To Ken of Atlanta, Ga — If seven million dollars is not enough to maintain a “modest” lifestyle, than we all are in trouble. I personally believe that after taking account Social Security and returns on investment, $500,000 should last anyone through retirement even if they live to 100!

does that 70-90% of your current salary take into account a person who is already investing 25-27% of thier current income into retirement or non retirement accounts that I hope i will not be doing when I actually retire and start to draw? which means I am already living on less than 100% now….

I have tried all these on-line calculators, none take into account the sale of your house, sale of rental property, inheritance, and other items of value other than reitrement accounts and non retirement accounts, any new and improved software out there that can look at this?

Don’t panic if you didn’t start saving at age 22; like most people we put kids thru college and didn’t really start saving till our early 40’s. My best advice- after you have the basically nice home in a decent area, STAY THERE. Do you really need 3 baths and does each kid have to have their own room? You don’t need a 3 car garage, or 3 cars, a huge family room, the very best appliances etc. Just stay put and put that extra $1,00 per month away in a low fee Equity Fund. And from then on, pay 10% less for everything you buy and keep saving. You figure you can afford the $ 30,000 car? Buy the $ 27,000 one. Have a drink at home before you go out to dinner and save $15 on two bar drinks. And for God’s sake, don’t buy $4 lattes. Trust me, it all adds up.
From a very happy 60 year old retiree in SC

Start with assured sources of income such as Social Security and a traditional company pension…

Thanks, I needed a good laugh today.

I like this Walter Updegrave, he makes more sense than the rest of the “experts” put together. We have been retired for nearly a year and love it. We don’t have nearly as much savings as these so called experts recommend, however, we have a company subsidized health care plan, each of us has a company pension and I have social security, which I took at 62 (if you delay taking social security it takes nearly 13 years to make up the difference). We not only live on our pensions, we are able to save nearly 15%. We have no house or car payments. We pay our credit card bill off each month and carry no balance. We pay cash for everything we buy. We spend about one third of our time traveling, either in our 5th wheel camper or by car or plane - currently we are on a trip to Carlsbad Caverns New Mexico. Next week it’s Atlanta, then back home and off on a 5 week camping trip. I am not saying this to brag - I was always a very poor investor, but very good at spending control, which, I promise you is more important. We haven’t touched our nest egg since we retired. The reason I’m writing this is that most, if not all, people can do what we have done or better, think for yourself, decide what you want and go after it.

Saving is all about lifestyle. Lifestyle savings tips - 1) when you get your next raise, save it. You’re already living without it anyway, so there’s no pain. Keep doing that and you’ll wind up saving quite a bit of money. 2) if you’re single and getting married, and both of you will be working, plan to live on ONE salary and save the other. Most likely you’re both used to living on one salary anyway. Use the savings to save for retirement and to pay cash for big ticket items. Purchase a car ONLY when you really need one, and get a late model used car instead of a new one. Emphasis is on NEED as opposed to want. Car repairs under $500 a year are cheap when compared to car payments of $250 - $500 a month… If you take care of your car it should last 10 years. The exception to paying cash is the purchase of a home, but buy a modest home that meets your needs and live in it forever. “Trading up” isn’t all it’s cracked up to be. Take a vacation every couple of years (instead of every year), and pay cash for it. My husband and I used this approach to savings when we turned 34 and 35 respectively. We have managed to save enough to retire before we’re 60, draw 4- 5% off our investments and live comfortably ever after. The only thing that might could throw a monkey wrench in our plan is the medical insurance/costs - so we’re still working to increase our financial cushion. One more year and I’m done!

Raise Hell! No one ever lay on their death bed wishing they had more money or had spend more time in the office. They always wish they had done more. Do more - raise Hell!

I retired at 55 years old but started another business -so income is still comming in. My old company still pays my health insurance so that really helps. Please save all you can. It will help you in the latter years. I’m 57 years old now so in 2 1/2 years I will dig into my IRA…

Haha, Its funny ready all these comments about saving 25% of your income starting in your early twenties. Are you serious?? Live people. Live! You people sound lame, like you don’t buy anything, don’t go out, don’t have any fun. You people are saving money that you can’t touch for 30 years…who knows what will happen in 30 years. So yes, save some, but please live for today, especially when you are in your twenties. I bought a brand spanking new 35K car when I was 23 and it was the best decision ever…I laugh at all my friends who bought a civic and are paying extra on their mortgages…these people don’t even have cable or a cell phone and don’t go out at all…thats no way to live. Its all about balance.

The biggest asset some retirees have is at times the equity in the house; If you are a homeowner and wake up at age 65 and you realize you haven’t saved enough to live on I advocate for the 2 four-letter words that will keep you from eating cat food and buying prescriptions in Mexico. Call a recomended or referred financial planner (not any old mortgage broker) and investigate a “reverse mortgage”. If you are worried about a house payment but you don’t have the money to pay the lights in that house, you need to rethink this idea.

This is not for everyone, just those who wokeup at retirement with a house and nothing else and said “oh Shoot! what am I gonna do?”

My Granddad who came through the Depression drilled it into me, “If you don’t have the money, don’t buy it,” so I’ve never maintained any debt… not credit cards (pay it off every month), home equity loans, nothing. But I found myself at 53 in 2000 with only about $34K in my pension plan and decided I’d better get busy. I started inputting monthly the maximum to my pension plan and playing the markets a little. So now it’s 8 years later, I’m 61, and I have over half a million altogether. My point is that it can be done… even if you start late… if you’re careful about your investments and can walk the line between greed and fear.

Hey Ken in Atlanta, I have a modest house in Boca Raton, and I will be retiring in a year or two. I have nothing saved up and could use a great roommate. Could you consider? All perks, and I can cook too.

So many of the comments are from people who obviously have big time jobs. What about the average couple who both work, save for retirement and try to have only asset debt(land or house)? We will not have much more than a million dollars when we retire plus Social Security. I guess some people will have to work until they die if Social Security and a million bucks of savings isn’t enough to retire and still have a little bit of fun.

No one should wait until they’re 22 to start saving for retirement. Sock money into a Roth IRA as soon as you can. The best time to contribute after-tax money to a Roth account is while you’re in the 0% tax bracket. I put after-tax money in while I was in college earning next-to-nothing, and it was the best financial decision I ever made. Those 5 years of savings have given me a great foundation for retirement. If I manage it properly and get a little lucky, that money plus social security plus my employer-matched 401k contributions will be all I need for the after-age-60 stage of my retirement. Now I need to build up savings that I will be able to draw between ages 50 and 60 (until I can draw on my IRAs without a penalty). Now my only concern is building up seven-figures in retirement accounts and having too little available before age 60. If I have to take an early withdrawal penalty in my 50s, it will only take a small chunk of the employer match–that’s like an instant 100% return.

I have concluded that I can retire just as soon as my spouse stops spending!

If you think your retirement situation is not as good as it could be, consider this loser:

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/19/AR2008021901761.html

(At least he has the courage to expose his own financial follies without embarrassment).

Age 40, and he has only $20,000 in his 401(k), which he is borrowing on to pay DOWN his credit cards. Ouch.

Nice BMW, though. Too bad it is LEASED!

These are the folks I worry about in retirement in 10-20 years. They will be living on Social Security and demanding the government give them more money to squander.

FWIW.

Many of the folks here have repeated the phrase: live within your means. Probably the best way to go. You avoid all the stress of unpaid bills etc. Yes, it is not the most exciting lifestyle, but a satisfying one because one can “splurge” once in a while. And as a lifelong habit, it carries over into retirement. And of course, as long as you have your health.

I think my problem is that I worry about my future money wise. I’m only 46, single, no kids and am a caregiver for my mom and live with her. I’ve been working for a major life insurance company for 24 years. Age 55 is the companies retirement age with 20 years of service which would not be a problem if they offer me a good severance package but if I don’t except then I have a long long way to go with getting my lump sum pay out. I’m kinda hoping I can work another 15 or 20 years if they will still have me. It is good for now to know that I contribute to my companies 401k, plus working to receive a pension and a quick mention, I opened up a Christmas club account with my bank as its a forced savings for myself and put that away for emergencies or whatever. I’ve checked into getting an IRA, but for now I don’t want anyone making money off of my money and so I want to keep my company matches. If my mom goes into assisted living a nursing home in the future, I have no choice but to move but knowing for now I have back up money to fall back on, really helps.

You state: Start with assured sources of income such as Social Security.

There is NO guarantee that Social Security will continue. NO ONE should count on that as a fixed source of income.

It is scary! I’ve been saving for years and as of year end 2007 I only had 7 million saved up. I plan on putting 300k in the next 5 years and I don’t believe that will be enough to sustain a modest lifestyle. I could sell my car collection if I need the extra cash.

My wife and I are 34, make $150,000+/year (most years), have put 10% into our 401Ks since we were 22, contribute toward a Roth IRA, and make an extra mortgage payment each year. I’m all for saving for retirement but I’m also a big believer in splurging once in awhile. Live for today! Retirement or age 65 or 67 or 70 isn’t guaranteed for anyone. My dad passed away at 54. Don’t forget to enjoy life now! Take a vacation, buy that TV you want, drive a nicer car if it makes you happy. There’s no sense in being frugal and giving up things that make you feel alive. It’s OK to pay yourself now for the hard work you’re putting in at the office.

Ed from NJ should be concerned…if you’re that close to retirement and are banking that much you should have been able to save much more than 1.4 million

Withdrawing vs. saving for retirement are completely different goals with completely different strategies. Sometimes the two tend to merge. There are some excellent long term studies done which shed light on these issues statistically. One of the studies is located here:

Withdrawals during retirement:
http://www.fma.org/Siena/Papers/870167.pdf

Most statistical studies agree with Mr. Updegrave, that the maximum of 4-5% initial withdrawal at beginning of retirement, with a yearly increase for inflation. This model holds out well for a mixture of stocks and bonds, with bonds doing poorly by comparison.

Being retired myself, I am sometimes “confused” about what I can afford. We need a barometer. Most large investment houses offer a statistical analysis of your holdings, updated at least yearly. This will place your spending and investments on a moving continuum. For example, you probably should be at least about the 75% percentile of “matching” your income/spending demands. If you go below, you might be “over-spending.” These issues are also connected to your health and whether you wish to leave an inheritance. My personal opinion is that your spawn should take care of themselves.

I liken this to living like a farmer. Some years are better than others, and you might shave your spending on Bear market years. Withdrawals in the early stages of your retirement should come from bonds and fixed income holdings. As you get older, you start to utilize the stock side of your portfolio.

I hope this helps.

Sanjosemike

Kathleen of Houston…You shouldn’t be dreaming of pulling out 10% of your investment each year. Greg of Chicago’s comment is off-base. Even if you could “guarantee” a 10% return, you need to cover investment fees and (most importantly) increase your base investment each year to cover for inflation. Those 2 things could amount to 4-5%+. Regardless, you can’t guarantee 10%; the market is capable of going through very long stretches of virtually no growth (i.e., mid-60s to early-80s). Studies prove, consistently, the 4% withdrawal amount gives the highest probability of not running out of money before you die, in a wide variety of market & economic conditions. Trust that %. I just retired at 58 and I’m in very good shape. You asked where to find “trusting avenues”…I’ve always received very good advice from Walter Updegrave (who writes the column above for Money and also several books) and Jonathan Clements (column each Wednesday in Wall St. Journal’s Personal Finance section and syndicated in local papers nationally). Solid, common sense, not too conservative, not too aggressive. Good luck !

The BIG unexpected since retirement is HEALTH INSURANCE COSTS. My first year of retirement was $600 (retiree cost). Now 7 years later I am paying $11,700. Last year it went up $3000! How can someone plan for such an increase??

Pensions? Forget it. Take the cash buy-out instead. Read what Warren Buffett said about CEO’s underfunding pension plans to make earnings look better. This will be the next big scandal that will have devistating consequences to our economy and your retirement.

This article is a total farce in that it does not deal with the tax ramifications. My pension and Social Security are such that any 401K withdrawal forces me into a very very major tax increase.

To Ed,Manalapan,NJ : How scary about having more than you ever thought (1.4M saved +175K/yr banked for next 5 yrs) - I’m in the same place and feel the same…it’s called insecurity and these are changing times well worth the feeling.

Want to build wealth then stay away from debt. I’ve been a save-aholic my whole life, and always lived well within the means. I invested heavily in the stock market starting in 1984. During the 90s I decided I need to reduce my exposure to so much risk (all stock funds). Rather then reduce my stock market exposure, I took all future savings and just put it against my mortgage.

Today, at age 50, I have no debt at all. I haven’t for years. I own my house, cars, have money for my kids college expenses, and still have a seven figure portfolio. When I retire I will have multiple IRAs, 401k, Company pension, military pension, and social security.

I mention all this because I did it all on middle class income. It doesn’t take BIG money to get to that destination. Its all about choices: save, save a lot, start early, stay away from debt, and live well within your means.

One final thought. The only real negative I ever had financially involved a financial planner and a relative. Do your finances yourself (no conflict of interest) and never loan relatives money, you give it to them if you choose.

How scary is it that $500,000 could only produce $20,000/year if withdrew a “safe” amount from it……..

That’s not the scary part. If inflation is 5% then the $500,000 lost $25,000 of value that year which is more than the 4% you assumed was
save to withdraw — so your already overdrawn before taking any money out.

Then there are income taxes (if applicable).

Retirement is definitely a need vs want proposition. I’m surprised at the people I see who are worried about only having a million put away, when most of my retired family members live on social security alone. If I can swing health insurance and have some kind of pension or annuity, I’ll retire as soon as possible. Quite simply, if it means I don’t have to put in 50-60hr weeks (or long deployments) for the rest of my life, I’ll settle for the used Toyota instead of the new Lexus - the quality is just as good, and it will get you to the same place in the same amount of time. Or my 1400 sq/ft house instead of a McMansion, which is just as warm, but cheaper to heat. Or I’ll rent out that place and live in a smaller place if I don’t have kids with me.
Workers in China save large portions of their salaries, but I’ve met many Americans making two or three times my salary who spend more than they make. They have three new or almost new cars, two or more big screen TVs, name brand clothes, send their kids to private schools, and spend $200/month or more on telecommunications/cable. And they eat out all the time. If you want to live like that, then just accept that you either need to be a CEO, or work for the rest of your life. Live below your means - and save or invest the difference - and your lifestyle should generally improve, and you might be able to retire.

If you’re seeking a guaranteed 12% notes in 1 or 5 year contracts with 25 years payout history. Helloed@gmail.com

all of this is fine if you ever made eniugh to invest. In my life my top salary for a family was three to four thousaned a month. I have copd on oxygen, many medical, lucky to have champus and va/ My income is less then two thousand a month, yet I dont qualify for any kind of help. I have no way to increse va and social security help any ideas

Yes, save early, as I started doing, maxing my 401k when I was 22. But keep in mind that, like me, you can hit potholes. Though my profession is in demand, there were pockets of unemployment for me here and there, and some years of no salary increases. My salary has leveled off at this point in my career. You can’t count on those formulas that assume rock-steady employment for 35 or 40 years and an increasing salary. I’m 44 now, and saving is not as easy as when I was younger and without obligations. Be careful out there!

How scary is it that $500,000 could only produce $20,000/year if withdrew a “safe” amount from it……..

Posted By CFP(R), Chicago, IL : February 28, 2008 2:05 pm

with a 4% return - it is in fact not just scary, but the truth, if you don’t want to spend down your nest egg.

As unrealistic as it might seem to plan on living off the earnings alone, it is the only safe way to avoid the possibility of outliving your assets. Spending down your nest egg is essentially deciding what year you want to go broke.

I have liquid assets of 1.4 Million and a house worth $450K. I probably have 5 years to go and I’m banking $150K-$175K/yr after expenses and taxes. And I have to tell you, I don’t feel that comfortable. I’ve spent a great deal of time with investment and trading strategies: but the one thing that is the most difficult thing to deal with is controlling your emotions while dealing with large amounts of money. If I could get a relatively risk-free and stable 8%, I’d grab it and run. You may get all the free advice and blurbs you want from authoritative sounding pundits, but when you’re dealing with some real money, it’s very different.

Dear Well Informed:
What would prevent a person from taking the lump sum payout, and then going back to work with a different company or as a consultant? There would be no reduction in the lump sum payout, and the person could still put off drawing social security and drawing down other retirement income, such as 401k or IRAs.

I understand Colleen’s comment about avoiding debt but, because of the mortgage interest deduction, you should look at your individual situation. I am convinced that between the deduction and the leverage of a mortgage, I was better off to keep my mortgage and set savings aside so that I could pay off the mortgage when I retired.

I certainly agree with the her basic premise that many people’s finances are being ruined by debt.

Personally I think that many people over-estimate how much money they will need in retirement. Prior to retirement I was paying high taxes,15% in to FECA as a self employed person, high health care premiums and socking away as much as possible in to my 401K plan. After retiremnt I have lower taxes, no more socking away,a much lower health care supplementary premium and FECA is now sending ME money instead of the other way around. Frankly, I’m better off now than I’ve been for years. JG. Wisconsin.

How about Vanguard’s Wellington Fund Investor Shares? Low expenses, been around since 1929, and yielded over
12% in five years. It has nice mix of 65% stocks, 34% bond, and small amount in short term reserves. Can go wrong with this old fund.

I do not work for Vanguard.

Just a small piece of advice for folks beginning to save for retirement. Use your employers 401K and put the max (15,500). Also, in addition to this put the rest of your “disposable” income into savings. Try to get to 25% of your pretax dollars. I have run a few spreadsheets and calculations and found that at that savings rate and starting to save at 28 years old, you can retire at 58 with 100% of your income at the same level as your salary should be with modest 3% increases and an average return on investment of 7%. The only problem is that you can’t touch your 401K until much later.

The point is, save as much as you can because you never know what you or your family may need tomorrow and NO you don’t NEED that big screen TV or Xbox.

The article mentioned …working a few more years … to enhance you retirement. For the lucky few private sector employees who still have the old fashioned traditional Defined Benefit pension, and intend to take it in a lump sum, working that few extra years may actually be counterproductive. This is particilarly true if you have (or are very near) “maxing out” based on the plans benefit formula. Additionally, changes in pension law (phasing in over 2008-2012) governing the minimum (interest rate and mortality) basis used in converting an annuity to a lump sum act to LOWER the lump sum payout. Consequently (even if the underlying interest rates in the economy do not change), it is VERY possible to have a lower lump sum a few years later.

Alpine group if funds have 10+% div. yields, they have mutual funds and closed end funds. Div. seem to be consistant.

I have an investment that is GUARANTEED to underperform its benchmark with the exact same risk. Anyone interested? It’s called an index fund . . .there is something called fees

The problem with many people nearing retirement is that they suddenly realize they haven’t been discipline through their working years and now they’re sitting there with credit card debt, a mortgage, a car payment and who knows what else.

We are in our mid-thirties and we are being very careful to live debt-free. Currently we are paying down our mortgage so that we can retire without a house payment, and we have no other debt at all, not even car.

When you live that way and then retire, the amount you “NEED” is quite a bit lower, leaving more for the “WANTS.”

On top of that, we started very early with our retirement planning and even if SS goes away, we’re on track to have enough to make it just fine. It’s all about planning ahead and leaving below your means while you’re still willing and able to work.

Phil of Vienna:
Good post, if more people were like you, our economy wouldn’t have the problems it does.

Anecdotally, however, I feel sorry for the people who wait until 30! I started at 22, and expect to have 7 figures working for me while I’m in my 30’s. It will be 8 figures when I’m your age. (And I have yet to earn more than $100,000 per year, but I’m close)

For those of you reading this who are younger, like me, set the bar high, start saving yesterday, and avoid all debt like the plague. A house is not an investment, it’s a living expense. Budget for it accordingly.

Variable annuity (VA) appears better than “investing and taking out ~4% of assets every year”. Although VA offers higher (5-6%) guaranteed income in the BEGINNING, it stays the same through years eroding your purchasing power. Newer VAs are becoming available that adjust upwards for inflation but their payout is worse than invest-yourself and take 4%.

Buy a variable annuity and withdrawal 5% for life while you stay in the market and can potentially take more $ home in future years but never less than your first year, guaranteed! My wife & I did and we love it!

I hate to mention this, but real inflation, measured in the Reagan era before all the fake hedonic adjustments and manipulations were added, was ~12% last year, not 2, 3, or 4%. Avoid bonds and good luck with retirement.

See http://www.shadowstats.com for more info.

Greg - If you find a fund with a gauranteed 10%, then of course. But it doesn’t exist. Funds may *average* 10% per year, but what if it actually loses value in the first few years and then returns 30% for the next few? That’s part of why 4% is considered safe, it gives a 6% cushion for those years the nestegg doesn’t return the “expected” 10%.

I think the question is an important one and deserves a more specific answer than the one given here. If I were retiring today, I would probably invest my assets as follows:

*10% Vanguard REIT Index Fund Investor shares yielding 4.73%
*40% Vanguard Equity Income Fund Investor Shares yielding 3.19%
*25% Vanguard GNMA Fund Investor Shares yielding 5.25%
*15% Vanguard High-Yield Corporate Fund Investor Shares yielding 8.45%
*10% Kayne Anderson MLP Investment Company (KYN) yielding 6.9%

Total dividend yield = 5.00% with 60% of assets in stocks for growth and 40% in bonds for yield. Set it and forget it.

Disclosure - I do not work for Vangard

Rodney, checked out your ORP site…what a joke. It’s the most user unfriendly calc I’ve ever seen

In reference to Greg of Chicago posting on Feb 28th: I will be retiring in four to seven years. I have saved $750,000 at this point in time. It is presently in 401Ks and IRAs. I’m totally confused where to put it and who to trust when I’m ready to withdraw for monthly support. What trusting avenues are there to guarantee a return like the 10% Greg mentioned.

I feel sorry for those who started late for retirement. I started when I was 30; now at 55 have well into 7 figures saved and sacrificed lifestyle somewhat to do it. We need to promote this philosophy to our younger generation of striking a balance between spending and saving.

Greg,

If you know of a mutual fund that is guaranteed to return 10% every year, please give us all the tip. We’ll gladly take it. Or are you simply confusing past, long term average, anticipated returns with guaranteed income? Most likely it’s the latter, I suspect.

A mutual fund at 10% would be great, but I havent seen any that offer a guarantee of that sort. Also, history is not always indicative of the future, so just because it did achieve that rate of return for the last x years, doesnt mean it will continue to do so. 10% would also require a pretty aggressive investment for someone already in retirement.

What mutual fund gaurantees a 10% return. Especially after fees.

Wouldn’t it be better to put that 500,000 into a mutual fund with a yearly performance of %10? Then at least you’ll get 50,000 G’s a year and help out with inflation?

There is a free web-based retirement calculator called ORP (www.i-orp.com) that uses linear optimization to assist in withdrawal planning. The model helps you maximize your income and minimize taxes. (Full disclosure: I work with the author or ORP)

How scary is it that $500,000 could only produce $20,000/year if withdrew a “safe” amount from it……..