AttorneyMother, I love the fishing story.
Several years ago we realized we needed to do something or this âdelayed gratificationâ was getting us down. We planned days off one year in advance spread through out the year. Then as the time came closer, we planned get aways- ranging from road trips to the ocean or visits to the kids at semesters abroad. All fun trips. This way we had something to plan and look ahead. This got us through many, many, very hard work years. We donât feel our life was put on hold or we had to suffer as much at times.
I havenât read all 349 pages. Is there some way to summarize âhow muchâ most think one needs to retire? The âexpertsâ tend to say you need 80%-90% of your pre-retirement income, which doesnât really make sense to me if we have only 2 people vs 5 people in the household. Yes, we want to do some traveling at least up until we become âold oldâ as they put it.
Does that percentage depend on how high your pre-retirement income is? That is, someone earning $60K per year may well need 90% to keep up their standard of living, but someone earning $150K may not. Right off the top, the higher earner would no longer need to be putting away 15-20% for retirement and some other amount for kidâs college.
I know the rule of thumb is 4% per year on investments and can go back and figure out how long the money will last, but not sure what that outgo will have to be to maintain a decent standard of living.
Thanks!
Most of these âexpertsâ work for financial companies whose goal is to get you to save as much as possible with them.
As a rule of thumb, I think 80-90% is too high for many of us. As you pointed out, we no longer need to allocate 15-20% for retirement; not having to pay FICA (and income taxes on the FICA taxes) is another 9-10% or more if self-employed; many of us are used to spending $$$ on current college costs out of our incomes, or x% saving for future college costs, these go away for most when you are retired; your mortgage payment (hopefully) goes away, you donât have commuting and other work expenses, your income tax burden will be lower, etc.
But it makes a nice sound bite, and scares people, which I think is the intent. I think 60% is a more realistic, maybe even 50%. For me, retirement savings + FICA and FICA-related income tax + mortgage (which we are paying down as quickly as we can) is around 35% of our gross income. Current college expenses are around 10%, which go away in one more semester (hopefully). So we can keep our current SoL on 55% of our current income once the mortgage is paid off.
But the only way IMO to really figure out what you need is to rigorously track your expenses now to see where your money is going, and then construct a retirement budget.
I think some budgeting before and after retirement will help get a âfeelâ for what you really want to keep in your lifestyle and what you can divest yourself of. If you have a big enough âsafety netâ for unexpected things. Many of us will have paid for homes, and will decide if we want to downsize or stay a while in our current home.
I agree with @notrichenough that if housing is paid for, 50 - 60% of current up to a certain $$, and then it depends if a high earner is going to continue a higher lifestyle. I also think spending a bit more when first retired for travel, and later probably more for health care. Maybe working one more year to bankroll a bunch of travel?
I like the idea of the mini-getaways @rockymtnhigh . H doesnât like to travel like I do, and he probably wonât mind me doing trips with others. Every year he has done his own âvacationâ with his brothers on outdoor camping, fishing, canoeing (not a vacation to me, however I may go one year). Many years he has also had hunting. He can continue those activities w/o me, or I find other things to do in those locations.
Our nuclear family will enjoy a trip to Orlando at some future point - I have to earmark some money for that and time it with the college kidsâ schedules.
If you go to using a debit card and cash system you probably can âcontrolâ discretionary spending - most of the monthly regular stuff is easy to identify.
You guys are amazing. I just returned from what has become my monthly trip to Europe (recently Iâve been able to reduce it to 1 from 2 or 3 last year). While I was away, there were something like 91 new posts.
Pillars: Defined Benefit Plan, 401k including a small investment in a PE fund, SS if it is there for us, AT savings, small IRAs, dynasty trust with lots of equities, a couple of VC investments in the trust, a couple of small rental properties. We could move to Canada if health care in the US really became unaffordable. A fair bit of life insurance in case I predecease ShawWife.
It is arguable that we could retire now, although I think that might entail some alteration in lifestyles. We are much more frugal than many of my peers, We were for a long time more frugal than our neighbors who probably earn a lot less than I do but some me of that restraint is gone (at least relative to the neighbors). The kids are in grad school. One will be fully employable as a nurse practitioner in less than 18 months and is getting paid an adult salary now for her part-time RN work at age 21. (I told her to start saving 10% of her salary automatically). The other is going, as his friend says, to âbillionaire school.â I doubt weâll be supporting either.
I want to have a place to go to in the winters. 100+ inches of snow here is a bit much.
But, for the most part, I hope I never have to stop working as I love what I do. I get reasonably well paid for it. So, I will keep saving.
Interestingly, my FA told me that Obama is attempting to close the Backdoor Mega Roth IRA strategy all together in his latest budget proposal to Congress that I learned from you guys and was starting to execute. Of course the budget is probably DOA but that is one fairly reasonable proposal to increase tax revenues.
Tesla: I looked at one. I kept my Acura for 14 years and ShawWife her Honda Odyssey for 13. We replace the Odyssey with an Acura MDX. I really wanted the Tesla but figured the tradeoff between heating the car and battery life would be painful. So, I ended up with a BMW 335 GT. Also a lovely car, especially with added goodies, but considerably less expensive than the Tesla that I was looking at (seemed to cost about $100K). Assuming I keep it 10 years, I was OK splurging.
The book The Millionaire Next Door, and The Millionaire Mind (and others), Thomas Stanley PhD has studied the affluent since 1973 (Dave Ramsey announced he died in a car crash in Atlanta last weekend; Feb 28 - at age 71 near his Marietta home) - this author pointed out about some of the things @shawbridge talks about - living less than neighborâs lifestyles.I am very interested in studying the charts etc and reading The Millionaire Mind. On my to do list.
Some of it is making conscious choices early, and using the time value of money to have some investments grow and living a bit âunder meansâ.
I am like @shawbridge in making sure our 2 kids have good career starts. We are helping them as much or more than ours helped us, and they are equally as responsible, so that is great. A wonderful part of the equation.
Even though we have not made a âtonâ of money, one income when planned to have two, surviving stage III cancer, we have done well with the money we had and have taken pretty full advantage of financial opportunities and living under our means. We have about 7 years to go to retirement, and unlike @shawbridge H is ready to retire, which he will do the end of the year when we both are 65.
Unless someone has Canadian ancestory, I think I read someone elseâs post in CC about the requirements to be able to be a permanent resident there. People really need to learn how to have our US changing health care and health payment paradigm work for them, including keeping a keen eye on own health and good healthcare available.
Brother is in Costa Rica, but except for his friends around him and a local doc (which did help him with some food poisoning situation he had) - they have many insects and other poisonous things to deal withâŠhe canât come back to US so I am sure he just puts it in his mind that life there is great. He has made it work. Some people do go foreign, but most of us donât want to give up lifestyle and benefits in US.
Congrats @shawbridge on the âlittle splurgeâ. Nice ride.
It doesnât matter in the important things if there are extra zeros behind my name when I die - just so there is enough there. Nice to leave an estate for the offspring. Also nice to have H and me taken care of in all our planning to not be a burden financially or otherwise in older age and/or bad health.
^ that was one of my favorite financial books.
SOSConcern: Hereâs my thread from last week http://talk.collegeconfidential.com/parent-cafe/1747621-the-millionaire-next-door-we-will-miss-him.html#latest His daughter is a neighbor and he lived very nearby.
Over 10 years ago, a young colleague gave me the book The Millionaire Mind as a present, for no particular occasion but thought I would enjoy the book. She knew I was a true believer in saving for the future, very frugal (brown bag lunch every day), small investor in the financial market, maximized my 457 plan which I also encouraged her to participate with whatever she could afford. I enjoyed the book. I read the The Millionaire Next Door just a few months ago, for me the charts got me dizzy after a while!
We moved in our current neighborhood 17 years ago because of its good public schools. Mortgage and property tax were relatively high compared to our income, but we are extremely good disciplined savers, watched all our other discretionary expenses, still managed to save some money and did dollar cost averaging investing. Just a few hundred dollars a month could turn in a decent sum 15-20 years later, thatâs what I teach my kids.
Saving for retirement is definitely a goal, but I just love to save money because I was brought up that way, and luckily my 2 kids kind of rub off me in that regard, so I am happy.
@shawbridge, I think you are loaded! I donât know if anyone with a dynasty trust needs to worry about retirement.
@Shawbridge, are you doing the Backdoor Roth or Mega Backdoor Roth? I donât think thereâs much chance that either will be shut down anytime soon, but who knows? The Mega Backdoor actually recently got quite an endorsement by having the IRS explicitly spell out that simultaneous twin rollovers are legal and appropriate to move 401k assets from post 86 post-tax 401k subaccount to IRA Roth and associated earnings to tIRA (IRS Notice 2014-54).
â@shawbridge, I think you are loaded! I donât know if anyone with a dynasty trust needs to worry about retirement.â
Is it even worth thinking about doing a dynasty trust anymore? I thought the generation-skipping transfer tax did away with the benefit of the dynasty trust, about 30 years ago. Whatâs the point? Though I certainly wouldnât complain if anyone put me in a trust. I could be a trust fund baby, is it too late?
Generally, a dynasty trust allows the settlor (trust creator) who is willing to relinquish ownership of assets now to transfer those assets to a trust that can exist in perpetuity (used not to be feasible because of the ârule against perpetuitiesâ which has been abolished by statute in most states, I believe).
Transferring assets to a dynasty trust takes that amount out of the taxable estate (and counts against your lifetime exclusion) and allows the appreciation to grow without fear of the estate tax. There is no step-up basis for the assets, of course.
My sibling has established a dynasty trust because sibling will exceed the lifetime exclusion and sibling has child, expectation of grandchildren, stepchildren and step grandchildren who can benefit from the dynasty trust. Sibling believes that the amount transferred to the dynasty trust will not be needed for lifetime support. There are stipulations in dynasty trust what it can be used for and will be governed by âfamily committee.â
No quite understanding this. Are you saying you canât rollover your 401k, pre- ot post-tax, directly to roth ira?
@Iglooo, no, Iâm saying that the IRS made it explicitly acceptable to move post-tax contributions directly to a Roth IRA without having to pay taxes on the associated gains (which could be an issue for long-standing accounts) which get moved to a tIRA. In our case, we have no interest in âconvertingâ to Roth at our current tax rates, so this is quite welcome. No proration, no taxation, just an easy peasy segregation of post-tax and pre-tax going to IRAs from 401k.
@jym626 I just thought commenting on some of these thoughts was helpful on this thread regarding Dr. Tom Stanley and his books. I am not too expert on navigating around CC to see all that is posted. I hope Dr. Stanleyâs daughter continues on and publishes another book. With someone healthy in their 70âs, the hope is that they are around another 30 years with continued health.
It is interesting living around and knowing wealthy people, as well as people of all walks of life IMO. I am friends with a few that are wealthy - only two in AL made the Fortune 500 wealthiest a few years back, one in Bâham and one that is a friend. Tragedy hits all of us.
Gosh sometimes I have my head in certain areas and totally miss some things, no matter how well read I try to be. We have some wonderful posters on this thread and some other threads that help me keep up on important things to get in line for retirement. Kudos to all of you walking this path with me in our cyber community.
Yes, thank you for commenting on it here. Its a senseless loss that hits close to home (literally). She had just recently left her job to work o the book with her dad. She plans to continue that.
That is just so awful, I canât even think about it. From his books, he sounds like such a nice and down to earth guy. What a tragedy.
âno, Iâm saying that the IRS made it explicitly acceptable to move post-tax contributions directly to a Roth IRA without having to pay taxes on the associated gains (which could be an issue for long-standing accounts) which get moved to a tIRA. In our case, we have no interest in âconvertingâ to Roth at our current tax rates, so this is quite welcome. No proration, no taxation, just an easy peasy segregation of post-tax and pre-tax going to IRAs from 401k.â
What is a tIRA? And is this something that is specifically allowed only by certain companies that have gotten this authorized? It doesnât sound like an option available to everybody.