In the past, crystal ballers have used 6%, 7%, even 8% (I am thinking of certain state pension funds) looking at long term average stock market returns. But in our current world of super low interest rates and slow growth, if you think this is the “new normal”, I don’t think it is realistic to project 7% returns over the next 30 years. I would use 3% and hope for 4%, based on 30 seconds of deep thinking.
Either go with the “general rule of thumb” that’s thrown around or look at factors such as what’s the historical gain for the asset mix and inflation and use those to project what the numbers will be in the future. We’ll probably be fortunate enough to have a good income in retirement, and this brings in another factor that isn’t usually looked at as much - the post-tax value; if someone is expecting say a 100 grand/year it’ll make a difference depending if it’s mainly through 401k distributions taxed as regular income, a non-retirement account heavy in capital gains, Roths, dividend/short term cap gains, etc.
Some people have lower expenses than others in retirement; some may have higher housing costs and not have home mortgage paid off; some have costly health issues or other costs that make their situation different; some have LTC insurance. Still a lot of variables besides variables such as state/other taxes, pre-tax and after tax differences in retirement nest egg, etc.
If you plan to have more than the minimal, and plan for and control variables as best you can, watching and controlling your income and expenses. One can just do the best they can, hope for the best but plan for the worst.
Sometimes people do spend a little more on their first years of retirement when people maybe are healthier and have the ability to travel. Later years when more immobile, spending on some things may go down significantly.
I am not sure whether this link has been posted here:
http://www.pensionrights.org/get-facts/statistic
Interesting statistics (to me at least.)
According to this link:
http://www.pensionrights.org/publications/statistic/income-other-sources
Very little retirement income seems to be generated from financial assets for the majority of retirees. (excluding the very wealthy retiree, that is, if we look at the median rather than the mean.)
Comparing the data in table 12 and that in table 13: it seems that the earned income by taking a part-time or full-time job is more than 10 times higher than the income generated by their financial assets for the 65+ retirees.
For those who fortunate enough to have defined benefit pensions and might need to consider whether to take a lump sum rather than periodic payments, this article might be useful reading:
This is the link to the GAO study cited in the article:
http://www.gao.gov/products/GAO-15-74
Another article on the same topic:
http://blogs.wsj.com/totalreturn/2015/03/23/what-is-a-future-income-stream-really-worth/
Interesting links!
I am too young for my company’s defined benefit pension and have a “cash accumulation” plan. It can be converted to an annuity payment, and the financial adviser claims the rate is favorable. I like the idea of having a retirement component that does not require me to “guess how long I’ll live”.
@colorado_mom, for cash accumulation plans, it seems to me that plan providers know that people tend to opt for the lump sum whether it’s wise or not. It’s like SS, where more people file early than would be wise financially (full disclosure: I filed early, but did so because I had two kids who got benefits and am the less-well-paid in my marriage).
When the time comes, I think my wife will take the annuity. We will of course consider her health and the discount rate used.
I don’t know if I like that Fidelity link, those products they are trying to sell you don’t look too great to me.
Apparently my company needs to offer me a 2-2.5 million dollar lump sum to match my pension. I wish they would, but I doubt it’s going to happen. If they offered it, it would probably be at a 75% discount. And I’ll bet you some people would be suckered into taking it.
Just heard this tidbit this evening:
http://www.usnews.com/news/business/articles/2015/04/09/elder-care-costs-keep-climbing-nursing-home-bill-now-91k
Eerily similar to the trend in college tuition, costs outpacing inflation. I suspect we’ll start to see migration of elderly to countries with lower costs for these services.
@IxnayBob, you’re always talking about the fact that your wife makes more than you did/do. You always sound so proud of her, I find that just terrific. I always made more money than my H too. I once asked him if it bothered him in any way, and he just laughed and said every husband should aspire to being a kept man. Actually, though, although I make more money, he has far more actual “power” and recognition, which makes me much more proud of his accomplishments. I only make money, while he makes a contribution.
“Actually, though, although I make more money, he has far more actual “power” and recognition, which makes me much more proud of his accomplishments. I only make money, while he makes a contribution.”
I don’t think you should devalue your contribution, @hayden. You can’t feed your family on power and recognition, only your ego. You should be proud of what you are contributing, it is surely as important. Then again, I don’t recommend people compare contributions to the family, as people give of themselves in many different ways. That is great that you are proud of each other. I have talked to many spouses that think what the other person does is unimportant, and feel like they are carrying the majority of the load (they’re not), and I want to whack them in the head. #:-S
Bravo @IxnayBob
Brava @Hayden
+1 @Busdriver11
Happy Friday to everyone. 
@hayden, thank you for your kind words. As you recognize, I’m very proud of my wife, so please excuse the bragging, but I want to say that my wife, in her later 50s, just last week resigned to take a new job, at a considerable bump in pay, and that the new company is still getting a bargain Her age and gender wouldn’t matter, except that she works in IT, which is both ageist and sexist (and a few other “ists” too).
My H would also be happy and proud if I made more money.
For now, I am COO, CFO, and Co-CEO of our household. Proud to have completed taxes last night. Took a hit because converted quite a chunk of $$ from IRA to Roth IRA. Have a much smaller conversion this year.
Pleased that our LTC policy has a 5% inflation generation - policy no longer available to purchase, unlimited/no cap. However hope H and I can age at home and thus have total care come in 24/7 if needed. Don’t know if the insurance will fight on benefits like my disability policy did during my cancer treatments - a bit of a ‘game’ insurance plays, which totally sucks.
Our generation has a lot of focus on many fronts - retirement, college, money, etc. Almost every magazine line carries info on these in some of their issues.
Colorado_mom and Ixnaybob would you mind providing an explanation of how cash accumulation plans work. There as been some discussion that NJ may try to convert the pension to this type of plan and while it will not impact me my D is a teacher and any change will impact her.
@Tom1944, I’ve seen plans that are much more complicated, but the plan that my wife and I had was simple. The employer would contribute a percentage of your salary to an account. The percentage was based on your years of service and the salary was capped, for these purposes, at some dollar amount. Additionally, interest on the balance would accumulate into the plan. No later than age 70, you had to choose to either roll the accumulated amount into an IRA or pick from a number of annuity options (single, spouse at various percentages, minimum term, etc.). I chose an annuity since when I ran the numbers to purchase an annuity, the annuity was more expensive than the cash offered. YMMV
Some plans allow participants to contribute, some allow spouses to contribute, some have employer matches at various levels, some will invest the balance in funds just like a 401k (iirc), etc.
My wife’s plan was reasonably generous, but nowhere near as generous as the old Defined Benefit (DB) plan was. In 2014, the employer contributed $17k to the account, and the balance grew at 3.8% (not shabby in today’s low interest rate environment). By contrast, her new Defined Contribution (DC) plan at her new employer will, after a year, start contributing $3k per year.
All in all, DB is much preferable to DC. There is a reason that employers are moving in one direction only in these changes.
Thanks- the current pension plan my D is in she contributes 7.5% and the State contributes 4% of her salary. The plan being proposed is that she would contribute 4% and the State would continue to contribute 4%. There are no other details yet such as would they set a guaranteed rate of return. She only has 3 years in the old system so she would be moved out of that plan. If the switch was made she would continue to contribute the difference between her 4% and the 7.5% she currently contributes.
Right now the State as an Alternative Benefit Plan that seems to me to be similar in that plan the employee contributes 5% and the State contributes 8%. That is only open to employees in Higher Education. It seems to me that the easiest way to go would be to close the old plan for everyone not vested and move everyone else into the ABP which already exists and no one seems to be complaining about. I think they will have a hard time creating a new plan from scratch.
Anyone else licking their wounds after paying large tax bills? Ouch!
Well, I imagine most of the people on this thread are!
I just did what I always do, send them 10K, an extension request, and save the rest of the pain until October. The interest and penalties aren’t that awful, and it’s worth it, just to delay the misery.