What? 20+ years? I've read alot of the literature on withdrawal
rates, and it all
suggests your money will last (though maybe not ALL of it) throughout
even a very long retirement period (like more than 40++ years), when
withdrawing 4-5% (and given a roughtly 60-40 stocks/bonds
portfolio)....although most of the lit. also suggests its better to
withdraw less initially if you have very long retirement period.
Then there's that year-old article by Guyton (J. of Fin. Plan.), who
concludes you can withdraw alot more eary year if you do all kinds of
complicated monitoring of your portfolio each year. But the
literature is sometimes vague about the length of retirement period
under study.



Tad Borek wrote:
- quote -

On 2006-10-20, joetaxpayer <joetaxpayer[at]nospam.com> wrote:
- quote -

Trying to decide what he "should" expect is fraught with risks. A
person making 40K a year is making about twice the poverty level, so
in that sense he or she is able to help subsidize the less well off.

If you want to design a social security where only the very wealthy
subsidize the poor you run into the risk of not having enough very
wealthy.

Greg Hennessy wrote:
- quote -

rick pointed out my numbers were probably wrong, but, if right, I don't
think a $40K earner is in a position to be subsidizing anyone else. He's
paying in the same fraction off his income as the 10-20K person, and
should expect the same % replacement. (no, I haven't decides where the
'knee' of the curve should be.)
JOE

On 2006-10-20, joetaxpayer <joetaxpayer[at]nospam.com> wrote:
- quote -


Why is that a sad commentary? Part of the basic point of social
security is to prevent poverty by transfering wealth from the more
well off to the less well off.

chip wrote:
- quote -

Rather than try to apply a multiple to your pensions and Social Security
just figure out how much income you need in addition to that, and apply
the multiple to that income figure for a ballpark estimate of the
required investment value. That pension/social security portion isn't
part of your savings goal anyway, so why bother figuring out what
artibrary large value it has?

That rule of thumb of accumulating 20X-25X your income need just comes
from the recommended (and conservative) 4-5% withdrawal rate. If you
withdraw 4-5% of your beginning balance during retirement, you should be
able to get 20+ years out of your retirement portfolio, assuming a
typical "balanced" mix of stocks & bonds, and withdrawals that increase
each year for inflation. I have yet to meet the retiree who actually
invests that way, and who increases their withdrawals for inflation each
year, but it's a starting point anyway.

Also: if the number is truly $100k/year you're in the top 5-10% of
spenders. That's a lot of money, after tax, to need during retirement,
unless you're projecting forward to future post-inflation dollars.

-Tad

PS the incredibly slow FAQ editor will eventually put up a long article
about this topic based on many excellent posts that have been put up
over the years

- quote -


My logic was:

SS: the benefit is known "now"- the SS statement I get now suggests my
benefit will be $D at age 68, $D if I get disabled. This is what I get
in 40 years based on what I've contributed now and is a known # $D.

Pension- similar issue- you know your "expected" benefit. The
probability the increases will keep up with inflation is low- based on
my reading of the subject. I do not have a pension (my old employer
sent me a check which I rolled into an IRA, then converted into my
Roth). This information was an educated guess.

My logic is going with what is known trying to minimize assumptions and
build a "worse case" situation. If the SS benefit or Pension benefit
increase with inflation, it makes the above easier to achieve.

rick++ wrote:

- quote -

I used the http://www.ssa.gov/OACT/quickcalc/index.html calculator,
entering 62 as current age and retiring now, but I appreciate the note
and will investigate.

Your numbers are way off.
By law the benefit formula is

90% x poverty number + 32% x median income + 15% x double-median income
$680 $3420
$4025 (2007 numbers)
The numbers for people retiring in 2007 were published yesterday at.
http://www.ssa.gov/OACT/COLA/bendpoints.html
For someone who has averaged median income for 35 years the
monthly pension for 2007 is $1706 which 41% of median income ($4100)
Realistic you have to subtract the $117 medicare B&D premiums
which brings this down to 38% replacement. Medicare premiums
are expected to rise much faster than income in the foreseable future,
perhaps bring down the replacement to around 30% in 20 years.

The "average income for 35 years" includes median income inflation
weighting. Your early years could be blow median, later years above,
etc.

Each year SS mails you an estimate. You can double-check their
calculation with a spreadsheet on their website. This spreadsheet
has the income deflator factors built in. You can play with what
happens
if one stops paying 5 years before retirement age, 10 years, etc.

Theres less incentive to work when you've reached the median average
income. Your SS pensions only increases one sixth as fast as at low
income levels.

"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1161357151.422371.117120[at]m73g2000cwd.googlegroups.com...
- quote -

Why don't you think SS and the Pension will adjust for inflation?

Elizabeth Richardson

rick++ wrote:
- quote -

I used retirement age goal of 62. And found these replace rates at each
income level;

Income Ann SS % replaced
10,000 4452 0.445
15,000 5820 0.388
20,000 6612 0.331
25,000 7404 0.296
30,000 8208 0.274
35,000 9000 0.257
40,000 9804 0.245
45,000 10584 0.235
50,000 11388 0.228
55,000 12180 0.221
60,000 12972 0.216
65,000 13776 0.212
70,000 14568 0.208
75,000 15108 0.201
80,000 15480 0.194
85,000 15852 0.186
90,000 16236 0.180
95,000 16596 0.175
100,000 16956 0.170

I find it a sad commentary that someone making 20K needs to replace .67%
of his income with savings, with 16.7X if we stick with this goal, but a
$40K earning who has deposited twice into the system what the 20K earner
has, will only see .245% replaced and will need nearly 19X final income.
Given the tendancy to upward mobility through promotions, schooling,
etc, this reduced replacement provided by SS is something to follow as
one targets their savings needs.
JOE

chip wrote:
- quote -

First step would be to know how much income you will need in
retirement. If you make 100k now, various web sites will suggest to
replace 80-110% of this in retirement. The second issue is "income
adjusted for inflation". For this the rule of 72 helps (divide 72 by
inflation percentage, that is number of years it takes to make
inflation double).

Examples:
need 80k (in todays dollars) for retirement in 36 years.
inflation expected to be 4%
72/4%=18 years (inflation will double income needed every 18 years)
In 36 years you will need 80k*2*2 (doubled twice because of
inflation)=$320k in yearly income when retiring in 36 years.

find out the SS benefit (17k listed in another post)
find out the pension benefit (58k estimate)
320k-17k-58k=245k

Creating an investment portfolio to generate the 245k needed each year
is the next step. I have a spreadsheet I've used to calculate this (my
calculations for myself suggest I need $250k of income in first year of
retirement). According to my calculations I need 5.7 million to retire
on at age 68 to last for 30 years. This assumes increasing withdraw by
4% each year (for inflation) and a 6% return on assetts in retirement.

There are a bizillion such calculators on investor web sites these
days.
It sort of depends on your income. If you've been earning around
median wage ($46,000), social security will replaces about 40%.
If you make about twice that, then social security replaces about
25%. When you take in account not having to pay social security
tax and saving anymore, The necessary replacement income
is 37% to 52% between those two ranges. And the savings
to generate such is 7 to 12 times your income. Less if you
have any other pension.

chip wrote:
- quote -

investments to cover living expenses (20 * .05 = 1). That come from an
analysis like this:

http://www.fpanet.org/journal/articl...p0304-art8.cfm

So as pointed out above, if 30% of your living expenses come from
elsewhere, then your needed investment is 14x (14 * 0.05 = .7.)

Frank

If you only need an additional $25K per year, you only need to save for
this. $500,000 will last about 20 years, even adjusted for nominal
inflation. At retirement year 20 this expense will have grown to
$45,000.

JoeTaxpayer's example shows the power of compound interest. He only
has $521,000 at age 52, but $1,238,000 at age 62.

Spending down is the opposite of compound interest. Every year your
principle goes down and your expenses go up.

As usual you can only say: if I do this what happens given these rules.
Nobody can predict the future.

I always try to err on saving too much.

Congratulations for doing retirement planning and good luck in
retirement.

chip wrote:

- quote -

The order of the calculation is something like this;
Go to http://www.ssa.gov/ and calculate your expected benefit.
Find your company benefit manual, and do the same for pension.
Inflate your current salary to your retirement year, and subtract the SS
and pension. This would be the amount of income you need to replace.
A 100K/yr earner retiring now at 62 will get about $1440/mo or just over
17K/yr. Pension may be a small adder or completely provide what you need.
Say you calculate these two add to 30%. You need then to replace 70% of
your income and that would take 17.5X you final income at retirement.
(not sure where 20X is from, it takes 25X to replace at 100%).

I created a spreadsheet for this calculation, you can adjust the
numbers, or reload the sheet to clear the data.
http://www.joetaxpayer.com/spreadsheet.html

JOE

I am a little confused on how to calculate TOTAL $ needed for retirement.
How do you include pensions and SS (and yes, I believe we have nothing to
fear, but fear itself) into the figure?

I have read a lot about having 20x your annual living expenses including
taxes as a reasonable goal to have at the beginning of retirement. Let's
say that is $100K/year, so I need $2M. However, if I count pensions and SS
are $75K/year x20=$1.5M, right there. So I need $500K in investments over
and above the pensions and SS or do I need $2M in investments alone. If
pensions and SS are for life ,shouldn't they be counted differently. If so,
what is their multiple?

Chip



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