We took out two lump sums out of our 401k in the full year of DH’s retirement - we have a $50 fee for each processing, and just for tracking purposes the twice a year worked out for us. We took out about 80% of what his gross income was. We were not collecting Social Security. We are waiting until DH is close to or at his full retirement age, which for his is age 66 and 4 months - a lot is because of extreme longevity predicted for DH based on ancestors - parents and grandfather lived over age 90 and he has a slew of relatives (grandfather’s 4 sisters) that have lived to age 101-108.
We were actually not spending down at all as our 401k return (in four different fund groups that had very good returns for the year) for the year was 15.20%.
The ‘stellar years’ for our 401k (in most recent years): 2013 (25.87%), 2017 (20.47%), 2019 (34.41%), 2020 (34.85%) and this year.
During the 2008/2009 financial ‘meltdown’ - I didn’t have a clear picture of where our accounts actually were as company decided to change investment companies from Dreyfus to Prudential. They ‘matched up’ like investments, and once we had stuff in Prudential, we could decide the shift stuff around. I ended up having aggressive stage III cancer diagnosed Oct 2009 so I was a bit preoccupied by surviving the cancer. By the end of 2010, we were only about $30,000 down from our end of year 2007.
The best thing we did was go to a fee-only financial adviser, recommended by a friend who seemed to be similarly situated to us (the woman and I were in the same profession, married to men in similar jobs). DH wanted to retire, and I didn’t think we could afford it. We really needed an impartial person to help us reach consensus. She says that between our two pensions, our two SS checks and low expenses, we never need to touch my hefty (to us) 401k. I’m still not sure I believe her, but her numbers were enough to calm my fears.
DW is a RE estate agent and her income can fluctuate dramatically from year to year, so the “80% of pre-retirement income” method wouldn’t work for us.
I think that 80% number, along with “8-10x your income in savings”, is put out there by the financial companies to scare you into over-saving, which they of course make money on.
As others have said, rather than relying on a meaningless %age, make a spreadsheet of your expenses, and go from there. I don’t think it’s uncommon for the average responsible middle to upper middle class person (which I think is mostly what we have here) to be able to comfortably live on half or less their pre-retirement income.
Just off the top of my head - two-income couple earning $200k total, each saving 20% in their 401k.
That’s $40k in retirement savings no longer needed, $15k in FICA they don’t have to pay any more, probably $20k less in income tax because their income will be lower, call it $5k in work expenses no longer needed (commuting, clothes, lunches, etc), that’s $80K (40%!) right off the bat that is no longer needed.
If you get your mortgage paid off, that’s probably another $20k in savings, and we are down to 50%!
That 80% number is pretty ridiculous for most people with the means to save enough to replace 80% of their income.
That was really helpful @notrichenough. I was trying to figure out why my spending would decline if I retired. I thought it might go up. My work and personal life are intertwined, so we end up with work trips that we extend and some expenditures are tax deductible now that would not be if we retired. So, more travel and none of it tax deductible.
But, stopping savings, FICA, reduced income tax (probably), mortgage, work expenses. Makes sense. I would not need to earn to pay for these expenses.
What I find fascinating about this thread is that it adds insight to the numbers you often read about - “you’ll likely live on 80% - 100% of what you spent annually pre-retirement.”
Based on the discussion above, I now see that projected calculation might vary based on your pre-retirement income and expenses. For instance, if you had an income which allowed you to spend a significant percentage on kids’ temporary expenses (college, car, etc.), house/mortgage (which might drastically decrease if you paid cash for a much smaller place), health care contributions (which may reduce once Medicare kicks in), and money allocated to saving (since you are presumably not aggressively saving for retirement any more!).
If, by contrast, your pre-retirement expenses mainly consisted of food, rent, day-to-day necessities - it does make more sense that those costs would not decrease all that much in retirement (particularly if you were paying the same amount for rent or mortgage).
Exactly. Valvoline thinks I should change the oil in my car every other day. But they sell oil changes. Procter and Gamble wants me to wash my hair twice each time. But they sell shampoo.
Same is true with financial planners, portfolio managers, etc. And in many ways I think its a disservice to most people because it intimidates them from even starting. And the average savings balances reflects that. For some people, the lofty retirement savings goals motivates them. But for others, it defeats them.
When I have looked at numbers, there are significant expenditures that will go to $0 in retirement (such as retirement and college savings). Others than will reduce significantly (such as taxes including self employment taxes and housing with a fully paid mortgage). And all of those those will offset any increases (I pay full cost of medical insurance now for high deductible plan so increases in retirement won’t be significant and they may well be less at least for a period of time) by a significant amount. Comfortably we will be fine with half of current income and still have the ability to travel and do whatever we want in retirement. Could also live with less.
Thank you, this is really helpful. As an exercise, I used the planning tool provided by my 403b provider. It recommended 80-100%, so I used that number the first time I ran through it and did not include any other sources of income I expect to have. Of course, it told me I would have a shortfall, and suggested upping my contributions. So, I ran through it a few times, each time edging down the percentage, and even including other income I expect to have until it finally had to concede that I would have enough. So, did it say, “Great, you’re all set”??? No, it didn’t. It then suggested I up my contribution and adjust the risk level of my portfolio 'to protect against uncertainty."
We really like our financial planner. He told us that the hardest part of using retirement monies is the transition from saver to spender. We were so used to squirreling away as much as possible that we knew he was probably right.
At this point, DH is sort of semi retired (doing per diem consultant work). We are tapping less than 1/2 of our retirement accounts and we are doing fine. So far. We have DHs SS, and two additional retirement accounts we haven’t touched yet.
Interesting observation about the 80% number. We are not upper middle class and did not have tons of disposable income before retirement so it makes sense that we definitely can’t live on 40-50% of what we did before.
I think this is so true. There are times in life when we have to be spenders (like when we are paying college tuition for our kids) and us frugal people who are savers by nature have a hard time with that.
We are currently in a max spending mode - no income to speak of (husband is retired but not yet 65 to collect SS) and we are doing a trial of having a second home right now (an apartment near our only daughter).
The other great unknown is end of life care, will you have a stroke or dementia or any other health issue where you need help with ADLs, but could live, literally, decades. We had an extended family member who needed ADL help for over 30 years, that either takes a lot of money or exhausts the spouse for as long as they can do it. Hard to plan for that great unknown. I know people who died in their 80s/90s and never needed pricey help, I know people who needed is 6-24 months. Those are the tough things to plan for, as when you do start needing help, how long will you live?
Note that full retirement age for the purpose of collecting social security is 66 for those born 1954-1959 and 67 for those born in 1960 and thereafter.
Correct. Try private legal practice on for size and get back to me about work/life balance.
Yes, right out of LS I was paid a lot of $$ relative to other, older working adults I knew. But as I used to say to my FIL when giving me crap about how much lawyers make, “They don’t just give it to me.”
I worked 7 days a week, and often well into the night, and often into the wee hours of the morning. I turned 30 at the financial printers in the middle of a 30+ hour run of no sleep.
My clients were organizations staffed by Type A people who thought of me as a machine. The requests were unreasonable 80% of the time. I had to learn the delicate art of asking “Does this really need to be ready on Monday?” in conversations I was having late Friday afternoon.
I respect teachers, etc. etc., and I’ve known and know many. Not one of them would have traded places with me. Yes, I was paid much more than they, and from what I could and can tell, I earned every incremental penny I was paid over what they did. In fact, when you factor in all the things that have been mentioned, I think they had a better deal, at least in the early to middle part of my career. That’s probably not the case as this point, but ‘they’ took their pound of my flesh out of me along the way to getting here.
[quote=“thumper1, post:2859, topic:2795805”]
he hardest part of using retirement monies is the transition from saver to spender
[/quote]. - Amen to that. I felt that keenly. One thing that helped was older hubby retired first, while I worked another year…. covered our medical and most of our expenses. After he reached 65, I retired (I went on COBRA and next month transition to an employer fund for medical care, will last a few years. Then I’ll still have 2 year gap til Medicare).
When planning for retirement, you need to compare Expenses (needs + wants/travel) vs ‘income’ (pension + SS + 401K withdrawals). For many couples, the income picture will vary by year of retirement especially if retiring pre-65.
We have great investment choices, overall fees are paid from DH’s former company. Well worth the $50 or $100/year. When we purchase other retirement things from 401k, no fees. No hassle and very easy to navigate everything.
