Retirement - how much and which $ to use?

[jobofferae]

How much money does one realistically need at retirement?

I've read the 10x your annual salary, but by retirement age, assuming salary trajectory remains the same, we're expecting to be well above 500k household income, so 5M seems like a lot. Curious what thinks about this for retirement say 20-25 years from now?

Separately, I've also heard recently that you use 401k for retirement and any investments should be set aside for inheritance. Is that common understanding among the people here? If investments are solely for kids to inherit, is there a point at which it makes sense to use this for general life stuff? College fund?

[bee20]

For your first question, you figure out what number you need by tallying up your expenses. If you're in the thick of kids subtract out their spending and add in a budget for vacations, golf, or whatever you think you'll need in retirement. Then add in things like healthcare that are currently covered by your job (~$10k/year on average).

10x your household income is lower than I've heard (more like 12x is the typical figure), but for high incomes those multipliers break down anyway, because most of your spending is flexible, and if you have a multi-million dollar house that you then pay off or downsize it could be a huge swing.

For inheritance obviously most people don't set aside an extra investment account for their children. If you are talking $5M and are this in the dark I suggest a fee only financial advisor to help you structure your money how you want it. It will likely cost $3-5k over 2 appointments, one to talk goals and another where you come back and get the recommendations. An accountant can help you stay on track year to year.

[Poppy]

For the first, I do not use a salary multiplier, but a retirement budget multiplier like bee20 said. We're working toward FIRE, though.

Regarding which accounts to pull from, it depends on a lot of factors including Roth vs Traditional vs brokerage balances, your tax bracket due to any other income you receive, your health, your goals... it would almost certainly be worthwhile to talk it through with a CPA or fee-based financial planner, especially if you're close to retirement. In terms of taxes, though, brokerage funds are pretty tax efficient for inheritance purposes, so that advice does make some sense. But it really depends on your unique circumstances.

[gt7301b]

I don't think there is one right answer to this question and it depends on your lifestyle and age you want to retire.  Honestly $5 million doesn't seem like enough to me.  If you withdraw 5% that is $250,000 to live on, but with inflation that is closer to $120,000 in today's dollars.   Maybe with a paid off house you could live off of $250,000, but if you kept up with lifestyle creep I think it would be difficult.

I am not planning my life for my kids to have an inheritance, but they will probably end up with something.  However, if that were my goal I would actually put that money in a Roth IRA because they are great assets to inherit.  (You can still do a backdoor Roth if you are above the income threshold and most employers offer some type of Roth option as well in 401ks.)

[shaynaatl]

A high-level guideline is 25x times your annual expenses in retirement, minus any pension/social security.

So if your monthly expenses in retirement will be $10k, and you get $4k in social security, then you would roughly need $1.8M ($6k x 12 x 25).

This assumes retiring in your early to mid 60s. If you are aiming for early retirement, then you may need 30-35x expenses. Of course, a lot of this will depend on how the stock market does.

[k3am]

shaynaatl, this is roughly the math I back into with my modeling. I give no benefit to SSI, since I have no confidence it will still be there in 20+ years - I'd rather have a surprise upside than have it built into my modeling.

[ny96]

Mar 10, 2023 10:04:04 GMT -5 gt7301b said:

I don't think there is one right answer to this question and it depends on your lifestyle and age you want to retire.  Honestly $5 million doesn't seem like enough to me.  If you withdraw 5% that is $250,000 to live on, but with inflation that is closer to $120,000 in today's dollars.   Maybe with a paid off house you could live off of $250,000, but if you kept up with lifestyle creep I think it would be difficult.

I realize that this is MM, but this is the most privileged thing I’ve read on this board in a while. $5m isn’t enough for retirement, come on. Most people won’t have a million, let alone $5 million.

[gt7301b]

Mar 10, 2023 14:56:28 GMT -5 ny96 said:

Mar 10, 2023 10:04:04 GMT -5 gt7301b said:

I don't think there is one right answer to this question and it depends on your lifestyle and age you want to retire.  Honestly $5 million doesn't seem like enough to me.  If you withdraw 5% that is $250,000 to live on, but with inflation that is closer to $120,000 in today's dollars.   Maybe with a paid off house you could live off of $250,000, but if you kept up with lifestyle creep I think it would be difficult.

I realize that this is MM, but this is the most privileged thing I’ve read on this board in a while. $5m isn’t enough for retirement, come on. Most people won’t have a million, let alone $5 million.

I'm not saying that $5M isn't enough for the majority of individuals, but given the information provided by the OP I question if it will be enough.  The OP specifically said they anticipate making well above $500k at retirement.  If they allow for lifestyle creep and are living at that level I would want more that $5M.  If they plan to live on less that $500k I think it is a reasonable amount.

[mpm]

Unless you’re like Musk levels of wealthy (in which case you should have better financial advisers than a message board),I think the idea of planning to leave an inheritance is kind of laughable. None of us know how long we’ll live, what kind of care we’ll need as we age, or how long we’ll need it for. Insurance plans for long term care available now have limits that won’t cover many people’s full needs. Medicaid only kicks in for nursing care once you’re broke. My grandfather’s not fancy memory care nursing home in a LCOL area in total cost north of 1M in ~2010 dollars just for the last decade of his life. I’m sure at 65 he thought he was going to have a lot of money left over to leave everyone but in reality when he passed away at 86 he’d almost outlived all his money.

[ny96]

Mar 10, 2023 15:27:04 GMT -5 gt7301b said:

Mar 10, 2023 14:56:28 GMT -5 ny96 said:

I realize that this is MM, but this is the most privileged thing I’ve read on this board in a while. $5m isn’t enough for retirement, come on. Most people won’t have a million, let alone $5 million.

I'm not saying that $5M isn't enough for the majority of individuals, but given the information provided by the OP I question if it will be enough.  The OP specifically said they anticipate making well above $500k at retirement.  If they allow for lifestyle creep and are living at that level I would want more that $5M.  If they plan to live on less that $500k I think it is a reasonable amount.

You’re right. Given those circumstances they need to put away more than they think.

[goldengirlz]

As a high earning family, I don’t know how we’d get to those 10-12x numbers without counting non-retirement investments. Tax-advantaged contributions are all capped at the same dollar amount, no matter how much you earn. So the way I see it, it’s all just money that’s going toward the future, and the details will determine how we slice it, whether we need it for ourselves or can gift it to our DC in some form or another.

[jobofferae]

Great points about potential nursing home care!

We will not be spending $250k/yr in retirement. We are absolutely not lifestyle creep people and as salaries increase, it's all going into retirement/investments/savings.

[steamboat185]

We are planning on using the 25x rule (but instead like 30x). We paid off the house this month and save about 1/3- 1/2 of our income in various annually. We actually have a meeting later this month with a financial advisor that helps people transition from full time employment to retirement with a focus on early retirement community. I’m hoping it will help clear a few things up because even though we are pretty financially aware we are a little unsure or exactly what is enough and don’t want to work longer than required.

[wildrice]

Mar 10, 2023 15:40:11 GMT -5 mpm said:

Unless you’re like Musk levels of wealthy (in which case you should have better financial advisers than a message board),I think the idea of planning to leave an inheritance is kind of laughable. None of us know how long we’ll live, what kind of care we’ll need as we age, or how long we’ll need it for. Insurance plans for long term care available now have limits that won’t cover many people’s full needs. Medicaid only kicks in for nursing care once you’re broke. My grandfather’s not fancy memory care nursing home in a LCOL area in total cost north of 1M in ~2010 dollars just for the last decade of his life. I’m sure at 65 he thought he was going to have a lot of money left over to leave everyone but in reality when he passed away at 86 he’d almost outlived all his money.

Yes. As of a few years ago my grandma still had over 1 million socked away in retirement (mostly because they were able to live off of my grandpa's pension so anything invested just kind of sat there). Now she's paying almost 15k a month to live in a memory care place and at this rate I am growing doubtful there will be any inheritance. I am urging my parents to spend their money while they are still "young" because the worst thing I can imagine is them turning down experiences now just to pay nursing homes all of their savings later.

My retirement plan is to save as much as we can within living a life of deprivation and seeing what happens. I hope to retire in our early 60's and move somewhere with universal healthcare.

ETA: using the 25x rule it looks like we'll need about 1.5 million. 

[fryjack2]

Deleted because it was insensitive and narrow minded. 

[rooster222]

Mar 11, 2023 21:17:50 GMT -5 fryjack2 said:

This is going to sound really morbid, but I refuse to spend hundreds of thousand of dollars to sit at a window looking at a bird feeder being spoon-fed pudding waiting for someone to visit once a week or whatever. I am not saving a crazy amount extra to pay for that. I'd rather die at 80 and give money to grandkids to pay for college than use that money to lie in a bed somewhere until 93.

I plan to enjoy spending our money while we can and give away what we have left while we are still around ( assuming we have some to give away) and when we become unable to care for ourselves mostly independently, we will make some kind of choices that don't include the above depressing (to me) existence.

What exactly are those choices?

I spent over a year fighting for the best care that my grandma could afford and it was hell. She maybe would have rather just died but typically we don't get to just choose.

I've seen the options between having money and not having money for care and the difference is significant. Thankfully we never had to go the medicaid route but we were close and I dreaded that day.


In response to the question, we are aiming for about 20x. I think my parents retired with about 10x, with no debt and a pretty simple lifestyle. They are very comfortable.

[fryjack2]

rooster222, there are places where you get to choose when to be done. More commonly, we can choose not to continue with care (chemo) or quality of life care (no ventilators, no feeding tubes, etc.)

[mpm]

Choosing when to be done treating cancer is vastly different than dementia where there is a much more gradual decline. I hope none of you ever need to be in that position yourself or with a loved one, but some of the assertions made above are overly simplistic.

[fryjack2]

goldengirlz I'm so sorry. I will delete my post so that no one reads it and feels judged. I 100% didn't mean for it to be judgmental in any way. Growing old makes me anxious, scared, and sad, especially if that means unable to do much on my own anymore and I am probably projecting my own feelings on aging and experiences into the post more than I should.

My grandmother sounds a lot like you MIL's mom. She's 97 and just moved from her home, where she was mostly able to live alone (but so so lonely this last 3 years of covid despite family around) to an apartment style retirement community. She has her own apartment but can eat in a dining hall or join activities with other people. She can't see or hear well anymore, which was led to moving out of her own home and its been amazing for her.

mpm, I realize that and realize now that my post was insensitive.  I'm sorry and will take it down. 

[wanderingback]

I don't have much helpful to add, but ugh this is stressful trying to figure out! I'm way behind on retirement since I was in school for so long.

But basing it on salary and current spending seems so unrealistic. I live in a HCOL and I make a decent 6 figures. I def won't need to spend that much on housing when I'm older, plus all my other current expenses. 

Then, you never know what will happen when you're older. My grandmother is 105 and still lives with a family member because she can still get around on her own. My grandfather died at 93 and was still living alone until his last 3 months of life in a facility on hospice. And lastly my other 2 grandparents also didn't have a ton of expenses at the end of their lives either. So it's all just a big fat unknown!

I definitely think though that you should plan to save and spend all your money while your alive and not calculate an inheritance. Obviously that would be nice, but not necessary.

[fortnightlily]

Yeah, I think the biggest problem is that it's easy to project expenses/lifestyle for the years you are assuming you are relatively healthy and independent. It's not easy for me to extrapolate what my annual expenses might be if/when my health declines and for how long. Do these 25x or whatever formulas take into account that you might be shelling out for an expensive assisted living facility, home health aide, or nursing home for several years?

[simpsongal]

It sounds like you're well on your way - at a certain point it's balancing how much you want to spend/save now relative to the future. You can make adjustments in the future, like sale of a house, cut expenses. Though not for healthcare/assist living/nursing home. It sounds like you could benefit from a sit down w/a financial advisor.

I do think the concept of inheritance is a bit outdated and ill advised. If folks live until typical ages w/birth/death spacing, you're getting a windfall in your 60s. Who needs that if you've been planning/saving yourself? And you can't count on inheritance, b/c you never know what kind of care the older generation will need- even wealthy folks could rack up millions in healthcare/care expenses.

On a personal note, I really wish my grandparents helped my folks at key points in their lives (e.g., buying a home) and the grandkids w/college. But they just did things the old fashioned way, saving every penny for inheritances, which caused a lot of anxiety for my mom as my grandfather approached his 90s. My grandfather was adamant about giving the money he saved to her but he needed to go to a memory care facility. He ended up passing w/~less than half the money to pass on, but a fraction of those funds would have been so much more helpful 10-30 years earlier, and both grandparents could have seen the family thrive w/the help. IDK, maybe its hindsight....

[steamboat185]

Mar 13, 2023 8:49:43 GMT -5 fortnightlily said:

Yeah, I think the biggest problem is that it's easy to project expenses/lifestyle for the years you are assuming you are relatively healthy and independent. It's not easy for me to extrapolate what my annual expenses might be if/when my health declines and for how long. Do these 25x or whatever formulas take into account that you might be shelling out for an expensive assisted living facility, home health aide, or nursing home for several years?

One of the key aspects of the 25x spending is that you never spend down the balance of your retirement. The idea is that you live off the interest because on average money invested returns 7% a year. In theory if you retire with a million you can spend 40k a year (that can adjust for inflation) without touching the balance and save that for when you need additional care (which should be more than 2million at 3% over 25 years). It’s really not a hugely different idea than saving 10x your salary or whatever. Even doing that you could still easily run out of money and you worked longer limiting the years you could do fun stuff.

It’s definitely something that a lot of people, including us, are unsure will work even with financial models looking incredibly positive.

[winemaker06]

Mar 13, 2023 10:09:57 GMT -5 steamboat185 said:

Mar 13, 2023 8:49:43 GMT -5 fortnightlily said:

Yeah, I think the biggest problem is that it's easy to project expenses/lifestyle for the years you are assuming you are relatively healthy and independent. It's not easy for me to extrapolate what my annual expenses might be if/when my health declines and for how long. Do these 25x or whatever formulas take into account that you might be shelling out for an expensive assisted living facility, home health aide, or nursing home for several years?

One of the key aspects of the 25x spending is that you never spend down the balance of your retirement. The idea is that you live off the interest because on average money invested returns 7% a year. In theory if you retire with a million you can spend 40k a year (that can adjust for inflation) without touching the balance and save that for when you need additional care (which should be more than 2million at 3% over 25 years). It’s really not a hugely different idea than saving 10x your salary or whatever. Even doing that you could still easily run out of money and you worked longer limiting the years you could do fun stuff.

It’s definitely something that a lot of people, including us, are unsure will work even with financial models looking incredibly positive.

Planning to retire when you have '25x spending' absolutely includes spending of the principal over time. That may not happen right away, due to market conditions at the time of retirement, but it will eventually eat into more than only earnings, and that's okay, because that particular calculation is not intended to leave you in old age with a lot left over. 

I'm not sure off the top of my head what multiplier you would need to never touch principal, but it would be much, much higher. 

[steamboat185]

Mar 13, 2023 15:04:31 GMT -5 winemaker06 said:

Mar 13, 2023 10:09:57 GMT -5 steamboat185 said:

One of the key aspects of the 25x spending is that you never spend down the balance of your retirement. The idea is that you live off the interest because on average money invested returns 7% a year. In theory if you retire with a million you can spend 40k a year (that can adjust for inflation) without touching the balance and save that for when you need additional care (which should be more than 2million at 3% over 25 years). It’s really not a hugely different idea than saving 10x your salary or whatever. Even doing that you could still easily run out of money and you worked longer limiting the years you could do fun stuff.

It’s definitely something that a lot of people, including us, are unsure will work even with financial models looking incredibly positive.

Planning to retire when you have '25x spending' absolutely includes spending of the principal over time. That may not happen right away, due to market conditions at the time of retirement, but it will eventually eat into more than only earnings, and that's okay, because that particular calculation is not intended to leave you in old age with a lot left over. 

I'm not sure off the top of my head what multiplier you would need to never touch principal, but it would be much, much higher. 

Apparently it doesn’t account for inflation either. I must have been mixing up all my retirement theories.

[bee20]

steamboat185 , winemaker06 ,

25x or "the 4% rule" should give you an inflation-adjusted steady withdrawal amount for 30 years, with 95% success rate, per the trinity study. Success is having 0 or more dollars after that time period, so in some cases you'll have lots more, and some cases you'll have basically nothing (and 1/20th of the time you'll be broke).  Like any simplification there are plenty of people who argue you should use 3% (33x your spending) or higher if you account for social security or plan to scale back if the market drops.

You can try out some scenarios on firecalc, the inputs are in the middle of the page so you might need to scroll down and it's very customizable. Another one I enjoy is "broke, rich or dead".  For that link it's assuming $5M in savings and $200k/year in withdrawals (pre-tax) with a 40-year retirement, and it usually works. 

This does not solve the problem of end of life healthcare, which is highly variable, but that is a broken system in the US.  I personally am OK with keeping my house value and social security income as a buffer and crossing my fingers that's enough versus working until I physically can't anymore. 

[steamboat185]

Mar 14, 2023 21:25:17 GMT -5 bee20 said:

steamboat185 , winemaker06 ,

25x or "the 4% rule" should give you an inflation-adjusted steady withdrawal amount for 30 years, with 95% success rate, per the trinity study. Success is having 0 or more dollars after that time period, so in some cases you'll have lots more, and some cases you'll have basically nothing (and 1/20th of the time you'll be broke).  Like any simplification there are plenty of people who argue you should use 3% (33x your spending) or higher if you account for social security or plan to scale back if the market drops.

You can try out some scenarios on firecalc, the inputs are in the middle of the page so you might need to scroll down and it's very customizable. Another one I enjoy is "broke, rich or dead".  For that link it's assuming $5M in savings and $200k/year in withdrawals (pre-tax) with a 40-year retirement, and it usually works. 

This does not solve the problem of end of life healthcare, which is highly variable, but that is a broken system in the US.  I personally am OK with keeping my house value and social security income as a buffer and crossing my fingers that's enough versus working until I physically can't anymore. 

Firecalc is great. We use it and other models a lot, but I still don’t trust them! They always seem far too optimistic.

[bee20]

steamboat185, I think the key is you can't actually live right on the edge if you have a choice in it. Going from saving double digit percentages of your income to essentially living paycheck to paycheck sounds miserable when you could just...keep working another year or two to build that buffer.

I started reading up on investments not to retire early to live a life of leisure but because I work in a volatile industry that has big layoff cycles every few years and eventually I'll end up without a job.

[quesyrah]

Mar 10, 2023 14:56:28 GMT -5 ny96 said:

Mar 10, 2023 10:04:04 GMT -5 gt7301b said:

I don't think there is one right answer to this question and it depends on your lifestyle and age you want to retire.  Honestly $5 million doesn't seem like enough to me.  If you withdraw 5% that is $250,000 to live on, but with inflation that is closer to $120,000 in today's dollars.   Maybe with a paid off house you could live off of $250,000, but if you kept up with lifestyle creep I think it would be difficult.

I realize that this is MM, but this is the most privileged thing I’ve read on this board in a while. $5m isn’t enough for retirement, come on. Most people won’t have a million, let alone $5 million.

I was sitting here with my jaw on the floor LOL. We don’t make anywhere near $250K and never will.

I would love to live in a world where $5M
might not be enough to live on!

[quesyrah]

Mar 10, 2023 15:40:11 GMT -5 mpm said:

Unless you’re like Musk levels of wealthy (in which case you should have better financial advisers than a message board),I think the idea of planning to leave an inheritance is kind of laughable. None of us know how long we’ll live, what kind of care we’ll need as we age, or how long we’ll need it for. Insurance plans for long term care available now have limits that won’t cover many people’s full needs. Medicaid only kicks in for nursing care once you’re broke. My grandfather’s not fancy memory care nursing home in a LCOL area in total cost north of 1M in ~2010 dollars just for the last decade of his life. I’m sure at 65 he thought he was going to have a lot of money left over to leave everyone but in reality when he passed away at 86 he’d almost outlived all his money.

After my experience of having to move my parents to memory care to the tune of $16,000 a month, I am making zero plans for an inheritance for my kids and lots of plans to make sure that if DH and I end up in the same
position we can be taken care of.