Sometimes, i feel protecting your capital is much more important than making money. I'm approaching retirement with comfortable millions, yet scared of a market crisis and how to benefit from a possible correction. Where do I best grow my money?
Many overlook that banks are return-driven businesses. I don't trust keeping a large sum in a bank. Instead, I invest with guidance, enjoy the benefits, than save for retirement.
@@Portialogic After the '08 financial crisis, I've learned not to trust corporations. Since 2020, I've been investing with a financial adviser and have had major portfolio yields of over 88%, so I'm not going back to relying solely on bank for bonds or T-bills.
I'm cautious about giving specific recommendations since everyone's situation varies, but I've worked with "Kimberly Grace Flanagan" for years and highly recommend her. Look her up to see if she meets your criteria.
That is great advice and what I follow. My wife and I have always lived below our means. In the last couple of years my wife decided to get a part time job because our boys were grown-up. Also my career took off and started making more $. Our lifestyle didn’t change despite the extra income and lower costs (no further college tuition and so on). When we retire we will need about 20%-25% of our current income.
I like to base spending in retirement on expenses rather than income. It's good to plan based on your expected expenses. And as you said, expenses are variable rather than static in retirement. It's good to have flexibility in your retirement plan.
And recognize that expenses will vary over the time of your retirement. You'll have the go-go years (early retirement, when you may travel a lot), the slow-go years (early 80's) and then the no-go years (> 85).
I work for a school district. Every year the district sends a couple of messages… “we are saddened to inform you John Doe has passed away. He worked as a teacher for 30 years in our district. Funeral services will be held on…” Some of these people died within 2-5 years after retirement. Do your research. Be realistic. Be conservative. Factor in the possibility of a major illness. Unless you really love your job, try to retire early. Enjoy life while you are able to.
it will always make FISCAL sense to work that one more year ... I'm retired and love it, advise valuing your freedom highly when determining if continuing to work
Yes, but these statistics are a little skewed. Some retire _because_ they have health problems. Yes, other's job IS their identity, are lost without their job. Perhaps depression sets in. Some spend their time in front of the tube. None are good. Others are doing something the always wanted to do but didn't have the time. Your personality makes a huge difference. Plan for time, as well as money, in your retirement.
I’d like to see research on the lifespan of career teachers. All the stress and pathogen exposure may do beyond average damage over time. Similarly, it at least seems to me that significant obesity is more common. I quit in no small part because of how sick I was getting.
@alexc2265 weak, imagine if you worked in a hospital, nursing home, or daycare. You complaining about stress, trauma, and pathogens. Please, some people aren't fit for life.
@@alexc2265 My (maybe incorrect) assumptions is that teachers' average lifespans are on the high side due to the abundance of time off they are allowed to enjoy life if they choose.
LOL, when I retired 7+ years ago I had a budgeted amount to live on that was 21% of my income. It's because of that I was able to retire at 52. Controlling spending can = early retirement. It did for me. Retirement is so much more fulfilling than spending everything I made when I was working. AND the kicker is I am spending less than I budgeted for in retirement. I now cruise 12 times a year at a minimum. But I find budget cruises all the time. I target $50-60/night on cruises and I am headed out on a 6 week cruise on Jan 4th.
That may be good for you, but don't assume that everyone wants to live an austere retirement. Many retirees wait until this final stage of life to do many of the things they've always dreamed of (travel, charitable giving, home/vehicle upgrades, etc) and these things cost money. We all have our own individual goals for retirement and most people don't want to spend their golden years living on a shoestring if they can avoid it. Also, the age at which you retire is far less important than how healthy you are when you retire. Prioritizing good health throughout life is easy and "cheap" insurance for having an active and meaningful retirement at any age.
Most people can't live on 21% of their income. It doesn't matter whether you were making $100K or $1 million a year. If you can live on 21% of your income you were rich because you were making far more money than you need to spend, and even in retirement you are living on even less. Wealthy people are always frugal. It's just that frugality will look different for a millionaire vs a billionaire even if they spend only 4% of their wealth.
@@dlg5485not assuming anything. Just stating my situation. And after 7+ great years in retirement I was diagnosed with cancer earlier this year. Lucky for me no one can take those 7 years away from me. Lucky for me I am healthy enough to have a good prognosis. So I know full well the value of health.
Way to go Joel! Agreed, controlling spending = early retirement, it's just basic math. AND retirement changes the way people see the world. I know a few retirees and they say their spending isn't what they expected it to be (they expected travel, chasing their bucket list, etc.), cause after the initial extended vacation stage, they settle into a routine with more purpose, more simple enjoyment of freedom, and less spending. Therefore the smile profile in spending that financial experts keep telling you is the norm.
I am so glad that you produce videos like this. I've spoken with financial advisors who are 100% sure that the 80% (or 85%) income ratio is cast in stone and can't be questioned. I point out that I save about 25% for retirement... and they start rambling about how that will be offset by increased spending for healthcare, travel, etc. I feel like I've been pushed (forced) to continue working and saving more without any real purpose. Right now, my estimated retirement income is over 90% of my current salary (gross)... but my financial advisor is saying that I should work a few more years.
Look at your last 2 years on net, take home pay and how it’s been utilized. See how much of that you want to maintain in retirement. My bet is if you are projecting 90% of gross, that covers your actual annual spending. Make sure to account for taxes and even when looking at your net pay, there are expenses that likely go away e.g., college tuition, after tax investments…
They are financially incentivized to have you invest more. Not saying that means anything they say is untrue, you just have to understand the bias they are working with.
If you can comfortably live within the confines of your expected retirement income (all sources combined such as Social Security, and not only investment income), whose business is it to decide when you retire? YOURS alone!
This is really great to hear. I'm GenX, so ever since the 1990s, I have been hearing that it is hopeless, that no amount is enough, and that we can all look forward to eating cat food underneath a tarp in our old age. It's nice to hear that such a dismal future isn't necessarily destined for all of us.
I understand that some people have it a lot worse than I do, so I don't mean to imply that everyone will be able to retire. However, like you, I'm Gen X, and whenever people said stuff like this to me, I always said that I would literally rather live in a tarp than work forever. No, I'm outta there. I'm retiring in 2 years no ifs, ands, or buts.
GenX too, we actually had school teachers in the late 80s/early 90s bluntly tell us our generation would work till we died, there would be no pensions or retirement for us. And people wonder why GenX are cynical! Regardless, I've trimmed all lifestyle debt and pumping 30% of gross into retirement/investment vehicles, in the hope of exiting the rat race at 60ish.
Hi Erin, good information! The other factor when your income goes down is less income tax. Most of the incomes you quoted will keep the top dollars out of the 22% bracket.
How many folks end up requiring that high level of care and how long is it needed? My understanding is it's under 3% of all retirees with most needing it for under a year. That's a pretty small risk for most of us. My 90 year old father is alert and still walks a mile a day. So, there's hope for the rest of us.
@@JBoy340a My point is that long term care & assisted care are only needed by maybe 5% of retirees. Many can cover that thru savings or equity in their house. I know the issue fairly well as my mom was in Hospice for 3 years at home and my uncle was in an assisted care facility for 18 months.
I’m planning my retirement income needs based on my take home income, not my gross income. I’m estimating that my tax rates will be 3% higher than my tax rates today are and I’m estimating that I’ll receive 70% of the Social Security that the SSA says I’ll receive. It took a few hours to put together a spreadsheet that breaks out my Roth vs. traditional vs. HSA vs. Social Security vs. pension spreadsheet and get it to calculate my taxable and non-taxable income, but it gives me pretty good data to use to determine what my retirement lifestyle should look like assuming a 7% rate of return on my investments after inflation from now until when I retire. I don’t care what my gross income is in retirement. I care what my take home after taxes and health care is!
Suze Orman says you need $10M, just in case, Dave Ramsey says you can spend 8% (in your dreams!), and sensible folks say you need to have enough to cover your ACTUAL expenses. Then ACTUAL retired folks are afraid to spend cause they're afraid to run out of money and fear unexpected expenses. So aim for covering your expenses PLUS whatever you think you need to calm those "what if?" fears. And there's the rub, those fears can get kind of nutty...
Agree. Nutty is the right word. People retire on near nothing and are generally fine but we are “guided” that it is never enough. Even the 1.35M in the beginning of the video is a lot. It is Nutty :-)
@ I have a few people I listen to. Justin with number crunch nerds, Jeffery Holy Schmidt and a could have others. Different perspectives. Have a great day.
Between 2 SS checks, one pension check and two soon-to-me MRD's from our 401K's, we'll be making MORE than we did when we were both working! Everything we own is paid for with the exception of a mortgage of 11 years left at 2.5% interest. I'd say we're in good shape! Another good one Erin!
You can earn about $124,000 to remain in the 12% tax bracket, and SS is maxed at 85% being taxes, so for most people, taxes really aren't that big a deal!
Always a pleasure Erin. I entered early retirement this year. My home was paid off and I had no debt. I ran some Monte Carlo simulations and met with an advisor for the macro numbers. On the small side, I looked at spending for the past few years and found it to be fairly consistent. Overall, I feel like I will be just fine (but hopefully better) in the long run. I've had some wrinkles this year (needed to get a new car) but that wasn't entirely unexpected. Health care is always a concern.
Same. I'm saving fairly aggressively these days. That on top of payroll taxes adds up to a hefty chunk. Better to look at realized income and actual expenses.
@fdm2155 Everyone certainly can evaluate their situation as they see fit. But, if one is living on $50k, why would it matter if they were making $50k or a million? If you are comfortable living on $50k, I don't see why your current salary is relevant. That will be going away when you retire. I would be striving to achieve the income needed to meet my lifestyle. To me, income is what an employer has determined you're worth to them. It really has nothing to do with the income you require to be happy.
Personally I prefer a good old cash flow analysis versus rules of thumb. Broad based percentages of income or percentage withdrawal rate just doesn't take into consideration one's spending. Yes, making a detailed all encompassing cash flow analysis requires some work, but it also lays out potential additonal spending capacity or cost cutting.
And even this can be simplified just by starting with net take home pay as a barometer for maintained lifestyle and add in a health care and tax expectation.
Thoroughly enjoy your content Erin. Don’t think that some of us haven’t noticed that you’re getting close to 100,000 subscribers… We expect a celebration video when you hit that milestone!
It’s so close! Honestly, back in January, I said to myself that I hoped this channel could hit 100,000 by the end of the year. And it’s looking like that dream might come true. 😊🙏
We started retiring 4 years ago. Wife from PT at 63,and I went PT at the time she retired. I fully retired at 63 with just some minimal side gig of $1000 per month. No debt! And, a budget help a lot. We used to make over $200k. Now we do better on less than $100k. Wife started Soc Sec at 63, I’m waiting till 70. Money goes WAY further due to extra time and a flexible schedule. We eat out less, but travel more. However travel is cheaper due to extra time and traveling off peak. Average about 10-12 weeks of vacation. We don’t buy “stuff” or clothes very often. I do a lot of maintenance and repairs. Way less taxes, more prudent shopping, no retirement contributions. Cheaper Medicare. So we are less than 50% of pre-retirement income. We are considering increasing our fun spending even more, as we have a bit of a buffer. When I take SS at 70 ALL base spending will be covered just by SS except the travel budget. Great video like usual!
I am pretty terrified of medical expenses when we grow old. That is my MAIN anxiety about retirement and aging. Having taken care of my mother as she died (and my parents have great insurance!) and seeing how just two months of nursing care obliterated their finances (they will only cover one of hospice or nursing care, not both as the illness progresses, leaving you stuck and bleeding!)
@@JBoy340a I’m well aware of that as I moved my mother to Medicaid just last year and had to sell her home so that she doesn’t have any assets. Your original statement didn’t mention long term care…somewhat different than normal medical expenses IMO. But yes, it’s something we should all be concerned about.
Hello Erin, When I first retired in 2013 I planned my living expenses around income from just Pension. Now, ten years later at 66, I have seen growth in my Roth IRA, IRA and regular brokerage accounts. I began using the online calculators "how long will my money last". With social security and distributions from IRA's I have tripled my income and the retirement accounts still are growing. My point is, as my own financial advisor, that yearly evaluation of IRA withdrawals should be part of everyones plans. My plan is not to leave too much money on the table but enough so my daughters will have something. Thanks for your content and love the bloopers.
As a soon retiree, keeping my 401k on course after a rocky 2024 is top priority. I have been reading of lnvestors making up to 250k ROI in this current crashing market, any recommendations to scale up my ROI before retirement will be highly appreciated.
The current market might give opportunities to maximize profit within a short term, but in order to execute such strategy , you must be a skilled practitioner.
Having an lnvestment adviser is the best way to go about the market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I nettd over $220K so far, that made it clear there's more to the market that we avg joes don't know
I like how you used percentages and actual dollar amounts to explain retirement spending. I am using my annual expenses to determine how much to save for retirement. For example, I have been tracking my annual expenses for the last 3 years using Capital One (Empower now). I plan to continue tracking my expenses for the next 10 years and use that information to determine my estimated retirement expenses. I find tracking expenses is easier than using a pre-retirement income % as a way to estimate retirement expenses. The best strategy for planning for retirement spending is to know where your money is going, as you pointed out in this video (e.g., mortgage, FICA taxes, etc...), to understand how withdrawal's in retirement will likely be dynamic vs. static (as you mentioned), how much fixed income one will likely recieve in retirement (e.g., pension, social security), and to understand the different ways retirement income will be taxed (Traditional IRA's vs. Roth vs. Brokerage accounts). Regarding your comment about some people may need to save 20% less is true in many cases (very extreme conservatives would fit this category). Bottom-line though is the more one learns about personal finances, the better one can plan for retirement :) Thanks Erin for this video and the other ones. I have enjoyed them.
This is what retirement looks like to me... NOT having to work for "the man" any longer and no annual reviews. Fortunately, that does not require too much money. Much less than what the financial experts claim. Fresh air is still free. Last I checked. And going for a walk or run at the park is a good time in retirement to me. My dad is retired and doesn't have much material wise (he gets by) but he has no boss or customers/clients and that is rich to me. That's my goal and it gets closer every day.
You nailed it. I overestimated my retirement income needs by about 25%. I have friends who are working longer thinking 80% is needed. Can't wait to share this one with them.
So you're saying they can live on less than 80%, can retire now, but they don't realize they can live on less than 80%? Maybe they just want to have more money in retirement? There is no rule that says you have to retire once you reach FI. I know several coworkers of mine who can retire today if they want.
It's all about your expenses. Rules might make a good guideline years ahead of time, but once you get close to retirement, look at your actual expenses and base it off that.
I saved enough to rep;ace over 100% of my income and here is why. I am divorced and live alone. My children are not nearby. I don't own a home so I pay rent and I have no long term care insurance. I have enough to self insure. I feel I have enough income to cover nearly all eventualities. I talked to my daughters and they are pleased that my finances are in order. They said all of their friends are, in part, supporting their parents financially. One more thing, this stint of inflation has been problematic for many. It has lead to wage inflation. Things cost a lot more now.
I encourage young people to front load their retirement accounts to a point of screaming for a 5 year time frame. I mean put as much money as possible in these accounts. For my two daughters for every 1 dollar they put in I matched with 2 - [ I did this ONLY for the 5 years; you think I'm Bill Gates or Warren Buffett? ]. WHY??? The answer is simple; simply more time compounding with larger starting amounts.
My kids started their Roth IRAs in high school. Each had $10,000 in their accounts and another $10,000 in taxable investment accounts by the time they started college. They still contribute and invest regularly. I hope that they can become millionaires by age 40.
I started tracking every dollar on income and expense 5 years before retiring. By the time I retired, I knew exactly where I had been spending my money each month. That's not to say that I had a crystal ball about future events ... but I had a pretty solid idea of what my retirement budget would look like when I retired.
You’re so smart. I figured all of this out on my own several years ago when we began our retirement plan. When I retire, I will only need to replace 40% of my current income. Of course, we are working towards having a bit more than we need. Unexpected expenses happen and we’re a bit leery of potential inflation.
Great analysis on the false claim of that 80% rule. Two additional points. While you mentioned healthcare, medical insurance premiums and deductables will be higher, even for medicare. Second, SS must be included, as it is part of that 80%. My SS at FRA will be about 36% of my income at retirement. Once my wife collects, our combined will be about 56%. So, that, along with the 15% savings rate and FICA, that means we need about 20% of my salary in retirement from our savings.
@@randolphh8005 Not sure who "us" is, but most employer sponsored plans, even with employee participation, cost less to the employee than medicare will be, when considering premium costs and deductables.
@@jdgolf499 Us is my wife and I. The current Part B premium is $175/month. Part D is $0 per month. Wife has Supplemental Plan HDG at $46/month. That works out to $221 per month all in. Her max deductible for health is $2700. Her meds are tiered, but it works out to $15 copay per month. So meds are similar to private, but premiums are much better and deductible and max out of pocket are better. For myself the same $175 Part B and $0 Part D. I have Supplemental plan N at $165 per month with a deductible of $240 per year, and a $20 copay for some office visits. Total premiums are $340 per month with max annual deductible of $240! Combined that is $561 per month with max deductible of less than $3000 per year. We paid much more while working and had much higher copays and deductibles! We were on ACA plans which were a bit lower with a premium subsidy for 2 years, but they had huge deductibles and copays. We worked in healthcare also, Medicare when done right tends to be much cheaper than commercial and even employer sponsored plans. We were paying between $800-$1400 per month in the past for less coverage on employer plans. We initially budgeted $500 per person per month for healthcare. We are no where near that now.
Erin, you are a very sharp gal who really knows her stuff. My wife and I are in our mid 50s so we’ve been talking. We have lived on a budget our entire marriage, own our home free and clear, college accounts for the boys and have been savers. We also determined that we’ll need about 60% so your math completely aligns with our assessment. Nice work and great video!
Thank you so much for looking at the real data and putting it to examples. We all hear the "4% rule" and "80% rule" as if they were written on tablets of stone. Ever since I've seriously looked at retirement I realized that 1) I will no longer be saving for retirement and 2) I will no longer be paying state tax, SSI or Medicare tax. Finaly, I won't be saving for post-tax investment. If I add all those up, I end up needing way, way less per year in terms of gross income to replace my current net income level. BUT every single tool starts with, "what is your current gross income" and runs from there. Then they adjust for inflation at a set rate per year and increase the withdrawal rate based on that. I know from my parents that speeding actually goes down over time as you age and have less energy to travel, etc. In fact my parents actually ended up putting money in savings after taking SSI and RMDs as they got older.
Thank you for this, Erin! I always find these videos lacking. When "experts" create these videos they do not tell the whole story. What is the proper withdraw rate and how much do you need, not taking Social Security into consideration. Percentage of current income to retire is another. I agree with you, 80% is overkill. No one talks about that fact you no longer need to count the 15% for investments. Or, you no longer pay the FICA tax. One other expense to consider is the reduction in taxes. Not bringing in as much money will reduce your tax burden. As I get closer to retirement I seem to be focusing more on reducing the amount going out rather than coming in. There is that psychology thing.
I had been tracking expenses for years before retirement, so had a good projection of what would increase, decrease or stay the same. I think everyone should attempt this rather than relying on a rule of thumb. With downloadable data from banks and credit card companies, it’s not too hard to get a fairly accurate picture. Three years into retirement, our overall expenses have actually increased, primarily due to travel.
This is a great video! It’s the only one I’ve seen that clearly talks about reductions caused by lower taxes and not needing to save. I retired and am spending about what I thought I would, but it’s much less than 80% of my former salary.
I want to say thanks Erin - been subscribed for a few years now and you are one of the few people in my "money advice" rotation I think back to and reference while giving myself or others advice. Thank you for explaining the nuances & broader strokes on an informational basis! A fan of the bloopers at the end too because you're well-spoken, and we ALL goof up trying to execute that sometimes 🤣🤣
There's an old book called Retire On Less Than You Think by Fred Brock. I highly recommend it. Another newer one is called "How To Retire Happy, Wild and Free" by Ernie J. Zelinski. Both good reads and they challenge the modern retirement theory.
Erin Talks Money, today is Thanksgiving day I have much to be very thankful and grateful for first of all I lived 67 years and 2 months and 29 days on Gods earth, next I been retired for 9 years and 8 months 3 weeks and I have my house all paid off Zero debt, to me that more than amazing it is a big Miracle. Thanks Erin, for your videos I actually listen and watch many youtube videos most of my space time since I was super blessed with a great retirement.
Know your expenses - another great video from Erin. When you rollup your take home pay and see where the money goes each year it's easy to see the starting point of expenses and understand your budget. After retirement, as indicated here, you will see many of these expenses change and get a better idea of where you are headed and if you had been planning for 80% of your salary as income, the "buffer" becomes very noticeable.
We moved from the suburbs ($9,000 per year property taxes) to a more rural area ($2,700 per year). That helped a lot, with a slight house downsize at the same time. The down-side was we are now electric only. whereas we had gas, water, and sewage in the burbs. We now have the option to burn wood for heating. However, we decided to install solar with batteries to help deal with the frequent power cuts. That was expensive. We are also investing in heat pumps and more economical appliances. In essence, we are spending more of our savings to reduce future electricity costs and increase energy security and independence. Figuring this all out beforehand would have been impossible. For example solar panel and battery costs have plummeted in the past few years.
We also have solar and batteries at our suburban home. We have high electricity costs that just keep rising. But with the solar and batteries we have almost no electricity bill. We usually pay the connection fees of around $11/mo.
Great video. Start saving for retirement when you are young is a must. Being debt free really gives flexibility in retirement spending. I love how you talk with your hands. If ever you are short on subject matter, I think you could do a best of half hour of bloopers! I would watch. Of course I'm retired with a little time on my hands.
Good video. I agree 100%. I just retired and looking at replacing 50% of gross income, which is approximately my current take home pay after 35% tax and 15% for 401k and other savings. In addition, SS will cover 30% if that amount, thus my retirement savings only needs to replace 35% of my gross earnings.
Great video Erin. I’ve thought a lot about this topic. I always felt that 80% for my circumstances was way too high, especially because the last 20 years before I retired I was saving around 35% of my gross salary. I have been retired now for 3 years. I monitor every penny of my spending using a budgeting app. I am spending 39% of my last year’s salary. I am a widower so I don’t have an active social life and rarely go out to dinner as I don’t like doing it alone.
I never understood why people start and say 80% of your income and justify it because of you won't be contributing to retirement any longer. Why not just base it off your take-home pay in the first place. That would factor in things like retirement contribution and such
I’m aiming for 55%. Ran the numbers and estimated our living expenses at 65, 75 and 85. Fidelity has a really helpful worksheet for this. I even did my taxes based on my estimated age 65 income, assuming all of today’s codes of course. Really fun exercise.
Believe it or not, giant financial companies might have incentive to scare the pants off you. "You need to save 10% - no wait 15% - no wait 20% - at least. Do this for 30-40 years, preferably max out your Social Security so you don't have to withdraw as much from 401k/IRA. If you do all this you can withdraw 4% for 20 years and MAYBE not have to live on cat food." Saving and investing (two different things) are great but never forget the incentives of the person selling the product.
Absolutely true. And from a person who despises the shady, self-interested side of the financial industry, I can still say you're best to save as much as you think you'll need (plus!), aggressively (cause half the population gets "retired" earlier than they planned), and ensure you're paying the lowest fees possible. Do it for future self, and don't forget the "plus" part, for peace of mind and the odd luxury 🙂
@@dstevens518 thanks... i saw an awesome quote the other day, the guy said "discipline is nothing more than doing a favor for your future self." Here is to good discipline and erring on the side of caution!
The history is after WW2 Wall Street came up with the retirement idea as we know it. Retirement is the same as college costs, for example. Wall Street needs you to buy their products in large bulk to clip pennies per thousand. It's just capitalism at a large scale.
Erin, what do you believe we need in retirement. Are you planning for 100% and a 4% withdrawal? What are people planning for? Just asking. I hear a lot of what we should be doing. But I wonder what people goals actually are. B/c we all fight to survive and make what we have work.
Genuinely, my retirement is probably about 30 years away. Maybe in my late 60s. I’m not planning on using the 4% rule. I would draw on an as needed basis. I would plan on maintaining my lifestyle that I had in my pre-retirement years. I would base it on my actual expenses. And I think being that for me, it’s so many decades away, it’s hard to put an exact figure to it, cause very likely my Life will look very different two or three decades from now. So I can solidly say this. At the age of 37, my goal is to continue to save aggressively. My goal when I hit retirement would be to go into retirement with a paid home, and the ability to maintain my standard of living that I had before I stepped away from the workforce.
80% is way overkill. My top 6 monthly uses of money in order are 1. Mortgage $4700 , 2. Investments/Retirement $4500 3. Taxes $3000, 4. Health Insurance $1200, 5. Vacations/Travel $1200, 6. Vehicles $800 When I retire...1. will be taxes and insurance only $1000, 2. nada $0, 3. way lower $1000?, 4. Medicare $500, 5. OK, I'll keep that one $1200and 6. That one will be about the same too $800. Still, adding it up, I'll be cutting my uses of money less than in half: 4500/15400 = 29%....probably closer to 50% once utilities and food are factored in.
@@thedopplereffect00 Nope - not putting any extra. It's a 15-year mortgage, with an original amount of $548k at 1.99%. The house is worth about $1.6 million, and I'll probably trade it for a house worth half as much when I retire, taking the tax-free capital gain.
Also, you can save on transportation. You won't need two cars and no more commute expenses. Car insurance should reflect less miles, dont forget to try to lower car unsurance.
It makes sense that the more you saved monthly, the less you willl likely need to plan for in retirement. Good video & food for thought in preparing for retirement!
Running scenarios with 80-90% of current Net Income, but I will adjust yearly as needed. If the markets are down then likely lower than 80% and if the markets are up, maybe more than 90%. I have always lived within or below my means and feel comfortable that with all the great information from your videos as well as others I will be ready in 5-8 years to retire.
Great video, and very accurate. In my case, I no longer had a car payment (or any other debt) and drive significantly less. Moving from NY to FL saved an additional 6% in income tax and 2% on real estate tax. On top of these, people likely will pay less federal income tax as they are spending less, Medicare is typically less than health insurance and social security is taxed favorably.
I'm always grateful to see people giving advice that doesn't follow the "rules." I'm currently only living on 30% of my income if I take away the savings, housing, and fica that you described. So, I always thought the whole 80% "rule" was ridiculous.
Great video! I'd thought about the mortgage payment but not the other stuff. Now that you pointed it all out, of course it makes sense! Thank you for this, I follow several financial youtubers and yet I'd never seen such a clean, simple breakdown of this particular topic.
We were both 6 figure earners in our final 10 years of working. We now spend 100% of our bring-home income. That number is no problem as long ss markets do well. If they tank we can adjust accordingly. Our set spending is approximately 36% of our income. Insurance, taxes, food, and all other monthly bills. Theoretically, we could cut our spending back to that set amount. I really didn't look at our salaries, but our bring-home. I used the 4% rule as a guideline. The 4% rule is a good place to start. We hammered our savings after the kids were gone and had our house paid off by age 50.
Great video, thanks. My wife and I pull in just enough retirement income (401k, part time work, ss) to stay just within the 12% tax bracket. I see the 22% tax bracket as a 10% penalty added to the 12% tax bracket. This is more than what we need as our goal is to lower future RMDs and excess funds goes into brokerage account.
The 80% rule is so basic, I feel it does more harm than good. If you spend decades working during your career, it would behoove you to perform more than one 1st grade math operation to plan the rest of your life. Start with cost of living when determining retirement planning, and then work your way backwards instead of throwing the 80% dart and hoping it all works out. Good video.
That’s exactly what we did a few years before retiring and again a few months before. We ran 0-based budgeting over a full year which gave us our true cost of living. Those values were then used in retirement calculators that allow bypassing the 80% of income rule (think Boldin). And that’s how we realized retiring at 56 was a reality.
Great advice, well presented Erin. Thank you. Just as with pre-retirement savings, self discipline in consumption and eliminating debt have made retirement spending for us readily achievable at the lower end of the range you discussed.
My bank has an awesome feature where you can categorize every expense and get a summary report per month. I have a pretty comprehensive spreadsheet I keep that tracks all monthly net income, expenses, and investments. It took a while to establish what the "budget" should be, but now we plan ahead. In retirement, things like a mortgage, broker account deposits and expenses for kids' activities and helping with college should go away. So we plan to have less than 80% of our current expenses. For retirement planning, I can use that number to reverse calculate what our gross income needs to be to net out to what is needed in our pockets.
Regardless of percentage you must plan for increases in cost of living. You should be planning on increasing income by x% percent per annum. Setting a fixed percentage seems a little dangerous.
I am on board with all the people here that are more focused on their expenses. When you are within striking distance of retirement it is not too hard to look at how much you spend every month. Even if it as rough as our take home pay is $6k per month. I save $2k of that and we carry no credit card debt so assume your expenses are $4k per month. From there do any modifications around home being paid off, purchasing health insurance, etc. and that should get you a good rough estimate. I know this is really rough, but it seems to me a better reflection of reality than a percentage of income. If your asset base can generate that level of income, put in a more detailed plan until you feel good. If you are not in striking distance of that sort of rough estimate, you likely are not ready and able.
We are working with a financial advisor and we came up with a number significantly less than 80% or even 50%. We expect to be debt free when we retire, but we want to enjoy retirement so we are accounting for travel, etc. But yeah, it's definitely a more personalized number for us.
One factor that was a major difference for me was health insurance. When working it was mostly covered. I paid $672 a year for my coverage. When I retired I paid $7000 a year for the same coverage. During my retirement orientation ( I still have their worksheet!) they gave an amount of $400/mth deduction but the reality was that it was $574/mth. I called and was told they made a mistake. Nonetheless, that was 2017. Now the insurance is $611/mth. So for me I gave up a mortgage paying off my home for retirement and replaced it with an insurance bill.
We were good savers (well, my wife is), I took SS at 70 and she took it at FRA. She has a small pension and between the SS and pension, it covers about 80-90% of current expenses. (we do have a mortgage of 2.95%). Love your UA-cam. And, as I said before, you look very nice in the black dress.
Great video. I'll be shedding my car payments in the next 4 months. Our house payment within the next year. I just had to re-roof our home, so thats a big expenditure out of the way. I'll be retiring at 60-61... I'm currently 58. I'm looking forward to the freedoms and less that hopefully come with retirement.
I'm 59. Last week I had a meeting with my financial advisor. After plugging in all the numbers, monthly expenses etc and accounting for travel, he said I can retire with with 99% of what I need to live on until 92. So if I wait a few months until I turn 60 it will jump to 110%. Not sure how they can predict this with not knowing what inflation will be.
We started at 102% of our spendable cash before retirement. This covered our basic expenses and some fun expenses. Since the stock market was so good my first five years of retirement, I spent additional funds on a boat,dock, lift and a whole house generator. Then we spent money on great vacations. The last couple of years we are spending our basic expenses since the market has been so poor for us. We have some fun money, but less than the first five years. I am hopeful that things will improve in the coming years.
I'm within a couple of years of retirement and I luckily have a small pension. That combined with Social Security will essentially replace my current take home pay (after my taxes, insurance, HSA, and 401k contributions) so my withdrawals will mainly cover taxes and travel.
While younger (18-30's) your goal should be at least 100% of your income, meaning you contribute as much as you can to retirement. In your 40's (generally your highest point for income), you should really be maxing out your contributions. By your 50's you can start to assess your needs vs wants and determine if you've managed your financial life well enough to be where you wanted, and if your house is paid off. By your 60's you will know if you can retire when you wanted or will need to work longer.
Great minds think alike I just wrote the same thing regarding young people. My wife and I have just closed in selling our house and will use that money on top of the monies we and saved and will rent. I'm done with all of the maintenance of home ownership time to let someone else to that for me along with those up front costs. Even with rent increases that I see coming down the pike our pile of money is now so large even the up scale apartment rent plus increases will never have a draw down all the way to zero. If that was to occur then the U.S. will be in a Mad Max situation!
We are 65 and 67 and retired. I disagree on the aggressive saving when young. A balanced approach is better. We spent a lot of money when younger on travel and experiences, and don’t regret one dime of it. We still managed to save, but as you get older health and lifespan become real issues. Just this month I learned one close friend age 65 needs open heart surgery, another age 70 diagnosed with Stage 4 pancreatic cancer. I was told last month I will need hip surgery soon. A LONG HEALTHY RETIREMENT IS NOT TO BE ASSUMED EVEN IF YOU WORK ON IT. Health usually runs out before wealth!
I would only count projected expenses towards my retirement number. A higher savings rate means you keep your expenses low so you need less money to retire than your gross salary. It can be used to estimate how long you take to get to your retirement savings requirements. However, you should know your required expenses vs entertainment expenses and plan accordingly. It’s the only way to know you have enough.
This is an awesome post! I love how you broke this down. I just retired early this year, and I can say I agree with you. I fund my sowbding is way down and given my house is paid off and all other debt as well. While working I wqs saving 30% so my financial advisor actually wants me to spend 40k more a year then I can accept haha. But hey it is an awesome feeling to know I can live comfortably without ever really needing to touch my retirement accounts thanks to thr great annuity and planned social security.
As I am getting close (5-7 years away) to retirement, I am paying attention to monthly spending. I don't care what the category is, I just want to know what goes out every month. I don't anticipate that changing greatly in retirement. It might go up to accommodate for greater ability to travel. So I am shooting for replacement of actual monthly spending, minus the mortgage as I will have that paid off, plus additional $ for medical and travel expenses. That gives me the number I am shooting for. I am planning on retiring "early" so the $ needed from saving will reduce significantly once SS kicks in, but that is all part of the plan. Withdraw at a higher rate early, first 7-8 years, and then reduce significantly once SS kicks in. Then by the time I reach RMDs I will probably have more $ than I ever need shoved down my throat, but that is a good problem to have.
We will still have a mortgage when we retire. But one thing I find quite interesting is that she assumes 0% income replacement from social security. Did I miss something there? I understand the future looks like it may be cut, but down to nothing? Also, medical expenses may increase, but you also get Medicare rather than paying health care premiums. Redirecting your health care premiums + current other out of pocket is likely to be as much as or more than monthly medicare costs (e.g. we're paying $600/mo for premiums right now, excluding copays and such). Basically, I'm targeting minimum 70% current spend in retirement, made up from investments, social security, and a modest pension. I'm looking for the investments themselves to be 40% of current spend.
Personally, I don't find much value in making a retirement expense estimate based on one's income. A person with a yearly income of $80K may need 80% or 90% for post-retirement expenses. A person making $300K, based on their lifestyle, may need 80% to 90%, or may choose to reduce their lifestyle and live on 50% of earnings. A lot depends on one's lifestyle choices, as well as other factors such as health, etc. I retired 14+ years ago at the age of 56. At the end of my first year in retirement, my actual expenses were approximately 60% of the full year income from my last year of working, but my income was fairly high and in the 90%+ US income group. In my case, my relatively high actual yearly retirement expenses have remained high over the years. As an example, I own my home mortgage-free, yet the yearly expense for real estate taxes, maintenance, improvements, insurance, etc., have easily averaged $30K to $35K per year. Medical costs (premiums and out-of-pocket expenses), along with income taxes, transportation and food have dramatically risen over time and are big chunks of my budget. Before I retired at 56, I created an expense type budget at 50 and monitored my expenses versus my budget. I did this for all of the years prior to retirement to verify that my budgeting was reasonably accurate, and also analyzed my potential income in retirement to verify that my wife and I could retire in comfort. I used actual expenses data, over time, along with verifiable income data, rather than using someone else's estimate as a percentage of income, to determine if and when it might be prudent to retire. IMO, people have to do their own homework by analyzing their current and future lifestyle, to determine if/when they might wish to retire.
Tired of guessing and hearing conflicting opinions, I decided to do the work in 2024 to track where my wages went this year. I know how much I make. I know how much they take out for taxes. I know how much I save. Everything else was either spent on family or personal expenses (this is the hard bucket to track so I focused on the easy buckets to track). Based on just 2024, I now know my family and personal expenditure amount per year. Or at least I will as of January 2025. What I found was very eye opening. Originally working toward 100% salary replacement in retirement funded by retirement savings, this was overkill. As you mentioned, the need to save and removal of FICA taxes was huge. All in, I need about 1/3 of my current annual salary in retirement to maintain my working standard of living and pay my annual income taxes. Of course I'm still working toward 100% working salary replacement, but now have much more peace of mind in case I come up short of this goal. For those a couple of years out from actual retirement, I would encourage you to try following your own money for a year and see what it tells you.
Also, keep in mind, at 65 you can qualify for a reduced property taxes or qualify to freeze it from going up, some can deferred the taxes until death. Seniors also tend to eat less due to declining appetites or just being more health conscious.
I find trying to plan retirement around a percentage of your current income to be very difficult. What we earn now may not be the same three years from now. For me it's much easier to simply look at the budget and our monthly expenses. That gives me the confidence to know that we currently live on about half of our income and can continue that into retirement.
One thing not mentioned here is the cost of raising children. I believe the most recent updated study indicated that raising a child from birth to age 18 was around $250,000 give or take. We have four. When you remove the cost associated with raising children and even if you replaced that with assumptions oncost for a travel and gifts with grandchildren, this is a pretty significant reduction and incognito as well.
I retired four years ago. I always looked forward to retirement and truly enjoy being retired. My spending really dropped off. With not going to work I don't spend the money on gas, don't eat out and don't have to buy clothing, business clothing. Plus, if income is reduced your taxes go down. With the tax savings and reduction in spending I easily saved $20,000 per year.
Ours is about 45%. 80% is crazy for the vast majority of us. Especially later in retirement when you’re not traveling as much as quite frankly you just don’t buy as much stuff.
Yes you should not use 80%, look at your specific case for what current expenses can decrease. Another big item is you might only need one car, instead of two. You normally don't need life insurance either. And if you downsize and to a lower tax rate area that can make a big difference.
it really comes down to 2 things. Is your house paid for and what lifestyle do you want to live? If your retirement savings can cover all your base needs, SS is you play money. That is where I personally would start. But then again I plan to live it up, so I am taking an investment strategy to live off Dividends cause if done right they will keep up with inflation and never have to touch the principle. But that takes time and discipline, its not for everyone.
I retired at the age of 57 with 53% of my income. I do not have a fully paid off home but I do have 2 rental properties that help me offset my income. We are doing well financially but if we get into trouble we can sell one of the rental properties. Let me encourage you with this, forget about working "that" extra year. Time is short and we never know our last day on God's earth. Whatever you do, please start saving and stop buying stuff/junk you don't need and remember that your kids are just going to throw away most of your stuff/junk.
Sometimes, i feel protecting your capital is much more important than making money. I'm approaching retirement with comfortable millions, yet scared of a market crisis and how to benefit from a possible correction. Where do I best grow my money?
Diversify… T bills, CDs, Gold, dividend stocks, Municipal bonds, Bitcoin, Real estate, etc assets speak when cash has no value
Many overlook that banks are return-driven businesses. I don't trust keeping a large sum in a bank. Instead, I invest with guidance, enjoy the benefits, than save for retirement.
@@Portialogic After the '08 financial crisis, I've learned not to trust corporations. Since 2020, I've been investing with a financial adviser and have had major portfolio yields of over 88%, so I'm not going back to relying solely on bank for bonds or T-bills.
@@UncleSoapz Do you mind sharing info on the advisor who assisted you?
I'm cautious about giving specific recommendations since everyone's situation varies, but I've worked with "Kimberly Grace Flanagan" for years and highly recommend her. Look her up to see if she meets your criteria.
Great video. I’m retiring in two weeks at 62 and I built my plan on expenses and goals, not % previous income.
Congrats !! Enjoy the Holidays
That is great advice and what I follow. My wife and I have always lived below our means. In the last couple of years my wife decided to get a part time job because our boys were grown-up. Also my career took off and started making more $. Our lifestyle didn’t change despite the extra income and lower costs (no further college tuition and so on). When we retire we will need about 20%-25% of our current income.
I like to base spending in retirement on expenses rather than income. It's good to plan based on your expected expenses. And as you said, expenses are variable rather than static in retirement. It's good to have flexibility in your retirement plan.
I do the same thing. I estimated what my expenses will be in retirement, then I calculated how much gross income I will need to net that amount.
Same!
And recognize that expenses will vary over the time of your retirement. You'll have the go-go years (early retirement, when you may travel a lot), the slow-go years (early 80's) and then the no-go years (> 85).
I work for a school district. Every year the district sends a couple of messages… “we are saddened to inform you John Doe has passed away. He worked as a teacher for 30 years in our district. Funeral services will be held on…” Some of these people died within 2-5 years after retirement.
Do your research. Be realistic. Be conservative. Factor in the possibility of a major illness. Unless you really love your job, try to retire early. Enjoy life while you are able to.
it will always make FISCAL sense to work that one more year ... I'm retired and love it, advise valuing your freedom highly when determining if continuing to work
Yes, but these statistics are a little skewed. Some retire _because_ they have health problems. Yes, other's job IS their identity, are lost without their job. Perhaps depression sets in. Some spend their time in front of the tube. None are good.
Others are doing something the always wanted to do but didn't have the time. Your personality makes a huge difference. Plan for time, as well as money, in your retirement.
I’d like to see research on the lifespan of career teachers. All the stress and pathogen exposure may do beyond average damage over time. Similarly, it at least seems to me that significant obesity is more common. I quit in no small part because of how sick I was getting.
@alexc2265 weak, imagine if you worked in a hospital, nursing home, or daycare.
You complaining about stress, trauma, and pathogens. Please, some people aren't fit for life.
@@alexc2265 My (maybe incorrect) assumptions is that teachers' average lifespans are on the high side due to the abundance of time off they are allowed to enjoy life if they choose.
LOL, when I retired 7+ years ago I had a budgeted amount to live on that was 21% of my income. It's because of that I was able to retire at 52. Controlling spending can = early retirement. It did for me. Retirement is so much more fulfilling than spending everything I made when I was working. AND the kicker is I am spending less than I budgeted for in retirement. I now cruise 12 times a year at a minimum. But I find budget cruises all the time. I target $50-60/night on cruises and I am headed out on a 6 week cruise on Jan 4th.
That may be good for you, but don't assume that everyone wants to live an austere retirement. Many retirees wait until this final stage of life to do many of the things they've always dreamed of (travel, charitable giving, home/vehicle upgrades, etc) and these things cost money. We all have our own individual goals for retirement and most people don't want to spend their golden years living on a shoestring if they can avoid it. Also, the age at which you retire is far less important than how healthy you are when you retire. Prioritizing good health throughout life is easy and "cheap" insurance for having an active and meaningful retirement at any age.
Most people can't live on 21% of their income. It doesn't matter whether you were making $100K or $1 million a year. If you can live on 21% of your income you were rich because you were making far more money than you need to spend, and even in retirement you are living on even less.
Wealthy people are always frugal. It's just that frugality will look different for a millionaire vs a billionaire even if they spend only 4% of their wealth.
@@TheFirstRealChewy I’m not a millionaire nor ever was or will be. One can live very comfortably on much less than one thinks.
@@dlg5485not assuming anything. Just stating my situation. And after 7+ great years in retirement I was diagnosed with cancer earlier this year. Lucky for me no one can take those 7 years away from me. Lucky for me I am healthy enough to have a good prognosis. So I know full well the value of health.
Way to go Joel! Agreed, controlling spending = early retirement, it's just basic math. AND retirement changes the way people see the world. I know a few retirees and they say their spending isn't what they expected it to be (they expected travel, chasing their bucket list, etc.), cause after the initial extended vacation stage, they settle into a routine with more purpose, more simple enjoyment of freedom, and less spending. Therefore the smile profile in spending that financial experts keep telling you is the norm.
I am so glad that you produce videos like this. I've spoken with financial advisors who are 100% sure that the 80% (or 85%) income ratio is cast in stone and can't be questioned. I point out that I save about 25% for retirement... and they start rambling about how that will be offset by increased spending for healthcare, travel, etc. I feel like I've been pushed (forced) to continue working and saving more without any real purpose. Right now, my estimated retirement income is over 90% of my current salary (gross)... but my financial advisor is saying that I should work a few more years.
Yup, same here. To retire on 80% of my income I have to live on 75% of my income before retirement. Make that make sense!
Look at your last 2 years on net, take home pay and how it’s been utilized. See how much of that you want to maintain in retirement. My bet is if you are projecting 90% of gross, that covers your actual annual spending. Make sure to account for taxes and even when looking at your net pay, there are expenses that likely go away e.g., college tuition, after tax investments…
Look at how much you actually spend. Also, firing your advisor automatically reduces that amount by 1%
They are financially incentivized to have you invest more. Not saying that means anything they say is untrue, you just have to understand the bias they are working with.
If you can comfortably live within the confines of your expected retirement income (all sources combined such as Social Security, and not only investment income), whose business is it to decide when you retire? YOURS alone!
This is really great to hear. I'm GenX, so ever since the 1990s, I have been hearing that it is hopeless, that no amount is enough, and that we can all look forward to eating cat food underneath a tarp in our old age. It's nice to hear that such a dismal future isn't necessarily destined for all of us.
I understand that some people have it a lot worse than I do, so I don't mean to imply that everyone will be able to retire. However, like you, I'm Gen X, and whenever people said stuff like this to me, I always said that I would literally rather live in a tarp than work forever. No, I'm outta there. I'm retiring in 2 years no ifs, ands, or buts.
GenX too, we actually had school teachers in the late 80s/early 90s bluntly tell us our generation would work till we died, there would be no pensions or retirement for us. And people wonder why GenX are cynical! Regardless, I've trimmed all lifestyle debt and pumping 30% of gross into retirement/investment vehicles, in the hope of exiting the rat race at 60ish.
"...eating cat food under a tarp..." Thanks for the visual!
Hi Erin, good information! The other factor when your income goes down is less income tax. Most of the incomes you quoted will keep the top dollars out of the 22% bracket.
Knowing how to plan for retirement is such an underrated skill! Thank you for talking about the topic Erin 😊
The medical expenses are the big unknown. Long term care in a facility can easily run $100K+/year. A local place by me charges over $200K/year.
How many folks end up requiring that high level of care and how long is it needed? My understanding is it's under 3% of all retirees with most needing it for under a year. That's a pretty small risk for most of us. My 90 year old father is alert and still walks a mile a day. So, there's hope for the rest of us.
@@ItsEricAZ I know people that have had relatives in long term care facilities for 4 or 5 years.
@@JBoy340a My point is that long term care & assisted care are only needed by maybe 5% of retirees. Many can cover that thru savings or equity in their house. I know the issue fairly well as my mom was in Hospice for 3 years at home and my uncle was in an assisted care facility for 18 months.
I’m planning my retirement income needs based on my take home income, not my gross income. I’m estimating that my tax rates will be 3% higher than my tax rates today are and I’m estimating that I’ll receive 70% of the Social Security that the SSA says I’ll receive. It took a few hours to put together a spreadsheet that breaks out my Roth vs. traditional vs. HSA vs. Social Security vs. pension spreadsheet and get it to calculate my taxable and non-taxable income, but it gives me pretty good data to use to determine what my retirement lifestyle should look like assuming a 7% rate of return on my investments after inflation from now until when I retire.
I don’t care what my gross income is in retirement. I care what my take home after taxes and health care is!
Suze Orman says you need $10M, just in case, Dave Ramsey says you can spend 8% (in your dreams!), and sensible folks say you need to have enough to cover your ACTUAL expenses. Then ACTUAL retired folks are afraid to spend cause they're afraid to run out of money and fear unexpected expenses. So aim for covering your expenses PLUS whatever you think you need to calm those "what if?" fears. And there's the rub, those fears can get kind of nutty...
Agree. Nutty is the right word. People retire on near nothing and are generally fine but we are “guided” that it is never enough. Even the 1.35M in the beginning of the video is a lot. It is Nutty :-)
That’s why I listen to Erin because she’s a regular person who does her homework on what she talks about. A very common sense, smart woman
@ I have a few people I listen to. Justin with number crunch nerds, Jeffery Holy Schmidt and a could have others. Different perspectives. Have a great day.
@@drz400sy8 I like Holy Schmidt too, very level headed, with a seriously understated sense of humour...lol.
Suze who?
Between 2 SS checks, one pension check and two soon-to-me MRD's from our 401K's, we'll be making MORE than we did when we were both working! Everything we own is paid for with the exception of a mortgage of 11 years left at 2.5% interest. I'd say we're in good shape! Another good one Erin!
Soon to have MRD with 11 years left on a mortgage is tough.. but probably not unusual.
@@mrm7309 - In our case our mortgage is only 20% of our gross income per year.
How do you keep income taxes low?
You can earn about $124,000 to remain in the 12% tax bracket, and SS is maxed at 85% being taxes, so for most people, taxes really aren't that big a deal!
Always a pleasure Erin. I entered early retirement this year. My home was paid off and I had no debt. I ran some Monte Carlo simulations and met with an advisor for the macro numbers. On the small side, I looked at spending for the past few years and found it to be fairly consistent. Overall, I feel like I will be just fine (but hopefully better) in the long run. I've had some wrinkles this year (needed to get a new car) but that wasn't entirely unexpected. Health care is always a concern.
I retired early, using ACA for income. love how you get subsidies for showing low income
@@jimclark5037I hope the ACA survives Trump
This is why I never, ever look at my gross pay while forecasting for retirement...strictly take-home pay.
Same. I'm saving fairly aggressively these days. That on top of payroll taxes adds up to a hefty chunk. Better to look at realized income and actual expenses.
Eight years into retirement, I couldn't tell you what my take-home pay was. Expenses are what matters.
Look at your expenses. Not your take home pay.
@@hogroamer260 Okay, but you likely need to be mindful of your current income...ie "take home pay" equivalent in retirement?
@fdm2155 Everyone certainly can evaluate their situation as they see fit. But, if one is living on $50k, why would it matter if they were making $50k or a million? If you are comfortable living on $50k, I don't see why your current salary is relevant. That will be going away when you retire. I would be striving to achieve the income needed to meet my lifestyle.
To me, income is what an employer has determined you're worth to them. It really has nothing to do with the income you require to be happy.
Personally I prefer a good old cash flow analysis versus rules of thumb. Broad based percentages of income or percentage withdrawal rate just doesn't take into consideration one's spending. Yes, making a detailed all encompassing cash flow analysis requires some work, but it also lays out potential additonal spending capacity or cost cutting.
And even this can be simplified just by starting with net take home pay as a barometer for maintained lifestyle and add in a health care and tax expectation.
@@ValkyrieIA I was going to lead with exactly that but opted to generally show my dislike for rule of thumb analyses for a major life event.
Thoroughly enjoy your content Erin. Don’t think that some of us haven’t noticed that you’re getting close to 100,000 subscribers… We expect a celebration video when you hit that milestone!
It’s so close! Honestly, back in January, I said to myself that I hoped this channel could hit 100,000 by the end of the year. And it’s looking like that dream might come true. 😊🙏
@@ErinTalksMoney your success is well deserved!
We started retiring 4 years ago. Wife from PT at 63,and I went PT at the time she retired. I fully retired at 63 with just some minimal side gig of $1000 per month.
No debt! And, a budget help a lot.
We used to make over $200k. Now we do better on less than $100k. Wife started Soc Sec at 63, I’m waiting till 70.
Money goes WAY further due to extra time and a flexible schedule. We eat out less, but travel more. However travel is cheaper due to extra time and traveling off peak. Average about 10-12 weeks of vacation. We don’t buy “stuff” or clothes very often. I do a lot of maintenance and repairs. Way less taxes, more prudent shopping, no retirement contributions. Cheaper Medicare.
So we are less than 50% of pre-retirement income. We are considering increasing our fun spending even more, as we have a bit of a buffer. When I take SS at 70 ALL base spending will be covered just by SS except the travel budget.
Great video like usual!
I am pretty terrified of medical expenses when we grow old. That is my MAIN anxiety about retirement and aging. Having taken care of my mother as she died (and my parents have great insurance!) and seeing how just two months of nursing care obliterated their finances (they will only cover one of hospice or nursing care, not both as the illness progresses, leaving you stuck and bleeding!)
My retirement medical expenses have decreased since hitting 65 last year. Medicare is a godsend.
@@donwilber1628 unfortunately Medicare does not cover many of the expenses associated with long term care which can run well over $150K/year.
@@JBoy340a I’m well aware of that as I moved my mother to Medicaid just last year and had to sell her home so that she doesn’t have any assets. Your original statement didn’t mention long term care…somewhat different than normal medical expenses IMO. But yes, it’s something we should all be concerned about.
Hello Erin, When I first retired in 2013 I planned my living expenses around income from just Pension. Now, ten years later at 66, I have seen growth in my Roth IRA, IRA and regular brokerage accounts. I began using the online calculators "how long will my money last". With social security and distributions from IRA's I have tripled my income and the retirement accounts still are growing. My point is, as my own financial advisor, that yearly evaluation of IRA withdrawals should be part of everyones plans. My plan is not to leave too much money on the table but enough so my daughters will have something. Thanks for your content and love the bloopers.
Everyone who is approaching retirement and is anxious about their savings need to listen and heed.
😊🙏
As a soon retiree, keeping my 401k on course after a rocky 2024 is top priority. I have been reading of lnvestors making up to 250k ROI in this current crashing market, any recommendations to scale up my ROI before retirement will be highly appreciated.
The current market might give opportunities to maximize profit within a short term, but in order to execute such strategy , you must be a skilled practitioner.
Having an lnvestment adviser is the best way to go about the market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I nettd over $220K so far, that made it clear there's more to the market that we avg joes don't know
I’ve actually been looking into advisors lately, the news I’ve been seeing in the market hasn’t been so encouraging. who’s the person guiding you?
My financial advisor is Annette Marie Holt I found her on a CNBC interview where she was featured and I reached out to her afterwards via her website
Thanks a lot for this recommendation. I just looked her up, and I have sent her an email. I hope she gets back to me soon.
I like how you used percentages and actual dollar amounts to explain retirement spending. I am using my annual expenses to determine how much to save for retirement. For example, I have been tracking my annual expenses for the last 3 years using Capital One (Empower now). I plan to continue tracking my expenses for the next 10 years and use that information to determine my estimated retirement expenses. I find tracking expenses is easier than using a pre-retirement income % as a way to estimate retirement expenses. The best strategy for planning for retirement spending is to know where your money is going, as you pointed out in this video (e.g., mortgage, FICA taxes, etc...), to understand how withdrawal's in retirement will likely be dynamic vs. static (as you mentioned), how much fixed income one will likely recieve in retirement (e.g., pension, social security), and to understand the different ways retirement income will be taxed (Traditional IRA's vs. Roth vs. Brokerage accounts). Regarding your comment about some people may need to save 20% less is true in many cases (very extreme conservatives would fit this category). Bottom-line though is the more one learns about personal finances, the better one can plan for retirement :) Thanks Erin for this video and the other ones. I have enjoyed them.
This is what retirement looks like to me... NOT having to work for "the man" any longer and no annual reviews. Fortunately, that does not require too much money. Much less than what the financial experts claim.
Fresh air is still free. Last I checked. And going for a walk or run at the park is a good time in retirement to me.
My dad is retired and doesn't have much material wise (he gets by) but he has no boss or customers/clients and that is rich to me. That's my goal and it gets closer every day.
We can definitely have a rich life without having to be rich!
Exactly my perspective.
oh yeah! buy a fishing pole and kayak and you'll be having a great time for almost no money. I love my walks on local trails!
You nailed it. I overestimated my retirement income needs by about 25%. I have friends who are working longer thinking 80% is needed. Can't wait to share this one with them.
So you're saying they can live on less than 80%, can retire now, but they don't realize they can live on less than 80%? Maybe they just want to have more money in retirement? There is no rule that says you have to retire once you reach FI. I know several coworkers of mine who can retire today if they want.
@@TheFirstRealChewy Oh, they want to retire. I just think more sources of information on what to expect in retirement will help them.
It's all about your expenses. Rules might make a good guideline years ahead of time, but once you get close to retirement, look at your actual expenses and base it off that.
I saved enough to rep;ace over 100% of my income and here is why. I am divorced and live alone. My children are not nearby. I don't own a home so I pay rent and I have no long term care insurance. I have enough to self insure. I feel I have enough income to cover nearly all eventualities. I talked to my daughters and they are pleased that my finances are in order. They said all of their friends are, in part, supporting their parents financially. One more thing, this stint of inflation has been problematic for many. It has lead to wage inflation. Things cost a lot more now.
I encourage young people to front load their retirement accounts to a point of screaming for a 5 year time frame. I mean put as much money as possible in these accounts. For my two daughters for every 1 dollar they put in I matched with 2 - [ I did this ONLY for the 5 years; you think I'm Bill Gates or Warren Buffett? ].
WHY???
The answer is simple; simply more time compounding with larger starting amounts.
If only they would listen.
My kids started their Roth IRAs in high school. Each had $10,000 in their accounts and another $10,000 in taxable investment accounts by the time they started college. They still contribute and invest regularly. I hope that they can become millionaires by age 40.
I started tracking every dollar on income and expense 5 years before retiring. By the time I retired, I knew exactly where I had been spending my money each month. That's not to say that I had a crystal ball about future events ... but I had a pretty solid idea of what my retirement budget would look like when I retired.
Sun's out, guns out!! 💪💪💪Looking fantastic, Erin!!!🎉🎉🎉🎉
You’re so smart. I figured all of this out on my own several years ago when we began our retirement plan. When I retire, I will only need to replace 40% of my current income. Of course, we are working towards having a bit more than we need. Unexpected expenses happen and we’re a bit leery of potential inflation.
Great analysis on the false claim of that 80% rule. Two additional points. While you mentioned healthcare, medical insurance premiums and deductables will be higher, even for medicare. Second, SS must be included, as it is part of that 80%. My SS at FRA will be about 36% of my income at retirement. Once my wife collects, our combined will be about 56%. So, that, along with the 15% savings rate and FICA, that means we need about 20% of my salary in retirement from our savings.
Great point! SS is part of your retiremnt income as well, even if you do want to keep using the 80% rule.
Insurance is cheaper on Medicare with a supplemental, than while working for us
@@randolphh8005 Not sure who "us" is, but most employer sponsored plans, even with employee participation, cost less to the employee than medicare will be, when considering premium costs and deductables.
@@jdgolf499 Us is my wife and I. The current Part B premium is $175/month. Part D is $0 per month. Wife has Supplemental Plan HDG at $46/month. That works out to $221 per month all in. Her max deductible for health is $2700. Her meds are tiered, but it works out to $15 copay per month. So meds are similar to private, but premiums are much better and deductible and max out of pocket are better.
For myself the same $175 Part B and $0 Part D. I have Supplemental plan N at $165 per month with a deductible of $240 per year, and a $20 copay for some office visits. Total premiums are $340 per month with max annual deductible of $240!
Combined that is $561 per month with max deductible of less than $3000 per year.
We paid much more while working and had much higher copays and deductibles! We were on ACA plans which were a bit lower with a premium subsidy for 2 years, but they had huge deductibles and copays.
We worked in healthcare also, Medicare when done right tends to be much cheaper than commercial and even employer sponsored plans. We were paying between $800-$1400 per month in the past for less coverage on employer plans.
We initially budgeted $500 per person per month for healthcare. We are no where near that now.
Erin, you are a very sharp gal who really knows her stuff. My wife and I are in our mid 50s so we’ve been talking. We have lived on a budget our entire marriage, own our home free and clear, college accounts for the boys and have been savers. We also determined that we’ll need about 60% so your math completely aligns with our assessment. Nice work and great video!
Thank you so much for looking at the real data and putting it to examples. We all hear the "4% rule" and "80% rule" as if they were written on tablets of stone. Ever since I've seriously looked at retirement I realized that 1) I will no longer be saving for retirement and 2) I will no longer be paying state tax, SSI or Medicare tax. Finaly, I won't be saving for post-tax investment. If I add all those up, I end up needing way, way less per year in terms of gross income to replace my current net income level. BUT every single tool starts with, "what is your current gross income" and runs from there. Then they adjust for inflation at a set rate per year and increase the withdrawal rate based on that.
I know from my parents that speeding actually goes down over time as you age and have less energy to travel, etc. In fact my parents actually ended up putting money in savings after taking SSI and RMDs as they got older.
Thank you for this, Erin! I always find these videos lacking. When "experts" create these videos they do not tell the whole story. What is the proper withdraw rate and how much do you need, not taking Social Security into consideration. Percentage of current income to retire is another. I agree with you, 80% is overkill. No one talks about that fact you no longer need to count the 15% for investments. Or, you no longer pay the FICA tax. One other expense to consider is the reduction in taxes. Not bringing in as much money will reduce your tax burden. As I get closer to retirement I seem to be focusing more on reducing the amount going out rather than coming in. There is that psychology thing.
I had been tracking expenses for years before retirement, so had a good projection of what would increase, decrease or stay the same. I think everyone should attempt this rather than relying on a rule of thumb. With downloadable data from banks and credit card companies, it’s not too hard to get a fairly accurate picture. Three years into retirement, our overall expenses have actually increased, primarily due to travel.
This is a great video! It’s the only one I’ve seen that clearly talks about reductions caused by lower taxes and not needing to save. I retired and am spending about what I thought I would, but it’s much less than 80% of my former salary.
Your outtakes are always so endearing
I want to say thanks Erin - been subscribed for a few years now and you are one of the few people in my "money advice" rotation I think back to and reference while giving myself or others advice. Thank you for explaining the nuances & broader strokes on an informational basis!
A fan of the bloopers at the end too because you're well-spoken, and we ALL goof up trying to execute that sometimes 🤣🤣
Wow, thank you! 😊
😁
There's an old book called Retire On Less Than You Think by Fred Brock. I highly recommend it. Another newer one is called "How To Retire Happy, Wild and Free" by Ernie J. Zelinski. Both good reads and they challenge the modern retirement theory.
Erin Talks Money, today is Thanksgiving day I have much to be very thankful and grateful for
first of all I lived 67 years and 2 months and 29 days on Gods earth, next I been retired for 9 years
and 8 months 3 weeks and I have my house all paid off Zero debt, to me that more than amazing it is a big Miracle. Thanks Erin, for your videos I actually listen and watch many youtube videos most of my space time since I was super blessed with a great retirement.
Know your expenses - another great video from Erin. When you rollup your take home pay and see where the money goes each year it's easy to see the starting point of expenses and understand your budget. After retirement, as indicated here, you will see many of these expenses change and get a better idea of where you are headed and if you had been planning for 80% of your salary as income, the "buffer" becomes very noticeable.
Great information and I love your out takes. Thanks for great content
We moved from the suburbs ($9,000 per year property taxes) to a more rural area ($2,700 per year). That helped a lot, with a slight house downsize at the same time.
The down-side was we are now electric only. whereas we had gas, water, and sewage in the burbs. We now have the option to burn wood for heating.
However, we decided to install solar with batteries to help deal with the frequent power cuts. That was expensive. We are also investing in heat pumps and more economical appliances.
In essence, we are spending more of our savings to reduce future electricity costs and increase energy security and independence.
Figuring this all out beforehand would have been impossible. For example solar panel and battery costs have plummeted in the past few years.
We also have solar and batteries at our suburban home. We have high electricity costs that just keep rising. But with the solar and batteries we have almost no electricity bill. We usually pay the connection fees of around $11/mo.
Great video. Start saving for retirement when you are young is a must. Being debt free really gives flexibility in retirement spending. I love how you talk with your hands. If ever you are short on subject matter, I think you could do a best of half hour of bloopers! I would watch. Of course I'm retired with a little time on my hands.
Good video. I agree 100%. I just retired and looking at replacing 50% of gross income, which is approximately my current take home pay after 35% tax and 15% for 401k and other savings. In addition, SS will cover 30% if that amount, thus my retirement savings only needs to replace 35% of my gross earnings.
Great video Erin. I’ve thought a lot about this topic. I always felt that 80% for my circumstances was way too high, especially because the last 20 years before I retired I was saving around 35% of my gross salary. I have been retired now for 3 years. I monitor every penny of my spending using a budgeting app. I am spending 39% of my last year’s salary. I am a widower so I don’t have an active social life and rarely go out to dinner as I don’t like doing it alone.
I don't like going out alone either! Really makes you save a lot on food though!
@@ErinTalksMoney I can eat much healthier as well.
I never understood why people start and say 80% of your income and justify it because of you won't be contributing to retirement any longer. Why not just base it off your take-home pay in the first place. That would factor in things like retirement contribution and such
I’m aiming for 55%. Ran the numbers and estimated our living expenses at 65, 75 and 85. Fidelity has a really helpful worksheet for this. I even did my taxes based on my estimated age 65 income, assuming all of today’s codes of course. Really fun exercise.
I am SO excited for this video 😊
😁😁
Bo is that you?
@@Andrew-rv1xq No I just love the money guy show
Believe it or not, giant financial companies might have incentive to scare the pants off you. "You need to save 10% - no wait 15% - no wait 20% - at least. Do this for 30-40 years, preferably max out your Social Security so you don't have to withdraw as much from 401k/IRA. If you do all this you can withdraw 4% for 20 years and MAYBE not have to live on cat food."
Saving and investing (two different things) are great but never forget the incentives of the person selling the product.
Absolutely true. And from a person who despises the shady, self-interested side of the financial industry, I can still say you're best to save as much as you think you'll need (plus!), aggressively (cause half the population gets "retired" earlier than they planned), and ensure you're paying the lowest fees possible. Do it for future self, and don't forget the "plus" part, for peace of mind and the odd luxury 🙂
So true!
@@dstevens518 thanks... i saw an awesome quote the other day, the guy said "discipline is nothing more than doing a favor for your future self." Here is to good discipline and erring on the side of caution!
The history is after WW2 Wall Street came up with the retirement idea as we know it. Retirement is the same as college costs, for example. Wall Street needs you to buy their products in large bulk to clip pennies per thousand. It's just capitalism at a large scale.
Erin, what do you believe we need in retirement. Are you planning for 100% and a 4% withdrawal? What are people planning for?
Just asking. I hear a lot of what we should be doing. But I wonder what people goals actually are. B/c we all fight to survive and make what we have work.
Genuinely, my retirement is probably about 30 years away. Maybe in my late 60s. I’m not planning on using the 4% rule. I would draw on an as needed basis. I would plan on maintaining my lifestyle that I had in my pre-retirement years. I would base it on my actual expenses. And I think being that for me, it’s so many decades away, it’s hard to put an exact figure to it, cause very likely my Life will look very different two or three decades from now.
So I can solidly say this. At the age of 37, my goal is to continue to save aggressively. My goal when I hit retirement would be to go into retirement with a paid home, and the ability to maintain my standard of living that I had before I stepped away from the workforce.
80% is way overkill. My top 6 monthly uses of money in order are 1. Mortgage $4700 , 2. Investments/Retirement $4500 3. Taxes $3000, 4. Health Insurance $1200, 5. Vacations/Travel $1200, 6. Vehicles $800
When I retire...1. will be taxes and insurance only $1000, 2. nada $0, 3. way lower $1000?, 4. Medicare $500, 5. OK, I'll keep that one $1200and 6. That one will be about the same too $800.
Still, adding it up, I'll be cutting my uses of money less than in half: 4500/15400 = 29%....probably closer to 50% once utilities and food are factored in.
wow - that is a large mortgage
I assume you're putting extra towards the mortgage, otherwise downsizing would make retirement a lot easier!
@@semimba Not really...it's just a 15-year conforming mortgage - not a jumbo.
@@thedopplereffect00 Nope - not putting any extra. It's a 15-year mortgage, with an original amount of $548k at 1.99%. The house is worth about $1.6 million, and I'll probably trade it for a house worth half as much when I retire, taking the tax-free capital gain.
@@andrewdiamond2697 capital gains exemption is capped at $500k for married
Also, you can save on transportation. You won't need two cars and no more commute expenses. Car insurance should reflect less miles, dont forget to try to lower car unsurance.
It makes sense that the more you saved monthly, the less you willl likely need to plan for in retirement. Good video & food for thought in preparing for retirement!
Great video! I was going through this exercise myself, but it's great to have your numbers and charts to help out!
Running scenarios with 80-90% of current Net Income, but I will adjust yearly as needed. If the markets are down then likely lower than 80% and if the markets are up, maybe more than 90%. I have always lived within or below my means and feel comfortable that with all the great information from your videos as well as others I will be ready in 5-8 years to retire.
Love the bloopers at the end 😅. The advice is good, as well.
Great video, and very accurate. In my case, I no longer had a car payment (or any other debt) and drive significantly less. Moving from NY to FL saved an additional 6% in income tax and 2% on real estate tax. On top of these, people likely will pay less federal income tax as they are spending less, Medicare is typically less than health insurance and social security is taxed favorably.
I'm always grateful to see people giving advice that doesn't follow the "rules." I'm currently only living on 30% of my income if I take away the savings, housing, and fica that you described. So, I always thought the whole 80% "rule" was ridiculous.
Great video! I'd thought about the mortgage payment but not the other stuff. Now that you pointed it all out, of course it makes sense! Thank you for this, I follow several financial youtubers and yet I'd never seen such a clean, simple breakdown of this particular topic.
Thank you so much for watching watching
We were both 6 figure earners in our final 10 years of working.
We now spend 100% of our bring-home income. That number is no problem as long ss markets do well. If they tank we can adjust accordingly.
Our set spending is approximately 36% of our income. Insurance, taxes, food, and all other monthly bills. Theoretically, we could cut our spending back to that set amount.
I really didn't look at our salaries, but our bring-home. I used the 4% rule as a guideline. The 4% rule is a good place to start. We hammered our savings after the kids were gone and had our house paid off by age 50.
Great video, thanks. My wife and I pull in just enough retirement income (401k, part time work, ss) to stay just within the 12% tax bracket. I see the 22% tax bracket as a 10% penalty added to the 12% tax bracket. This is more than what we need as our goal is to lower future RMDs and excess funds goes into brokerage account.
The 80% rule is so basic, I feel it does more harm than good. If you spend decades working during your career, it would behoove you to perform more than one 1st grade math operation to plan the rest of your life. Start with cost of living when determining retirement planning, and then work your way backwards instead of throwing the 80% dart and hoping it all works out. Good video.
That’s exactly what we did a few years before retiring and again a few months before. We ran 0-based budgeting over a full year which gave us our true cost of living. Those values were then used in retirement calculators that allow bypassing the 80% of income rule (think Boldin).
And that’s how we realized retiring at 56 was a reality.
Great advice, well presented Erin. Thank you. Just as with pre-retirement savings, self discipline in consumption and eliminating debt have made retirement spending for us readily achievable at the lower end of the range you discussed.
My bank has an awesome feature where you can categorize every expense and get a summary report per month. I have a pretty comprehensive spreadsheet I keep that tracks all monthly net income, expenses, and investments. It took a while to establish what the "budget" should be, but now we plan ahead. In retirement, things like a mortgage, broker account deposits and expenses for kids' activities and helping with college should go away. So we plan to have less than 80% of our current expenses. For retirement planning, I can use that number to reverse calculate what our gross income needs to be to net out to what is needed in our pockets.
Regardless of percentage you must plan for increases in cost of living. You should be planning on increasing income by x% percent per annum. Setting a fixed percentage seems a little dangerous.
I am on board with all the people here that are more focused on their expenses. When you are within striking distance of retirement it is not too hard to look at how much you spend every month. Even if it as rough as our take home pay is $6k per month. I save $2k of that and we carry no credit card debt so assume your expenses are $4k per month. From there do any modifications around home being paid off, purchasing health insurance, etc. and that should get you a good rough estimate.
I know this is really rough, but it seems to me a better reflection of reality than a percentage of income. If your asset base can generate that level of income, put in a more detailed plan until you feel good. If you are not in striking distance of that sort of rough estimate, you likely are not ready and able.
We are working with a financial advisor and we came up with a number significantly less than 80% or even 50%. We expect to be debt free when we retire, but we want to enjoy retirement so we are accounting for travel, etc. But yeah, it's definitely a more personalized number for us.
One factor that was a major difference for me was health insurance. When working it was mostly covered. I paid $672 a year for my coverage. When I retired I paid $7000 a year for the same coverage. During my retirement orientation ( I still have their worksheet!) they gave an amount of $400/mth deduction but the reality was that it was $574/mth. I called and was told they made a mistake. Nonetheless, that was 2017. Now the insurance is $611/mth. So for me I gave up a mortgage paying off my home for retirement and replaced it with an insurance bill.
We were good savers (well, my wife is), I took SS at 70 and she took it at FRA. She has a small pension and between the SS and pension, it covers about 80-90% of current expenses. (we do have a mortgage of 2.95%). Love your UA-cam. And, as I said before, you look very nice in the black dress.
This was very informative and very thoughtful way at looking at my retirement plan
Thank you so much for watching!
Love the goof ups segment at the end! Some really accentuate your personality. Good presentation of the topic.
Great video.
I'll be shedding my car payments in the next 4 months. Our house payment within the next year.
I just had to re-roof our home, so thats a big expenditure out of the way.
I'll be retiring at 60-61... I'm currently 58. I'm looking forward to the freedoms and less that hopefully come with retirement.
I'm 59. Last week I had a meeting with my financial advisor. After plugging in all the numbers, monthly expenses etc and accounting for travel, he said I can retire with with 99% of what I need to live on until 92. So if I wait a few months until I turn 60 it will jump to 110%. Not sure how they can predict this with not knowing what inflation will be.
We started at 102% of our spendable cash before retirement. This covered our basic expenses and some fun expenses. Since the stock market was so good my first five years of retirement, I spent additional funds on a boat,dock, lift and a whole house generator. Then we spent money on great vacations.
The last couple of years we are spending our basic expenses since the market has been so poor for us. We have some fun money, but less than the first five years. I am hopeful that things will improve in the coming years.
This was very helpful Erin. I hadn't thought about how much I pay into FICA as a savings once I reached retirement. This was really good perspective.
Glad it was helpful!
I'm within a couple of years of retirement and I luckily have a small pension. That combined with Social Security will essentially replace my current take home pay (after my taxes, insurance, HSA, and 401k contributions) so my withdrawals will mainly cover taxes and travel.
While younger (18-30's) your goal should be at least 100% of your income, meaning you contribute as much as you can to retirement. In your 40's (generally your highest point for income), you should really be maxing out your contributions. By your 50's you can start to assess your needs vs wants and determine if you've managed your financial life well enough to be where you wanted, and if your house is paid off. By your 60's you will know if you can retire when you wanted or will need to work longer.
Great minds think alike I just wrote the same thing regarding young people.
My wife and I have just closed in selling our house and will use that money on top of the monies we and saved and will rent. I'm done with all of the maintenance of home ownership time to let someone else to that for me along with those up front costs.
Even with rent increases that I see coming down the pike our pile of money is now so large even the up scale apartment rent plus increases will never have a draw down all the way to zero. If that was to occur then the U.S. will be in a Mad Max situation!
We are 65 and 67 and retired.
I disagree on the aggressive saving when young. A balanced approach is better. We spent a lot of money when younger on travel and experiences, and don’t regret one dime of it. We still managed to save, but as you get older health and lifespan become real issues. Just this month I learned one close friend age 65 needs open heart surgery, another age 70 diagnosed with Stage 4 pancreatic cancer. I was told last month I will need hip surgery soon. A LONG HEALTHY RETIREMENT IS NOT TO BE ASSUMED EVEN IF YOU WORK ON IT.
Health usually runs out before wealth!
We’ve been living way below our means and are hoping we can break the habit of not spending…
For 90% of my work life I made
I would only count projected expenses towards my retirement number.
A higher savings rate means you keep your expenses low so you need less money to retire than your gross salary. It can be used to estimate how long you take to get to your retirement savings requirements.
However, you should know your required expenses vs entertainment expenses and plan accordingly.
It’s the only way to know you have enough.
This is an awesome post! I love how you broke this down. I just retired early this year, and I can say I agree with you. I fund my sowbding is way down and given my house is paid off and all other debt as well. While working I wqs saving 30% so my financial advisor actually wants me to spend 40k more a year then I can accept haha.
But hey it is an awesome feeling to know I can live comfortably without ever really needing to touch my retirement accounts thanks to thr great annuity and planned social security.
Common sense explanation. How much one needs in retirement totally depends on future expenses rather than a % of current income. True.👍
As I am getting close (5-7 years away) to retirement, I am paying attention to monthly spending. I don't care what the category is, I just want to know what goes out every month. I don't anticipate that changing greatly in retirement. It might go up to accommodate for greater ability to travel. So I am shooting for replacement of actual monthly spending, minus the mortgage as I will have that paid off, plus additional $ for medical and travel expenses. That gives me the number I am shooting for.
I am planning on retiring "early" so the $ needed from saving will reduce significantly once SS kicks in, but that is all part of the plan. Withdraw at a higher rate early, first 7-8 years, and then reduce significantly once SS kicks in. Then by the time I reach RMDs I will probably have more $ than I ever need shoved down my throat, but that is a good problem to have.
Retirement is completely based on projected annual expenses. It's smart to have a buffer for any unexpected expenses as well.
We will still have a mortgage when we retire. But one thing I find quite interesting is that she assumes 0% income replacement from social security. Did I miss something there? I understand the future looks like it may be cut, but down to nothing? Also, medical expenses may increase, but you also get Medicare rather than paying health care premiums. Redirecting your health care premiums + current other out of pocket is likely to be as much as or more than monthly medicare costs (e.g. we're paying $600/mo for premiums right now, excluding copays and such). Basically, I'm targeting minimum 70% current spend in retirement, made up from investments, social security, and a modest pension. I'm looking for the investments themselves to be 40% of current spend.
Personally, I don't find much value in making a retirement expense estimate based on one's income. A person with a yearly income of $80K may need 80% or 90% for post-retirement expenses. A person making $300K, based on their lifestyle, may need 80% to 90%, or may choose to reduce their lifestyle and live on 50% of earnings. A lot depends on one's lifestyle choices, as well as other factors such as health, etc. I retired 14+ years ago at the age of 56. At the end of my first year in retirement, my actual expenses were approximately 60% of the full year income from my last year of working, but my income was fairly high and in the 90%+ US income group. In my case, my relatively high actual yearly retirement expenses have remained high over the years. As an example, I own my home mortgage-free, yet the yearly expense for real estate taxes, maintenance, improvements, insurance, etc., have easily averaged $30K to $35K per year. Medical costs (premiums and out-of-pocket expenses), along with income taxes, transportation and food have dramatically risen over time and are big chunks of my budget.
Before I retired at 56, I created an expense type budget at 50 and monitored my expenses versus my budget. I did this for all of the years prior to retirement to verify that my budgeting was reasonably accurate, and also analyzed my potential income in retirement to verify that my wife and I could retire in comfort. I used actual expenses data, over time, along with verifiable income data, rather than using someone else's estimate as a percentage of income, to determine if and when it might be prudent to retire. IMO, people have to do their own homework by analyzing their current and future lifestyle, to determine if/when they might wish to retire.
Tired of guessing and hearing conflicting opinions, I decided to do the work in 2024 to track where my wages went this year. I know how much I make. I know how much they take out for taxes. I know how much I save. Everything else was either spent on family or personal expenses (this is the hard bucket to track so I focused on the easy buckets to track). Based on just 2024, I now know my family and personal expenditure amount per year. Or at least I will as of January 2025. What I found was very eye opening. Originally working toward 100% salary replacement in retirement funded by retirement savings, this was overkill. As you mentioned, the need to save and removal of FICA taxes was huge. All in, I need about 1/3 of my current annual salary in retirement to maintain my working standard of living and pay my annual income taxes. Of course I'm still working toward 100% working salary replacement, but now have much more peace of mind in case I come up short of this goal. For those a couple of years out from actual retirement, I would encourage you to try following your own money for a year and see what it tells you.
Thank you for the bloopers. I am shooting for a 65-70% as we will still be paying mortgate P&I
Also, keep in mind, at 65 you can qualify for a reduced property taxes or qualify to freeze it from going up, some can deferred the taxes until death. Seniors also tend to eat less due to declining appetites or just being more health conscious.
I find trying to plan retirement around a percentage of your current income to be very difficult. What we earn now may not be the same three years from now. For me it's much easier to simply look at the budget and our monthly expenses. That gives me the confidence to know that we currently live on about half of our income and can continue that into retirement.
One thing not mentioned here is the cost of raising children. I believe the most recent updated study indicated that raising a child from birth to age 18 was around $250,000 give or take. We have four. When you remove the cost associated with raising children and even if you replaced that with assumptions oncost for a travel and gifts with grandchildren, this is a pretty significant reduction and incognito as well.
Retirement isnt a one size fits all, as you pointed out , their are different variables for everyone..Great video Erin..
I retired four years ago. I always looked forward to retirement and truly enjoy being retired. My spending really dropped off. With not going to work I don't spend the money on gas, don't eat out and don't have to buy clothing, business clothing. Plus, if income is reduced your taxes go down. With the tax savings and reduction in spending I easily saved $20,000 per year.
Subract social security as well. There goes another ~$40k.
Ours is about 45%. 80% is crazy for the vast majority of us. Especially later in retirement when you’re not traveling as much as quite frankly you just don’t buy as much stuff.
Yes you should not use 80%, look at your specific case for what current expenses can decrease. Another big item is you might only need one car, instead of two. You normally don't need life insurance either. And if you downsize and to a lower tax rate area that can make a big difference.
it really comes down to 2 things. Is your house paid for and what lifestyle do you want to live?
If your retirement savings can cover all your base needs, SS is you play money. That is where I personally would start. But then again I plan to live it up, so I am taking an investment strategy to live off Dividends cause if done right they will keep up with inflation and never have to touch the principle. But that takes time and discipline, its not for everyone.
I retired at the age of 57 with 53% of my income.
I do not have a fully paid off home but I do have 2 rental properties that help me offset my income.
We are doing well financially but if we get into trouble we can sell one of the rental properties.
Let me encourage you with this, forget about working "that" extra year. Time is short and we never know our last day on God's earth.
Whatever you do, please start saving and stop buying stuff/junk you don't need and remember that your kids are just going to throw away most of your stuff/junk.