to balance more to safety. But, sitting at 90% C/S/I means even the best would have lost 30% before a move. Those were some seriously fast dumps. I was +7% and in safety one day, moved to a 30/70 split (if I remember) and by the time I could reallocate to safety (two working days) I was sitting at -10%. Yowser. And, I can move fast if motivated :-).

Basically, you don't want to overreach in those last years of working. Especially for a dubious goal like that.
 
Boghie said:
My Financial Adviser uses 80% as the baseline ratio and the year my wife turns 95 as the grand finale. I think are good numbers. Bullitt's 75% ratio is right there in the same ballpark - so two smart folks are saying 130% is a bit extravagant...

Also, if trying to save for 130% of your final salary leads you to take a lot of risk in the last five years of income earning than things could easily go south. For example, if you could fund 90% in 2005, but wanted to get to that 130%, then what would you be invested in. Yup, C, S, and I. In 2009 you would be broke and looking for a Walmart greeter position. However, if you were trying to fund to 75% of your last annual income you could have camped the G-Fund. A better move would have been something like 60% G, 40% C/S/I, and live the TSPTalk Motto of 'Never Let Friends Buy and Hold'. When things started going south in a hard way you had staying power. If you wanted you would have had the time to balance more to safety. But, sitting at 90% C/S/I means even the best would have lost 30% before a move. Those were some seriously fast dumps. I was +7% and in safety one day, moved to a 30/70 split (if I remember) and by the time I could reallocate to safety (two working days) I was sitting at -10%. Yowser. And, I can move fast if motivated :-).

Basically, you don't want to overreach in those last years of working. Especially for a dubious goal like that.
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I went into retirement with NO DEBT, and was saving around 50% of my retirement income monthly. Saving a tad more then 50% right now, because we just haven't spent as much money on travel and entertainment due to COVID the last few years. We will have to start taking those RMD's in the years ahead and will just roll them into laddered CD's.

Bottom Line: You will need much less if you have NO DEBT!
 
I think 130% is way too high. There is a lot of good information below, like being out of debt when you retire. I think 80% is too high for Government employees based on what Bullitt said and the fact that we have a pension. Does anyone remember the 3 legged stool analogy when TSP first started? Pension, TSP & SSA.

Depending on how long you work for the Government under FERS, you get 25-35% of your high 3 salary and SSA should cover between. 20-40% depending on when you take it (less for high income employees) so the remainder comes from Savings/investments/TSP/401K etc. Even if you are shooting for 100%, 45-75% so you only need your TSP to make up 25-55%; for 80% it would be 5-25%. Many financial advisors are looking only at your investments & retirement accounts when they come up with these percentage rules of thumb (they may factor in SSA to a degree...had one recommend I should wait until FRA to start taking SSA) and of course they want you to work longer and invest as much money as you can with them until and throughout retirement.

I agree with his point that you need to look at what you want to do in retirement plus your actual expenses when you figure out how much you will need but the starting point should be your salary less retirement contributions and SSA/MC. Finally when you retire, you may live another. 20-40 years so you don't want to be too risk adverse with your investments & retirement accounts... you can still weather the ups and downs in the markets.

With pension, TSP life expectancy payments & FERS supplement, I'm getting approximately 75% of my high 3 salary. I still am working 3 months a year, trying to stay below the SSA cap for the supplement and making more money than when I was working full time.
 
Depends on what your output is (bills, housing, food, gas, food....). I kept a speadsheet of every dollar for several years before retirement to see how much I spend and where most money goes. As retirement nears, figure out if your retirement income will be enough based on what u spend plus inflation.
 
How much indeed? That was the question.

I knew my pension and SS combined would give me 1/2-pay, which would be fine for recurring expenses. Housing, though, needed $20,000 a year. Figuring I could easily earn 5% on my TSP/IRA -- average over time -- that meant a $400k balance was necessary. When I saw that coming, I bailed, 1/1/11. Since then the IRA has paid out about $375k yet retains 90% of its value. If it never earned another dime, it would last 10 more years. A good analysis will lead to an accurate diagnosis and hence to a good prognosis, as we used to say in the weather biz.

Just be careful how you invest your nest egg. You want plenty of cash just in case. You want paper that will generate cash; I chose corp prefereds. You want inflation protection; I chose folks who invest in 'value stocks', good companies that have been beat down for one reason or another.

I have been comfortably retired.
 
I like the Kiplinger compare tool. I found this site interesting: https://www.gobankingrates.com/retirement/planning/comfortable-retirement-cost-state/

IRS can tax up to 85% of your SS
Taxation.jpg

Valkyrie said:
depending which state one lives in determines if the pension, SS and TSP is taxed or not. IRS taxes 80% of SS unless no pension or other income and taxes pension and TSP.

state by state tax guide

https://www.kiplinger.com/kiplinger...by-state-guide-to-taxes-on-retirees/index.php
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