"My opinion is that this estimate, of all the estimates that goes into
retirement planning, is the one that requires the greatest individual
adjustment. There are many reasons why one's current salary may not
be a baseline to indicate one's retirement needs. "

Tax rate is a huge factor. I see the basic princpile of "use a Roth
IRA if tax rate at retiremement will be higher than tax rate while
working". I haven't heard of a conceptual case where I would know if
this applied to me. In what cases would a tax rate "go up" if one has
no income? What types of investors have a higher income in retirement?

Savings rate is a good one (mentioned earlier). If someone can save
25% of their income, they get a "25% raise" when they retire because
they don't "necessarily" need to keep stashing this money away into
savings.

Is their a "utilities guideline" which suggests one pay x% of income to
own a phone, cell phone, keep the heater on, lights lit and stove
running? I wouldn't know what percentage I pay for utiltiies now, this
appears to be a fixed cost to me whether I work or retire.

- quote -

There may also be additional expenses that will negate some of the
savings and there is always inflation.

If your employer is providing at least some of your health insurance
you may end up paying for this or at least the difference between
the level of coverage you need and what is provided by Medicare.
And there is a premium on Medicare Part B that you have to pay.
There could be long term care expenses, additional drug expenses,
etc. Health Insurance premiums and health care costs could be
substantial(thousands of dollars each year).

And you definitely need to factor in some type of inflation rate.
$35,000 at age 65 will most likely not be nearly enough at age 75.
Most pensions do not have automatic cost of living increases and
Social Security cost of living increases may not be as much as
they are currently, dependent on any changes to the current benefit
structure.

And you could always have some other large expenses, house repairs,
purchase a new car, etc. Investment income may not be as expected,
etc.

It generally helps to look at several scenarios, at least a best
case, most likely and worst case. And assess how probable that
worst case is and whether or not you can live with it. There may
be some web sites that allow scenario testing and assigning
probabilities to various levels of investment earnings and expenses.
Maybe one of the mutual fund web sites, like T Rowe Price or
Vanguard?

Frank

My goal was to have 100%. When I retire, I will have a lot more time
for hobbies and travel, i.e. to spend money. Why take a cut in my
standard of living?

Unfortunately I am about a year away and I'll be at about 65%.

Frank


steve wrote:
- quote -

On Sun, 8 May 2005 09:41:15 CST, "steve" <steven_jones_71[at]hotmail.comwrote:

- quote -

My opinion is that this estimate, of all the estimates that goes into
retirement planning, is the one that requires the greatest individual
adjustment. There are many reasons why one's current salary may not
be a baseline to indicate one's retirement needs.

A much better approach is to look first at one's current and
historical expenses rather than one's income. These can then be
adjusted for known items that will not apply in the future (kids out
of college, mortgage paid off) and for items that will be added in the
future (health insurance, vacation travel, etc.). One should probably
also at least attempt a zero based budget exercise of estimating from
scratch what one might want to spend in retirement as a check on the
figures.

steve wrote:
- quote -


- quote -

Yes, you are right. The question gets more complicated when you look at
combined savings and income because you can dip into savings to adjust
for added unexpected expenses. IRAs don't amount to a cash flow,
because you don't know what rate of return you will be earing.

If you go into a nursing home, you may easily have expenses of $60,000
a year so that a $35,000 income will quickly deplete your savings. You
could buy insurance to cover that contingency, but it will lower your
net income by a few thousand a year.

You may also have to pay medical insurance that is now covered through
your employer. Even with Medicare, you may be looking at upto $10,000 a
year for supplemental depending on coverage and copays.

- quote -

I think that $60,000 per person might be a good goal by age 65 if you
include SS, your retirement plan, and your investments.

--
Ron

Don't kid yourself; figure you will need 100% of your pre-retirement
income in today?s dollars. While a number of expenses will drop, there
will be a number of expenses that will increase:

Tax brackets will stay very nearly the same, and you will most likely
not have as many deductions. Medical costs will skyrocket,
particularly if you don't have good insurance. Many retired folks are
paying the same amount in $'s for pills as they used to pay for a
mortgage. Don't think you can rely on the government to solve this
problem. Wait to you see the cost of long term care, should you ever
need it.

While everyone talks about the CPI, the things that a retired person
needs are quite different, and take a much larger portion of his /her
budget. Property tax, insurance costs, food, medical, all the things
that were not a big part of your current budget will, upon retirement,
take a greater chunk out of your pocket book. A retired person's "CPI"
is not the same as a working person.

We're retired. We downsized, etc., and did all the things that many
retirees? do. We have a pension, SS, and 401k's. Our income is almost
the same as what it was when we were working, corrected for inflation.
Now we don't put any away for savings, 401k's, etc. We spend it all,
and hope that we'll have enough in the"out" years.

We feel we're among the lucky ones. There are many not as fortunate.
Plan on 100%! Don't fool yourself. You're going to need it!

"steve" <steven_jones_71[at]hotmail.com> wrote in message
news:1115562928.886894.250650[at]z14g2000cwz.googlegroups.com...
- quote -

We're planning on 110% -- e.g. retirement will cost us *more*
than our current day to day living.

Sure, the house will be paid off and we won't have a mortgage
payment. But that will be quickly offset when our employers
are no longer paying for our health care. Have you looked at
the costs, when you're old (for sufficient values of "old")
of providing for your own healthcare?

Again, on the healthcare site, one of us (statistically
speaking) will be likely to have some chronic, recurring
health problem that the insurance won't cover all the
costs on. Medical expenses will go up -- over and above
the increased costs on healthcare premiums.

We look for our "entertainment" expenses to explode. Think
about it. Your suddenly at home 24x7 where you used to spend
the time at work. What are you going to do with all that time.
Most of the things you'll want to do will end up costing
money. Money you're not spending now. We're planning on
traveling. A lot. At least 4 months out of every year will
be spent overseas. This will cost. Even if you do something
simple like take up golf or bowling, that will be a lot of
days of bowling to pay for that aren't currently in your
budget.

As we'll be "old" (again, for sufficient values of "old"),
we'll no longer want to keep up on the maintenance and
upkeep of our rental units. We'll have to pay a mangement
company to take care of them. This is additional expense
that we're not currently paying.

Ditto the home. We've got a 9 acre spread that we're
(hopefully) going to stay in 'til the day we die. I won't
want to be hopping on the mower and weed-eater a couple of
days a week when I'm 87. It's likely we'll have to pay
someone for the day-to-day upkeep on this beast. We now
do it ourselves, but I can't see doing it when I'm 87.

I don't have a crystal ball, but I see taxes going up,
and up, and up, and up. You'll have to make more just
to break even with your current income.

For these reasons (and many, many more I don't have time
to go into) we're actually budgeting for a figure that
we'll need *more* in our retirement years than we needed
pre-retirement.

Your mileage may vary.

steve wrote:
- quote -

I think it's a good rule of thumb, but it's just a rule of thumb. There
will be adjustments for each individual case.

Let's look at the $50k case. This person is probably middle class, has
enough to pay all the bills, owns a modest home. If they retire with
$35k, then they'll be able to maintain the same lifetyle.

The $100k person is probably upper middle class, has plenty of
discretionary income, can eat out at fancy restaurants, overseas
vacations every year, driving a luxury car, big house. They may need
$70k to maintain that lifestyle.

For the $20k case, sure, that person would probably like $35k to retire
comfortably. But that's not going to happen.

I think the 70% rule is for maintaining the same lifestyle, not to
retire comfortably.

steve wrote:
- quote -


I would love to help you, but I just noticed a rather serious
crack in my crystal ball, so that I feel I can NOT rely on it
any more....
Cal

It doesn't seem so ludicrous to me. People with different levels of
income develop different levels of expected comfort, and those
different levels of comfort come at different costs, both during their
working years and in retirement. I am close to retirement age, and as I
figure my retirement income needs, it turns out closer to 50% for me
than 70%. Here are some of the items that change between working and
retirement:

I've been putting 10% of my income into my retirement plans. New
amount: 0. Savings: 10%.

I've been saving 12% of my income outside my retirement plans. New
amount: 0. Savings 12%.

I've been paying 12% of my income on my mortgage. It will be paid off
about the time I retire. Savings: 12%.

I was paying 7% social security tax. New amount: 0. Savings, 7%.

I was paying 16% income tax, new amount: 6%. Savings: 10%.

Thus, I can get along on about half as much after I retire, and still
have just as much to spend on food, entertainment, travel, etc.

You just have to work it out for yourself to come up with the number.

Dave

All the planning sites/calculators I can find for planning for
Retirement make some statement like the following:
"You will need 70% of your preretirement income to retire comfortably"

This seems clearly a ludicrous statement to me. If someone making
50000 a year could retire comfortably on 35000, then why would someone
making 100000 need 70000? And surely someone making 20000 wouldn't be
too comfortable living off 14000...

Does anyone have any thoughts on how to come up with a target
retirement figure that makes a little more sense. If a figure could be
arrived at in todays dollars then it could be adjusted forward in time
as needed to account for inflation.

Any help would be appreciated.
Steven