Right. It’s a basic rule of thumb. But what happens if you spend a lot early in retirement?
I always assume that the 4% takes into account the ups and downs, that it’s an average of 4%.
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Some have suggested there’s a barbell effect. People spend a lot early because they finally have the time and they want to experience it before they’re too old and cant physically do it later in life.
Then there’s a slow down period once they’ve done all the traveling. The last period is when expenses start piling up due to health care costs. A lot of times, these expenses are dynamic and somewhat unpredictable.
It’s also the reason why some people question the: I’ll work until I’m X age. What happens if: there’s an unexpected health issue, a parent gets sick and you have to take care of them, or there’s a downturn in the economy and you get laid off.
Financial planning is an art and there are a lot of variables.
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You make a good point. Sometimes I think retirees should plant that there is a chunk of non-regular retirement expenditure that might be Travel or might be Healthcare… depending on the year.
The 25x (4%) rule of thumb is just for extra income needed beyond pensions and SS. There are some fortunate retirees that can live comfortably on just that (and if assets/401K, it gets saved for the kids), but I’m guessing not many.
I am going to agree with bus driver here. There is a 1.8% fee to use the CC, and the card I plan to use pays 1.5 points for each dollar charged, plus I am working toward a sizable sign-up bonus, so the $3/$1000 charged is worth it in my situation.
The points awarded can be redeemed for flights at multiples of two or three for economy flights and even more for business class.
DH and I are both retired now and share one car, and so far, it is working out beautifully. Once we have moved into our new place, and purchased some electric bikes, we should be able to bicycle to grocery stores and shops on the bike trails. We are preparing our land for an Accessory Dwelling unit (Granny flat), of 875 sq ft of livable space for us, and a larger home for DD and her family.
I want less stuff, less house, less maintenance, and am so looking forward to living in our small space. The 2 bedrooms are teeny, but it has 1.5 bathrooms, and mudroom area, and the rest of the house is one big space and a large screened in porch.
There will be enough space to babysit grandkids, and host family dinners, and the energy requirements to heat and cool this space will be minimal.
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I didn’t even know the online version existed until I helped my friend with her father’s taxes. His initial charge was even higher than $200–crazy–since his taxes could be handled by Deluxe edition.
Suggest to your son that he buy the download from Costco when they run their sale in Jan, I think. Under $50 for Fed & one state, plus a $10 credit for any additional charges incurred (a second state or paying to E-file state return).
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I’ll try to remember this! It’s way too expensive and annoying the way I’m doing it.
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Except that this oversimplifies because it ignores social security and whether the savings are pre or post-tax.
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Our “go-go” years are behind us. We worked and business-traveled like crazy in our 20s-40s (50s for DH), and neither of us ever wants to get on a plane or spend another night in a hotel as long as we live, so no travel budget included in our retirement planning, but we did plan for rising healthcare costs and have LTC policies. Our son is 40 years younger than we are and has no obligation to care for us as we age, and we’ve made sure he understands that; that’s all on us. He has his own life to live.
We are an example of just how different retirement planning looks for different people given individual needs and desires. Truly, no one size fits all when it comes to how you plan to spend and fund the non-working years of your life, so our various answers to the questions the title of this thread asks aren’t terribly informative to a general audience, and using “basic rules” is just a starting exercise that may or may not be relevant to any individual situation.
I like this thread and think the wild swing of topics covered provides a lot of food for thought for those who are still trying to figure out how much they need and when they can retire, but I don’t think there is any substitute for building a relationship with a reputable planner who can look at your actual financials, risk tolerance, current situation, and end goals to remove the guess work and get you to your number.
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Yes. That’s why people shouldn’t focus on net worth but their after-tax net worth.
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It’s difficult if not impossible to say in advance what the after tax value of your pre-tax retirement accounts will be.
I think it’s better to treat taxes as an expense you need to plan for, that you can adjust year by year as tax laws change and you take distributions.
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Depends on how much you have and where you live.
Income taxed at the 12% marginal bracket is a lot bigger than people think. With Secure Act 2.0, it also delayed RMDs so it may delay forced distributions which could otherwise increase your income. Also, when you take social security could affect your taxes depending on when you take it and how much you receive.
Of course you cant predict tax law changes but usually it doesnt change too much for those in the lower brackets. Other considerations could be the standard deduction and personal exemptions post TCJA.
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One point about including your home in your net worth. Unlike other investments in your portfolio, it may be difficult to figure out the actual value of your home. Also, the sale of your home, will not generate the full value (you will be paying realtor fees, in NJ I paid the state a nice chunk for a real estate transfer fee, etc.) I did have a value for my house on the assets spreadsheet I keep. I actually got quite a bit more than I had listed (hot market). But, you just don’t know what the equity will be until it is sold. Also, make sure to deduct any liens on your home (remaining mortgage) when you include your home’s value.
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Definition of Net Worth is total Assets minus liabilities
https://www.nerdwallet.com/article/finance/net-worth-calculator
On this “How Much Do you think you need….” thread, we’ve often used the term loosely as retirement savings target (with varying methods of whether or not to include home equity)
Most definitely the retirement savings bucket values depend on tax factors (some of it is future guesswork). I like to think about post-tax monthly income needs aka “outflow”, which we estimated to be about the same as pre-retirement. The gap after pension (small for us) and SS (once taking it) needs to be filled. And taxable sources need to be tapped more deeply to yield same amount.
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Gifted.
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post TCJA - what is TCJA?
Also known as the Trump tax cuts, this is the legislation that temporarily reduced tax rates for individuals and permanently for corporations, raised the standard deduction, doubled the estate tax exemption, and capped State and Local Tax deductions at $10,000.
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Trump tax cuts which expire in a couple of years. If allowed to expire, marginal rates increase, SALT deductions return, as does the Alternative Minimum Tax.
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I can totally understand the business travel weary person - especially someone who really did not have the desire to travel for work in the first place (DH).
I just got back from 4 weeks with Daughter and GKids - helping out while SIL was away for 4 weeks Army training. Can definitely see, even with good airline connections and ‘smooth’ travel, it can be tiring and less than comfortable. Throws off one’s routine, and if frequently traveling, have to establish one’s own routine. I have two friends who are long time airline stewardesses (over 25 years, one American Airlines, one Delta). They seem to have been able to incorporate the family perks and their love of travel, while maintaining a stable home front (both have raised two kids - one has kids currently in college).
Yes on individual needs and desires.
Now that I am back home for a while, will see how our home plans go on baby step improvements. The home directly behind us (with some wooded area in between) had sale pending on their home in less than a week. My friends in the neighborhood with a large home, including pool, generous lot are going to list their home soon. So we have a good idea on home sales in our neighborhood within the desired school zone.
One should know their risk tolerance - we knew we had to lower our risk and hired the right FA for us. We have the right cash flow and right investment set up for us.
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