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Very good article. I thought I retired in January, 2015, but by that fall I realized I didn't want to cut back on anything, and I was drawing down savings at an unsustainable rate. Result: I am back to working, although only part time.
@ Joe: Would you mind telling what % you were withdrawing at? I'm just thinking it wasn't close to 4 %. Also it would be of interest to know the % of people that return to work, full or part-time. No help from the article on that. Derf
I think the article is absolutely right about how people react to framing odds. But it's not entirely right about needing to cut expenses (or at least by 30%).
It's often suggested that your expenses will go down because you won't need good clothes for work or have commuting expenses or eat out for lunch at work. ISTM this is bogus, because you'll be going elsewhere (ballgames, museums, vacations) that will cost just as much.
However, there is an expense that should drop significantly - taxes. No more FICA, and likely reduced income taxes (depending on how much you have in taxable vs. Roth shelters). This may not add up to 30%, but it's not a petty amount either.
Then there's savings for retirement. What percentage were you putting aside? That part of your budget goes away as well. And I wouldn't call it an "expense" in any case.
I like the article's presentation of failure rates: "They think a condom with a 95% success rate is safe, but are scared of one with a 5% failure rate."
How about: They think a retirement plan with a 95% success rate is safe, but are scared of one with a 5% failure rate? That's what "everyone" seems to target.
Getting back to the behavioral - some of this may be cultural. Go to a store in China, and look at the signs saying ~~~ 70% ~~~ . That's not a 70% off sale, it's a 70% on price (30% off). Takes a bit of getting used to.
Joe, your decision to return to part-time work is not that unusual. It is a very common happening for a variety of reasons. Part-time work after retirement is like a 50% number.
Derf, statistics, based on countless surveys, are plentiful on this matter. Here is a Link that provides a brief summary of some of these studies:
Some surprising and interesting data here. Although I only glanced at the summary sheet, this additional data from the National Institute on Aging should provide some further insights:
Please don’t worry or doubt your decisions. From Peter Ustinov: “Intelligent or not, we all make mistakes and perhaps the intelligent mistakes are the worse, because so much careful thought has gone into them.” But from winning basketball coach John Wooden: “Today is the only day. Yesterday is gone.” And being an optimist, tomorrow will be better with a little planning, a lot of persistence, and some luck.
Joe, for a different reason, I did exactly what you are currently doing. Although I did not plan on part-time work when I retired in 1994, I was persuaded to work as a consultant for several years after my retirement date. In my case, I was needed far more urgently than I realized when I was working full time. My absence was missed. That’s a great feeling that would likely have kept me on the job longer if I had known about it.
Enjoy your retirements. I hope they are long, productive, healthy, and happy ones.
It does bring some satisfaction to be appreciated for workplace contributions. But it is also a money issue: I didn't realize it until I retired but most of the things on my retirement bucket list (travel, projects around the house requiring expensive materials, being generous to kids and grandkids, expensive hobbies, fine restaurants etc) caused me to need more income in retirement than I needed when working. Never had the time for the bucket list when I was working all day and eating a bag lunch! So I guess the moral is, think about what you will be doing in retirement when planning your "number".
Joe, your words are definitely thought provoking, so thank you. My planning has always been expenses will not change in retirement, so that is how I gage if or when I should retire or start social security. I am convinced the longer I can keep from drawing SS, the better my retirement will be. But even when my spreadsheet says it's ok, I figure another year of work is more ok.
I've created my own simple spread sheets showing specific inputs and outputs - when the money will run out. But I am also a believer in using Monte Carlo work sheets to give a statistical likelihood of my plan. Anything other then Monte Carlo , IMHO, is the same as a guess.
(travel, projects around the house requiring expensive materials, being generous to kids and grandkids, expensive hobbies, fine restaurants etc)
So this is why, at 62, I keep working. I don't want to second guess it later.
Why 70% of pre-retirement income, if the substantial part of your income while you were working was saving and investment? In retirement you stop adding to your investment. I would say, it is more accurate to say about 70% of your pre-retirement spending.
Retirement is another one of those fascinating topics where there is no right or wrong answer. Fortunately for me I hate to travel. Possibly because when I was younger I traveled all over the U.S. and got my fill. Also, for over 12 years one of my part time jobs was traveling to Tahoe once or twice a week and other areas throughout NV and CA. That was like being on a perpetual vacation and getting paid for it at the same time. Now I just travel between KY and NC and that is good enough for me. My expense will be a vacation home.
Sometimes we get too hung up fretting about the financial aspects of retirement while neglecting to indulge and enjoy partaking in our passions. By the time we have all the I's dotted we are either 6 feet under or too feeble to enjoy the fruits of our previous labors. Close to 20% of my high school and/or college graduating classes are now 6 feet under. An untold number of the remaining 80% now are burdened with a host of physical/mental maladies.
In the not too distant future the only ones with a chance of having a 'traditional' retirement will be Federal Government and some state government employees. There is a lot of talk about income disparity and the 1%. But now it is gov't workers who are doing better financially then private sector employees. 50% of union employees are now gov't employees. I fully expect that there will be news stories about older people living on the streets saying "I worked all my life, but I don't have enough to support myself in old age."
I read an article about the recreational vehicles doing well. Some are baby boomers with money and a lot are people living in their RV.
Just another sign my generation better start living life to the fullest. We never know when our time will be up. Patty Duke who we all remember well passed away today at age 69. People may underestimate their spending in retirement but they also overestimate their longevity!
Getting mighty philosophical here. From English author Andrew Marvell*,
"But at my back I always hear Time's wingèd chariot hurrying near ..." (To His Coy Mistress)
Edit - Shortened original contribution so as not to get into a spitting contest here with other poets on the board. As Junkster & others noted, it's a balancing act between having enough and yet not being so frugal that you fail to enjoy life to the fullest.
All the world’s a stage, And all the men and women merely players; They have their exits and their entrances, And one man in his time plays many parts, His acts being seven ages. At first, the infant, Mewling and puking in the nurse’s arms. Then the whining schoolboy, with his satchel And shining morning face, creeping like snail Unwillingly to school. And then the lover, Sighing like furnace, with a woeful ballad Made to his mistress’ eyebrow. Then a soldier, Full of strange oaths and bearded like the pard, Jealous in honor, sudden and quick in quarrel, Seeking the bubble reputation Even in the cannon’s mouth. And then the justice, In fair round belly with good capon lined, With eyes severe and beard of formal cut, Full of wise saws and modern instances; And so he plays his part. The sixth age shifts Into the lean and slippered pantaloon, With spectacles on nose and pouch on side; His youthful hose, well saved, a world too wide For his shrunk shank, and his big manly voice, Turning again toward childish treble, pipes And whistles in his sound. Last scene of all, That ends this strange eventful history, Is second childishness and mere oblivion, Sans teeth, sans eyes, sans taste, sans everything.
Thank you for referencing another Life Expectancy calculator. I have used others and am always interested in yet another option.
Unfortunately however, I do not fit the profile demanded by your reference on two counts; I am not under age 70 and I am not from the UK. I would anticipate that many other MFOers do not satisfy the qualifications either.
If those MFOers who are from the USA are intrigued, I have used a Life Expectancy reference that should be reliable, easy to use, and actually fun. The calculator was developed by Professor Dean Foster at the University of Pennsylvania's Wharton School of Business. The estimator is statistically based upon a zillion (a slight exaggeration) survey participants. Here is a Link to the calculator:
The estimator is easily completed by hitting the relevant descriptive buttons and by sliding the bars to the settings that represent the users specific circumstances.
I especially like the analysis that follows the Life Expectancy estimate. It provides a guide to improving the estimated number of survival years, and gives insights into the sensitivity of the factors considered. I am surprised that a person’s health attitude is one such factor.
At the risk of ringing the same old bell, another take on this is that folks who pay off their mortgage prior to retirement and do not have other large debts to fund will most times do just fine in retirement, assuming they have done a good job of saving. As another poster noted, those who max out their 401k or other retirement plan contribution will have a significant drop in expenses. If you add that $24,000 to a typical mortgage payment savings, conservatively estimated at $18,000 a year, that's a huge help in cash flow. Another poster noted that those with public pensions have a leg up on many others. How very true, and if they have a spouse with similar retirement income source or one who has maxxed out their company plan, the couple should be in great shape. But by eliminating retirement contributions, mortgage and other debt servicing, reducing the number of household vehicles, clothing expenses, eliminating FICA and city tax, and many other items, this can make a difference between just getting by and truly enjoying retirement. How long will it last? That, of course, is the big kahuna. Using the life expectancy calculator referenced above, I should live at least to age 94. In our client retirement projections, we use age 100 for every person, and we are thinking of raising that to 105 for younger clients. That's scary in many ways. But it means the definition of retirement is a whole lot different than it was for my parents.
Using the life expectancy calculator referenced above, I should live at least to age 94. In our client retirement projections, we use age 100 for every person
Interestingly the calculator seemed to reward older drinkers (not that I would accuse anyone of being old).
For example, a 92 year old who changes their drinking habits from "2-7 drinks per week" to ">7 drinks per week" increased their age expectancy by a year (but most of that time would need to be spent drinking). Seems like a reasonable trade off.
This is not directed at our resident financial planner but I believe the financial industry wants us to believe we will all live to a ripe old age because it benefits them. I mean there are very few 90 year old males around. If you read the obits daily it is scary seeing so many deaths of those in their 60s and 70s. Around 20% of my college graduating class (1969) are already 6 feet under and the death rate among them seems to be escalating. Yes, I know all about how medical advances will keep us living longer. But that will be offset by the fact we as a nation are more obese/overweight than ever. Plus, the lifespan of one subset of white males (those less educated) is already trending lower. But, being the hypocrite I am, I have already planned for my nest egg to take me well over 100. Partly, because my 95 year old Mom is still going strong and living by herself.
At 71 I'm beyond the age of my mother's death and approaching that of my father at 75. I have many advantages of course. Much better medical care and I never smoked cigarettes as they did. Being somewhat better off financially helps too, as I can consume more nutritious (read more expensive) foods. And the nutritional information is so much better now. We also have the $$ to belong to a gym and the time to exercise - something my parents lacked.
Unfortunately, up until about 50 I considered beer and pizza to constitute a nutritional meal. And being 75-100 pounds overweight for many years was considered merely having a portly figure. So I'm sure those earlier years have taken their toll.
Comments
I thought I retired in January, 2015, but by that fall I realized I didn't want to cut back on anything, and I was drawing down savings at an unsustainable rate. Result: I am back to working, although only part time.
Also it would be of interest to know the % of people that return to work, full or part-time.
No help from the article on that.
Derf
It's often suggested that your expenses will go down because you won't need good clothes for work or have commuting expenses or eat out for lunch at work. ISTM this is bogus, because you'll be going elsewhere (ballgames, museums, vacations) that will cost just as much.
However, there is an expense that should drop significantly - taxes. No more FICA, and likely reduced income taxes (depending on how much you have in taxable vs. Roth shelters). This may not add up to 30%, but it's not a petty amount either.
Then there's savings for retirement. What percentage were you putting aside? That part of your budget goes away as well. And I wouldn't call it an "expense" in any case.
I like the article's presentation of failure rates: "They think a condom with a 95% success rate is safe, but are scared of one with a 5% failure rate."
How about: They think a retirement plan with a 95% success rate is safe, but are scared of one with a 5% failure rate? That's what "everyone" seems to target.
Getting back to the behavioral - some of this may be cultural. Go to a store in China, and look at the signs saying ~~~ 70% ~~~ . That's not a 70% off sale, it's a 70% on price (30% off). Takes a bit of getting used to.
Joe, your decision to return to part-time work is not that unusual. It is a very common happening for a variety of reasons. Part-time work after retirement is like a 50% number.
Derf, statistics, based on countless surveys, are plentiful on this matter. Here is a Link that provides a brief summary of some of these studies:
http://capricorn.bc.edu/agingandwork/database/browse/facts/fact_record/5670/all
Some surprising and interesting data here. Although I only glanced at the summary sheet, this additional data from the National Institute on Aging should provide some further insights:
https://www.nia.nih.gov/health/publication/growing-older-america-health-and-retirement-study/chapter-2-work-and-retirement
Please don’t worry or doubt your decisions. From Peter Ustinov: “Intelligent or not, we all make mistakes and perhaps the intelligent mistakes are the worse, because so much careful thought has gone into them.” But from winning basketball coach John Wooden: “Today is the only day. Yesterday is gone.” And being an optimist, tomorrow will be better with a little planning, a lot of persistence, and some luck.
Joe, for a different reason, I did exactly what you are currently doing. Although I did not plan on part-time work when I retired in 1994, I was persuaded to work as a consultant for several years after my retirement date. In my case, I was needed far more urgently than I realized when I was working full time. My absence was missed. That’s a great feeling that would likely have kept me on the job longer if I had known about it.
Enjoy your retirements. I hope they are long, productive, healthy, and happy ones.
Best Wishes.
But it is also a money issue: I didn't realize it until I retired but most of the things on my retirement bucket list (travel, projects around the house requiring expensive materials, being generous to kids and grandkids, expensive hobbies, fine restaurants etc) caused me to need more income in retirement than I needed when working. Never had the time for the bucket list when I was working all day and eating a bag lunch! So I guess the moral is, think about what you will be doing in retirement when planning your "number".
I've created my own simple spread sheets showing specific inputs and outputs - when the money will run out. But I am also a believer in using Monte Carlo work sheets to give a statistical likelihood of my plan. Anything other then Monte Carlo , IMHO, is the same as a guess. So this is why, at 62, I keep working. I don't want to second guess it later.
Sometimes we get too hung up fretting about the financial aspects of retirement while neglecting to indulge and enjoy partaking in our passions. By the time we have all the I's dotted we are either 6 feet under or too feeble to enjoy the fruits of our previous labors. Close to 20% of my high school and/or college graduating classes are now 6 feet under. An untold number of the remaining 80% now are burdened with a host of physical/mental maladies.
Derf
I fully expect that there will be news stories about older people living on the streets saying "I worked all my life, but I don't have enough to support myself in old age."
I read an article about the recreational vehicles doing well. Some are baby boomers with money and a lot are people living in their RV.
http://www.nytimes.com/2016/03/30/arts/television/patty-duke-dies.html?_r=0
"But at my back I always hear
Time's wingèd chariot hurrying near ..."
(To His Coy Mistress)
Edit - Shortened original contribution so as not to get into a spitting contest here with other poets on the board. As Junkster & others noted, it's a balancing act between having enough and yet not being so frugal that you fail to enjoy life to the fullest.
Jaques to Duke Senior
All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances,
And one man in his time plays many parts,
His acts being seven ages. At first, the infant,
Mewling and puking in the nurse’s arms.
Then the whining schoolboy, with his satchel
And shining morning face, creeping like snail
Unwillingly to school. And then the lover,
Sighing like furnace, with a woeful ballad
Made to his mistress’ eyebrow. Then a soldier,
Full of strange oaths and bearded like the pard,
Jealous in honor, sudden and quick in quarrel,
Seeking the bubble reputation
Even in the cannon’s mouth. And then the justice,
In fair round belly with good capon lined,
With eyes severe and beard of formal cut,
Full of wise saws and modern instances;
And so he plays his part. The sixth age shifts
Into the lean and slippered pantaloon,
With spectacles on nose and pouch on side;
His youthful hose, well saved, a world too wide
For his shrunk shank, and his big manly voice,
Turning again toward childish treble, pipes
And whistles in his sound. Last scene of all,
That ends this strange eventful history,
Is second childishness and mere oblivion,
Sans teeth, sans eyes, sans taste, sans everything.
ubble.co.uk/
Derf
Thank you for referencing another Life Expectancy calculator. I have used others and am always interested in yet another option.
Unfortunately however, I do not fit the profile demanded by your reference on two counts; I am not under age 70 and I am not from the UK. I would anticipate that many other MFOers do not satisfy the qualifications either.
If those MFOers who are from the USA are intrigued, I have used a Life Expectancy reference that should be reliable, easy to use, and actually fun. The calculator was developed by Professor Dean Foster at the University of Pennsylvania's Wharton School of Business. The estimator is statistically based upon a zillion (a slight exaggeration) survey participants. Here is a Link to the calculator:
https://www.myabaris.com/tools/life-expectancy-calculator-how-long-will-i-live/
The estimator is easily completed by hitting the relevant descriptive buttons and by sliding the bars to the settings that represent the users specific circumstances.
I especially like the analysis that follows the Life Expectancy estimate. It provides a guide to improving the estimated number of survival years, and gives insights into the sensitivity of the factors considered. I am surprised that a person’s health attitude is one such factor.
Enjoy and have some fun. “Live long and prosper”.
Best Wishes.
For example, a 92 year old who changes their drinking habits from "2-7 drinks per week" to ">7 drinks per week" increased their age expectancy by a year (but most of that time would need to be spent drinking). Seems like a reasonable trade off.
Unfortunately, up until about 50 I considered beer and pizza to constitute a nutritional meal. And being 75-100 pounds overweight for many years was considered merely having a portly figure. So I'm sure those earlier years have taken their toll.