My point is not that you shouldn’t try to save more, it’s that you shouldn’t blindly follow the recommendations of the financial industry, who are motivated by different things than their clients.
For example, using the 4% rule, saving 8x your salary in retirement assets will only provide you with 32% of your pre-retirement income. Will that work for most people? Maybe, maybe not. What about other assets like house equity or non-retirement savings, or potential inheritances? You can’t know until you figure out as best you can what your expenses will be.
Yep - “You can’t know unitl you figure out as best you can what your expenses will be…” is exactly right. The problem I’ve seen for friends, myself, my parents and others is that estimating expenses is even more difficult when you are retired than when you are working, and you have no resources to cover any mistakes you make.
So my advice to everyone is to make sure they don’t cut that number too close to the bone. Make proactive choices early in the process and reassess often. And for sure don’t count on “rules” - even the 4% “rule” is nothing but a very broad guideline/suggestion. (For instance, in your example of the 8x “rule.” Someone making 50k a year, if they save 400,000 and get 1500 a month in SS will get ~ 70% of their salary in retirement. Someone making 100k a year will get much smaller % - because SS is capped.)
Obviously, giving up on retirement savings because you don’t think you can get there is a bad idea. But so is living beyond your means in lieu of adequate retirement financing. You’re just going to lay it on your kids if you don’t save enough.
I’m sure I’ve said it before in this long thread, probably more than once, but for new readers:
I’ve given my kids two gifts. 1. A debt-free UG degree, if they choose it. 2. An assurance that, unless we’re all living in caves and using ammo for barter, their parents won’t be knocking on their door asking for financial assistance. IMO, the first is not a gift unless it’s paired with the second.
@IxnayBob I am sure you are giving more gifts than those two, a decent inheritance as well?
Why is that? What expenses should you expect in retirement that is different from pre-retirement other than medical, long term care and some discretionary fund like traveling? Could you be explicit? Supporting kids and/or parents doesn’t count as retirement expenses. That can happen anytime.
In our situation, we are doing some major expense things on our home before retiring. Some is necessary (HVAC replacing aged systems) and some is for strictly home improvement. Both DDs know from growing up, how we have done things and how their grandparents have done things as far as lifestyle and preparing financially and otherwise for the future - and how choosing the right spouse that one can contently live a lifetime together. They see and compare from their friends, and see some of their friends’ situations, good and bad. Graduating from UG debt free and know others who don’t have that gift. We didn’t ‘give’ DDs a car, but with their college funds, with proper money management they could afford to buy one at the right time (we let them use one of our vehicles and did pay for auto ins and basic cell phone service through college UG, esp as they both finish on time/in 4 years at end of 8th semester). DDs had to wait for things versus being on the front end of always having things handed to them right away.
Some with more children, or children that struggle with ‘adulting’ have more concerns going into retirement. With aging parents, it is what it is. Extended family is what it is. Some of that comes resiliency, coping, and letting go what one can not ‘manage’.
Sure (although part of the equation is not simply expenses, but ability to deal with them. When you are on a “fixed income” it is exactly that, fixed. In most cases you can’t put in over time, grab a second job at Macy’s or Uber over Xmas to cover some unexpected expenses, etc.)
Some actual examples: I’ve seen a friend’s Dad, who when his wife passed on had not adequately thought through the pension/SS implications of outliving his wife (They had selected pension and SS options that anticipated her outliving him.) Add that unexpected income change with his underestimating the upkeep on the “family house” that he was determined to keep and unexpected medical costs for himself, some cognative degradation that was, I guess, “non-clinical” but still clearly affected his decision making and before too long his son (my buddy) was forced to go and battle his dad to finally sell the house, shrink his other expenses (golf course membership etc.) His dad was able to live ok on the proceeds of the house sale in a small apartment, but my buddy had to pick up any extras, like his dad coming out for holidays etc.
Two other friends have seen their parent’s financials completely wiped out by one of the parents living for an exceptionally long time with alzheimers - more than 10 years in both cases. Both had significant savings and burned through all they had and more. The expenses creeped up, as the disease manifest slowly, so at first there was part-time companion, then full time, then institutionalization. They were never able to put in an effective plan as the process was incremental and there was a bit of denial.
My mother-in-law ended up taking care of a disabled grandchild after my sister-in-law’s divorce. I suppose that could have happened when she was working, but she would not have committed to the responsibility then…
In many of these cases the expenses could have been reduced (trying to hold the house, for instance, cost my buddy’s father a slow, but damaging bleed of funds.)
One thing I have noticed is that there are often control problems. As we get older we get more stubborn and perhaps less clear-thinking. So financial mistakes can be compounded.
Yes, age generally brings st least some cognitive decline. Decisions about finances are fraught with emotion and control issues, which further muddy things.
@CaliDad2020 – Agree completely with your post. Accurate description of scenarios not unlike ones I know.
My father did not linger long with dementia and other physical ailments, but we never knew what we were dealing with from week to week. We would put one plan in place, and then have to switch gears after a medical setback. While in the midst of the ‘crisis’, it can be difficult to think clearly, but also, one has to make decisions with imperfect information. (Not knowing how long one will live and the level of care needed along the way.)
@CaliDad2020 Thank you for sharing it. Cognitive decline is scary. And there’s not much one can do. My imperfect plan would be moving to a retirement community with memory care well before things go south.
@Iglooo – My sticker shock may be a function of living in the Northeast, but I think $10K/month is the ballpark for some of these places. Probably lower cost when one can live more independently but charges increase when stepped up care is needed.
In-home care can be less expensive if one spouse is still able to handle driving, shopping, etc. It is all expensive.
$8,000 + seems to be the going rate for nursing homes in our area. My relative has been in a nursing home for two years and is quickly burning through her retirement savings.
hmmm… I looked into it a few years back. After paying $2-300K up front, monthly fee was around $3-4K in my area. They had both independent living and nursing home type care.
@Iglooo – Yes, that is one model, unfortunately not available at anywhere near that price point in the densely-populated parts of the Northeast, but I have heard of it elsewhere.
My mother chose to hold her house for 10 extra years. It was a huge house with very high property taxes (NJ). She’s still completely alert at 93 but has become somewhat irrational about certain financial decisions.
My parents did us kids a huge favor. Even though their friends chuckled a bit, they sold their “main” house (a nice townhouse) and entered a “step-down” retirement facility while still in their 70’s, where they have a great, “regular” 2 bedroom apartment, but also have “on site” care and even “end of life” hospice - all for the same cost.
Since they were (and are) still healthy, they kept a little vacation bungalow (they paid off years ago) about an hour 1/2 from the retirement community and go there whenever they want - and are often joined by kids, grand kids etc. When it’s not used, they selectively rent to keep the costs down. But it is the kind of place that either we kids will band together to take over or can be easily sold if it seems too big a hassel.
Obviously, having a little “play house” is not in the realm of everyone’s finances (they sold a bigger house when we kids all moved out and bought a townhouse and the “play house” many years ago.) but for them having the safety, and carefree retirement home and a place of their own has worked out great. Keep them active, but when they’re tired, they shut the door and head back to “the home.” It’s nice for us to know that they will always have a community as well.
It’s not an easy stage to manage and everyone will have thier own needs and priorities, but with forethought and clear-eyed honesty it can be dealt with better than it sometimes is.
@CaliDad2020 That’s what I looked into, a retirement community that has everything and the cost is fixed when you sign up. I’d prefer not to burden my only kid with finances or care.
Again, every situation is different and I know my parents had to basically trade a pretty valuable townhouse straight up for the buy-in and locked in monthly fees (that were about equal to their mortgage payment), but it has been a great decision for them. They picked a situation where they knew many of the people already there, even if they were mostly 6-10 years older than them. There is a meal plan as well as a kitchen in the apartment, so they cook some, go down and hang in the dinner room sometimes… Grand kids swing by to join them. (I should do an endorsement!)
I actually was a little skeptical when they decided to do it so “young” thinking it might make them more sedentary, but there are walking paths on the grounds which are nice and well used, even just walking down to dinner or coffee is more than they used to walk (although the old house had stairs, which eventually would have been dangerous, but was good exercise while they are healhty.)
Anyway, it’s good stuff to think about. We are already looking at where we’ll be ending up in 20 years or so… (If we last that long!)
I’ve specifically instructed my kids how I would like to be cared for in later years even if it made poor financial sense.
They know that I would not need any financial assistance from them.My money my choice.
My father had 24/7 in-home care for a number of years and it was over $10K a month. He died in 2000.
@cbreeze – when my father had in-home care, my mother was still fully functioning so she could drive, grocery shop, cook, etc. She only needed the care provider to help with transferring (bathing, bathroom, etc) him and to stay with him the infrequent times she went out. The care giver lived in the house, but wasn’t really needed during the night so it was significantly less expensive than hiring three eight hour shift providers, or someone who could drive, shop & cook. It still ran more than $6000/month eight years ago, and the eight hour shift care would have been more than twice that cost.
It was much more expensive for us because we hired an agency to provide the care-givers so we did not have to deal with the vetting,training,sick-calls, vacation etc problems. We needed someone qualified and bonded to be there at all times.