retirement in terms of finances

 What is the biggest myth about retirement in terms of finances?

Biggest myth is perpetrated by financial institutions when they say you need to be able to replace 80 % of your pre retirement income in order to retire. You can’t just place a percentage on it and be done. Once you retire your tax liability goes down, you no longer contribute to SocialSecurity and Medicare through your paycheck, you don’t need to buy clothes for work, you don’t have to eat lunch out at work, you don’t have to commute to work, you don’t have to save for retirement, insurance may cost less based on property you still own and if you are Medicare eligible. etc etc. The best way to figure out how much you need is to figure out what your mandatory monthly expenses are (mortgage, rent, food, utilities etc) in order to just live and then add in whatever amount per year you need for the fun things in life (restaurants, trips etc) You need to remember that your mandatory monthly expenditures needs to include some money to put away for house repairs and unforeseen expenditures ( I set aside 400 a month which works for me) I live very comfortably on about 50% of my pre retirement income.

Amen. It’s the expense side that’s important. Your current income really isn’t relevant. Your expenses may even go UP now that you have more time to travel, visit museums, eat out with friends, etc. — admittedly these are discretionary, but these discretionary things may well be part of your retirement dreams. Over time, you are going to hire more people for home maintenance and repairs rather than do it yourself (e.g. clearing leaves out of that second floor gutter).

Agreed - you may need more income when you retire! I work remotely, so there will be no savings for me on commuting, clothes, lunch etc. My health insurance costs me less than half as much each month through my job than we pay for my retired husband’s Medicare, Medicare supplement and prescription drug plan. I cover both of our dental and vision insurance through my job, so that cost will go up as well. Now, my car sits in the garage Mon-Friday while I’m working. Once retired, I’ll want to actually do things, so there will be more gas and wear and tear car expense, plus the cost of whatever it is I want to do. These days, if the two of us go out for lunch that can cost in excess of $35, even at the diner. I look at my current take home pay after taxes, insurance and retirement savings come out and know I’m going to need more than that because of all of the above (plus I’ll still have to pay some taxes), and also have to factor in inflation. Downsizing or moving to a cheaper area isn’t really going to be that helpful as Ive been in my current home for 26 years (and same town for 36 years) so, though it’s more home than I need at this point, I have deep roots and it’s far less expensive to stay where I am than to move. Plus, my children and grandchildren are near me, and being a longer drive or a flight away from them is not my ideal retirement scenario, and traveling regularly to see them would be another expense then (and that gets more difficult as we age). It’s a pretty bleak picture - I don’t know how I’ll ever be able to retire!

Math and budgeting are wonderful skills. I had to quit reading all the how much money to save retirement advice and concentrate on what was possible and what condition my finances should be in at retirement.

Sure enough with no debts and a paid for house, I now have more money to play with than at any point in my career. Son through college without debt and launched. I am also living very comfortable with 50 to 60% of my former income and am not actively drawing down on my original retirement assets. Apparently fear of knowing how to predict your own needs and future drives an entire retirement advisory industry that needs paid for their services from your assets.

I did indeed have a fee based consultation on my plans to see if there was an asset class or strategy I was overlooking and now I am on auto-pilot with attention to how the world market changes from year to year but with a strategy that does conserve capital. I will not get rich in retirement off my investments, but will have a very acceptable lifestyle. I do not worry about the 1 to 2% I might leave on the table being somewhat conservative in my investing. Life is good.

Hi : My experience is totally different. My expenses go up because I do not want to sit at home and die. I spend 50% of my time traveling.

Let’s see. So far,This coming year we are going on a 5 day cruise in November, a week at the beach in Treasure Island FL in January, 2 weeks in Cancun in March and 2 weeks in Hawaii in June. In addition there will be 2 or 3 trips to see our kids and grandkids in NC We also live in a very active 55 plus community in Florida and bowl. Play Pickleball, swim and golf every week. About once a month we go to a beach for the weekend I don’t think we are sitting around waiting to die

Excellent. I have been traveling around the world, taking advantage of the strong USD. I want to keep doing so before I sit on a wheelchair.

Pathetic.

Good point Jim…

Staying active in retirement by traveling, socializing, etc is very important and can be expensive. While there are some activities like hiking which is free, many activities can cost quite a bit. Obviously if you don’t have a lot of money traveling needs to be minimized. I do have a budget which allocates $$ for travel

I had to cancel 2 trips this year already. Hope the virus crisis goes away soon.

For us two we will have a very good retirement and will take 1 vacation a year, which we couldn’t before because our kids were in college but now our bills a less and no debts. We saved and never bought foolish things now were are making a backyard of my dreams with spa,gazebo and outdoor floors and furniture. I couldn’t buy before but now we can. We gave our retirement money in low risk and won’t need to withdraw til we are 70 we are now 62. Do save when you can and don’t use credit if you cannot buy it cash. Life is good. We live modestly but eat plentiful.

I have a comfortable lifestyle and prepared well for my later part of life, and my children are doing well with successful careers. My aim is not to accumulate things that I'd regret later and to live simply without the constant maintenance of the big house. I updated the house but had no additions and donated many household items after the children left. Easy to maintain, clean, and open space is very important to me for my mental health. Clean living and a clean house are my goals.

Using credit instead of cash is probably one of the most effective wealth building strategies out there.

Almkst always better to use other people’s money. I rarely pay much if any interest but let’s say I paid full interest on one of my CCs, 11.99 percent. My 12 month market gains are 32% right now.

so why would I take my savings and capital to buy something and lose the chance to make 30% when even if I was paying high interest I could use someone else’s money and let mine grow and compound. Capital + time is probably one of the most powerful forces on earth, stop giving your capital away if you want to build wealth.

This answer is spot on, what are the basic monthly expenses to live on (don’t forget to budget monthly Medical benefits and property taxes if that is applicable). In your calculations, you may and probably should add “in a lifestyle you choose”. This may include things like cable TV, high speed internet, monthly subscriptions to things you like, fitness clubs, etc. With all that you have a expense base for monthly living in a style you want. From there, things like vacations, travel, etc. are completely within your control; if you have the money, do the things you love. If you don’t, you have the basics covered and figure out other things to do (or do less of the extra fun stuff). Being active rarely costs money, (ie walking, biking, hiking, etc.) and is probably the best thing you can do for yourself.

It should be %age of pre-retirement expenses NOT pre-retirement income. There is no relationship

Same here!

They key is to nuke all your debt (including mortgage)

that way you can “scoot by” making less than 29k/year which is the max amt a senior can make without worrying about paying taxes

This really is all the information that you need to figure your retirement - well done!!

You should absolutely keep investing saving, even if slightly less, throughout retirement.

It also depends on what a person’s pre-retirement income was. If it was $50k per year, then $25k/yr at 50% post retirement won’t go that far. On the other had, if it was $500k/yr then $100-$150k/yr (20%-30%) post retirement be sufficient.

Even then, there is a factor of whether your mortgage is paid off and if you stay in a high property tax area, if you have any chronic health conditions etc etc.

I don’t think a fixed percentage does justice.

Social Security isn’t enough. One must be financially and medically secure to enjoy a good retirement.

Agree

One of the largest expensive as you age is Healthcare. Medicare is not free

Thank you . you are right

Don’t collect social security until 70 years old. The older you get, the less expenses needed for travel, shopping, and entertainment. Health decreases with age, so live life to the fullest while you can.