I've been reading a lot and writing a little about retirement stuff in the last few days--401ks and the like. So I plugged my particulars into Yahoo Finance's social security calculator and what you see there was the out put.According to Yahoo when I turn 76 our combined monthly benefit will be $4494, in today's dollars. Well that is more than our fixed expenses which for now include a second home for which we pay a mortgage on. Without the mortgage our fixed expenses would be about $2100. Of course there are other costs that cannot be easily budgeted like gasoline, dining out (which we do very little of) or clothing (which as covered the other day we are quite cheap). I doubt all of this other stuff works out to exceed $1500. Next are bigger one offs, some of which can be planned for like car insurance, home insurance and dentist visits. Lastly are bigger one offs that cannot be planned for like new tires for the car (written about that one before) or a home repair issue beyond what you can do.
Obviously no run down like that above can cover every circumstance and I specifically left out travel. I view traveling as being lowest on the priority list. If after paying for what has to be paid for and you still have money left over for a trip, great, if not then you don't go (just my view on these things).
In reading about retirement planning you will read about the need to replace X% of your income. 70-80% was a standard target but in some circles this thought has evolved to needing to replace 100% of your pre-retirement income.
Technically speaking I think you need to be more concerned with covering your expenses whatever they are, however you categorize them and with some sense of what your expenses might do in the future. I think the most difficult to forecast for everyone is health costs (insurance and the like). Our health insurance just renewed and it went up by 10%.
So as I try to figure this stuff out for myself I am fortunate enough to need less than what I make. If you care enough about investing to read a stock market blog then you are more likely than the average person to be able to live on less than what you make. If you live on $5000 per month and you make $20,000 I don't think you need to be worried about replacing the $20,000.
Saving the issue of whether social security will go bankrupt for another day, various things like social security, working in some capacity figuring out how to monetize a hobby could to reduce the burden you will put on your portfolio. Maybe one way to think about this is to save like you need $10,000 per month and live like you need $5000 (or whatever numbers make sense for you).
The motivation with this post is not outliving your money, trying to plan for a world where satisfactory long term investment results are harder to come by and the possibility that inflation bumps up to a higher number than we have become used to.
I should note that with these sorts of posts I am sharing my viewpoint which I believe is more conservative than normal.
We are flying to Boca Raton for most of the day so I will not be able to reply to comments.
11 comments:
I think that I read somewhere that the idea that you will live on less when you retire doesn't account for the fact that you need more health care as you get older. For example, as a fairly young person I *may* go to my annual physical. As I get older, there will be the annual mammogram to rule out possible breast cancer. As I get even older than that, there will be the colonoscopy to rule out colorectal cancer. Eww.
But hopefully the mortgage will be paid off by the time I am very old.
Old Chinese proverb: He who monetizes hobby, no longer has hobby, but has work.
Old Americian proverb: Ya gotta do what ya gotta do.
Somehow I think this relates.
Don't worry...be happy!
Hey roger- here is another item to bring up at the conference this week. Attached is a brief interview with Roubini whom advocates that the market will decline another 20% from current levels by mid year 2009 and that the only place for assets is in gov't bonds and cash.
Roubini also talks about the issues facing the new Obama economic team, it is a brief interview very well worth the read IMO.
http://www.rgemonitor.com/blog/roubini/255056/business_week_roubini_interview_with_maria_bartiromo
Anon 9:04- thanks for the Roubini link...
One quote that I found interesting is that diversification does nothing in a global recession:
"Are there any areas escaping this upset? Are there any places to hide?
Roubini: Unfortunately, when you have an integrated global economy with trade and financial links, there are not really many places to hide because markets become correlated, and economies become highly correlated."
Roger, I enjoy reading your blog,
wish that I would have paid more attention late last year. Am going to maui in 2 weeks, any suggestions?
My email dlehman@speakeasy.net.
THanks.
American social security is amazingly generous by Australian standards. The maximum "age pension" a couple get get here is $US17,000 per year.
http://www.centrelink.gov.au/internet/internet.nsf/payments/age_rates.htm
It's means tested - so the more savings you have the less you get. Once over about $A1 million including a house you get zero.
I believe that means testing is coming to the U.S. We have already seen it in previous tax rebatess or whatever you want to call them. Let's face it, it will be income redistribution and I would venture to say most people who put forth the effort to read blogs like this won't be collecting SS in years to come. If you do collect it, consider it a bonus.
Obama has said that getting a handle on entitlements is one of his biggest priorities, and I can't say that I fault him on that goal. Means testing will be an easy first start (relatively speaking) although I don't agree with it. We'll eventually see the same with Medicare. Either you'll be wealthy or healthy enough to do what you want, or you'll be a ward of the federal government.
Can't remember if Roger mentioned it, but I believe physical fitness is going to be just as an important investment as financial investments in preparing for retirement. Stay tuned.
To all, wait until you have kids. It was reeaaaalll easy for me too to save money until...
If your kids are lucky enough to sail through school w/o a glitch.... they're expensive. If you have to get tutors or special therapies for a range of issues like dyslexia to autistic behavior you can blow off your dreams and expectations you had for yourself or your child. You’ll be happy just to get along day to day.
Kids are expensive? Not what I heard, you can still pick up a decent model for under 20k !
Am I alone in laughing at the irony (intentional I presume) of Roger's last sentence? Nice little blog on frugality. "Bye, we're off to Boca for the DAY!"
There was a recent survey that indicated that when times get tough, folks stay home. Number 1 expense reduction, vacations (natch) followed by "eating out".
Serious question for all the self-employed out there: best value Health Insurance providers?
My COBRA is running out in June and I am "heading out to sea" (starting a small business), and need to find a provider. All ideas welcome.
Thanks.
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