|How much does one need to retire comfortably?||Sintesi|
Oct 21, 2002 12:19 PM
|I was just reading an article in the NY times about the return of the Gilded Age. In the past 30 years average salary went up ~10% from $32,000 to $35,000, whereas the compensation for the top 100 CEOs went up from an avg of $1.3 million to $37 million. They used to make about 39 times what their avg. employee makes, now they make about a 1,000 times what their avg employee makes.
These people never made any sense to me at all. $37 million a year? I'd work like 3-4 weeks and then RETIRE. Why knock yourself out for extra millions ("extra millions" sounds absurd) If one wanted a modest, comfortable lifestyle (say $40,000 a year for a single individual) and live solely off his or her investments how much would one need in the kitty?
Oct 21, 2002 12:43 PM
|That you would retire at 60 years old, earn a 6.00% return on your investments, and that you die at 83 years old, having expended all your capital, you would need to invest $494,810 today. This also assumes that you will get a $16,068 benefit from Social Security as PART OF the $40,000 total. It also assumes the cost of living will go up 3% each year. If you do not believe that SS will be in existence, the amount you would need jumps to $703,760.
The only problem with these assumptions is that they will not be at all accurate. It takes constant monitoring and adjusting to make it work. If in doubt, more is better.
When people make those tremndous amounts of money, they don't get satisfaction because they can buy more things. They use the dollars to keep score aginst their peers.
|2 large whiskys usually does about right. nm||Eager Beagle|
Oct 22, 2002 5:30 AM
|Assumptions about retirement needs||ms|
Oct 22, 2002 5:55 AM
|I notice that many retirement models assume that you will spend less in retirement. However, it appears to me from people I know who have retired that they spend more money in retirement than they did while working (e.g., foreign travel, increased leisure activities). Now, people in their 60s and 70s usually do not have a mortgage or the expenses of children, but I do question the assumption that one needs less money in retirement.|
Oct 22, 2002 2:47 PM
|I retired at age 56 at 75% of my income. I get a 2% cost of living increase each year. Things change when you retire, I'm not forking over the money for gas I needed for driving back and forth to work, no more meals in restaurants, no more dry cleaning bills. I think it depends on what your life style is. If you like to travel and eat out occasionally you might be short on cash. Most of the guys I know end up going back to work part time. we still have a teenage daughter to put through high school, but she has a part time job and she pays for half her car insurance, gas, and expenses. My part time job is riding my bike and I'm on a budget for bike related purchases. When people ask me what I do now that I'm retired I look and them and say "ride my bike". I guess this makes me a full pledged bike bum, and proud of it....|
|what job did you have that pays you a 75% pension?||ColnagoFE|
Oct 23, 2002 8:54 AM
|Sounds like a good deal if you can get it. Personally I think I'm stuck with whatever I can save up. I don't see any pension in my future--especially in this economy.|
|what job did you have that pays you a 75% pension?||DINOSAUR|
Oct 24, 2002 8:16 AM
|State of California Cal-Pers police/fire retirement fund. It wasn't planned this way, the last thing I thought about when I was young and starting out was retirement. They changed the formula, now officers can retire at age 55 at 90% (depending on age and length of service). Only 20% make it to a full service retirement, many pitfalls along the way...|
|When did everyone here start saving for retirement?||Kristin|
Oct 22, 2002 3:22 PM
|I didn't think about it soon enough. Recently, I realized that--barring a miracle of sorts--I will either live comfortably now and spend my retirement in poverty, or live sparingly for the rest of my life. Either way, on my current salary I can't retire until I'm forced out. Bummer. I wouldn't be set back nearly so far if that mail order millionaire hadn't run off with my $74.95.|
|I guess I started||JL|
Oct 23, 2002 6:09 AM
|when I graduated and got a "real" job. One of the best things my father ever told me was "If you have a retirement plan at work, put in the max. Or at the very least, the max your company will match." I did that faithfully since, but now that I'm an independent consultant, I have to make sure I contribute the max I'm allowed to my SEP IRA. The corporate matching (usually company stock) is good as long as the market is up and your company is doing well, but as you know lately it's...well, not so good. The earlier the better and as much as you can comfortably afford. From what I remember, you're young. As long as you've started and continue to contribute regularly, you should be fine.
|eat, drink, be merry...||mohair_chair|
Oct 23, 2002 6:33 AM
|...for tomorrow you could die.
At one of the places I worked, they brought in an idiotic "motivational speaker." It was mostly tripe, until he told a story about interviewing people in their 70s and older. Almost every person said the same thing. They wish they had taken more risks in their lives.
He paused to let that sink in, but my boss couldn't hold back. He wisecracked "Of course they all say that. They're the only ones left. Everyone who tooked risks and had fun with their lives is dead!"
What good is having money if you can't spend it? The point is not to die rich. The point is for your account to reach zero at the same time your clock runs out!
Don't forget you also own real estate now. Hopefully that will appreciate and form a big part of your retirement. That's what many people bank on.
|OK, I can't resist||PaulCL|
Oct 23, 2002 4:49 PM
|Assume you will need 60-80% of your pre-retirement income during retirement. As another poster said: max out or do as much as you can with your company 401k, SEP, etc... If it is available to you, a plan with a match is your best investment. But remember the magic word: Diversify.
A few one liners:
Pay yourself first. Meaning: pay into retirement, or personal savings each month as if it was a bill that you owe. Don't make it optional.
Save on your own as you can...throw a few bucks per month into a stock mutual fund. It's amazing how fast it will grow. Maybe think of a tax deferred annuity plan witheld from your paycheck above and beyond the 401k. Money grows tax-exempt until you take it out of the plan, presumably at retirement for income.
Within your company retirement plan please diversify...don't do an "enron" and hold 100% in company stock. Diversify among comp. stock, stock funds, bond funds, etc...
Don't quit adding money to the stock market if it is down...(a big mistake people make)...remember "buy low, sell high"
Get more conservative starting within 10 years of retirement.
Time is your friend.
If your company offers a discounted stock purchase program, take a hard look at it. Often, companies will let you buy their stock at a 15% discount to the market.
Buy lots of lottery tickets. ;)
Don't count on social security being there for you.
For actual numbers, $40,000 per year today taxable would take at least $600,000 without invading the principle (6 - 7% return). But $40,000 in today's buying power would take $80,000 per year in 20 years at a 3% inflation rate. So save that money!!
|Don't buy company stock...||moneyman|
Oct 24, 2002 6:16 AM
|Even if it is dicounted 15%. The company you work for is providing your daily living. By accepting your very good suggestion of diversification, you would not want your company to be providing your retirement living as well.
Ten years in front of retirement? Maybe not. It is likely that, given the longer life-spans of today, we will be living in retirement for as long as we worked. Therefore, it is vitally important to maintain growth before and during retirement. How conservative / aggressive an investor should be is primarily determined by the ability of the investor to withstand volatility in his investments. If you polled people today (at the end of a bear market), their ability to tolerate the ups and downs would be significantly less than if you had polled in 1999.
|Definitely buy company stock...||mr_spin|
Oct 24, 2002 6:43 AM
|...if it is discounted 15%. If you do a same day sale (sell it immediately after buying it) your risk is miniscule and you've made at least 15% on your money. Find me any other investment that has almost zero risk and a 15% return on a short term investment. Plus, most ESOP plans lock in the price for a year or more, and adjust the price downward if necessary, meaning you can make more than 15%, but you will never make less. I don't see how anyone can pass that up, unless they live from paycheck to paycheck.|
|Just don't put all you're eggs in one basket because it only takes a straw to break the camel's back.||Kristin|
Oct 24, 2002 8:36 AM
|I know a few people who are crying into their retirement beer because 75% of their money is in company x shares. Well, that would have been just grand if they retired in 1997; but company x's stock never recovered from that 2/1 split in 1998.|
Oct 24, 2002 12:07 PM
|Investor behavior typically prevents this from being a successful strategy. They don't sell it either because they lack the sophistication to carry it out, or they are unable to because of plan limitations. Many of the corporate plans I am familiar with only allow sales at specified times, e.g. once a month. The participant cannot specify as to when the sale gets done, or at what price. The order to sell goes in on the 10th, and it gets sold in a batch on the 30th. The problem is what happens in between.
A study done by Dalbar found that, for the period of 1984-2000, pension plans averaged 12.9% ARR. Equity mutual funds averaged 13.1% ARR. The average equity mutual fund investor? 5.3% ARR. Why the discrepancy? Most investors chase returns, following last years hot fund (buy high) then bail out when the fund falls apart (sell low). I don't mean for this to sound condescending, but it is difficult to underestimate the ignorance of the typical individual investor. They usually do it wrong. Have you ever heard of the "odd-lot" theory? Its a bit of technical analysis that says if there is a lot of odd-lot (less than 100 shares)buying going on, you should be selling. Odd lots are typically moved by small investors, who, as previously stated, usually get it wrong.
You may be the exception to the rule re: company stock, but I would find it difficult to recommend to a client the strategy you outlined, as I am pretty sure it would lead to problems.
I maintain that in order to diversify an investment portfolio, one should not own the stock of the company one works for.
Oct 25, 2002 6:59 AM
|All the plans that I was part of allowed same day sales, and in fact, you could specify up front that you wanted to do that. You were never required to buy and hold and there were no lockouts beyond the normal lockouts around earnings. It was automatic and essentially guaranteed 15% return with insignificant risk. If you work for a company that has a plan like this, you are foolish not to take advantage of it.|| |