How Much Do I Need To Retire? Why I Disagree With Fidelity. Think Twice When Planning For Retirement
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- เผยแพร่เมื่อ 1 มี.ค. 2022
- How much do I need to retire is one of the most important questions you'll need to answer.
So when I saw Fidelity's recent article on a retirement strategy I wanted to share it with you.
This video can help you so that you don't start planning your retirement in a way that could cause an issue for you in the future.
-Dave Zoller, CFP®
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The thing is, everyone's retirement situation is different. I retired five years ago at age 61 and only had $130K in my retirement portfolio, BUT I had made sure my home, vehicle, loans, credit cards and any other debts were paid in full before doing so. I also left southern California and moved to a less expensive area of western WA state. With no mortgage or other debt I live quite comfortably on $3K per month and am still able to sock a few hundred dollars away every month. I don't take lavish vacations, I don't eat out very often, but I do still travel to destinations that are within 1,000 miles of me a couple of times a year. I also shop thrift stores for about 60% of my clothing and hobbies (I like to knit). Where there's a will, there's a way.
Can you explain why I need more money at death than I do at retirement? A gradual reduction seems like exactly what I'm looking for. Uncertainty means I need to be conservative but to plan for a goal that my account never diminishes seems to require working longer than necessary or living a reduced retirement lifestyle. Thanks.
Many people don’t reduce their spending because they still owe on a mortgage it have rent. Also, what percentile of the US population earns 170K or more? Or has 1.7 million in retirement? You should do one of these examples where Amy is middle America making 60K per year, but has her mobile home paid off.
Retiring at 58 with $1.5 mil saved. That will just have to work.
I’m retiring before I turn 60 this year with a lot less than 10X my salary saved. My net worth isn’t even 10X my salary… My friends call me frugal, and I have no one to worry about leaving them money. Everyone is in a different situation.
I don’t want to DIE a millionaire. If I leave my kids some money , great, plus they will sell my house for 400k I think that’s ok. If nothing left in my Ira when I die that’s ok! Stop thinking about your kids unless your kids are paying for YOUR retirement. I didn’t pay for my parents retirement
Maybe I missed it but what about Social Security. Was that included
in the math.
I think people can live on a lot less than what they are being told.
It all comes down to EXPENSES like do you have a mortgage or outstanding auto loans or debts
I agree. I lost 25% of my investments in the last five months. Probably ten years of retirement. You really need to take into account inflation
I’ve retired in the Philippines. SS is $2,400 month. Investments as of today are $750,000. Was $960,000 1/22 oh well. Monthly rent in a very nice condo next to a great beach is $1,000 per month. Life is good.
The BIG problem with all of these scenarios is that they are mostly just assumptions, and what-if's. You have to be adaptable to the ever changing economy. Have enough in your budget to cover the day-day basic expenses every year, and if the economy is booming along, then enjoy a bit more of your savings during those times. And when the economy is dropping, then you back off to just the basic needs for that year, or time period. Don't lock yourself into saying I need $$$$ every year and get yourself into trouble - you must be flexible!!!
Average lifespan for American males is 78. My personal retirement plan has a 30 year draw down, I intend to be broke at that age. ✌️
I plan on enjoying my savings and retirement and not passing it on for someone else to enjoy.
The answer is, a lot more now than 2 months ago…
I was an investment advisor. The advice in the video is excellent and true for the typical American. But for people who have a good portfolio of about $5m, if you look around, most people are still active at 70 (I live in LA) but by 80, not so much, so enjoy yourself at some point before it’s too late. That nice vacation will pay for your last week in the nursing home. There is a difference between wasting money and spending it. Be value-conscious.
I think the Fidelity analysis was for someone making a little less. I hope someone making 170K can afford some real advice. But someone making 70K, which is about the medium household income would make a good test case. Guess he would get about 20K in SS, draw 4% of 700K per year or total of 47K to spend (includes taxes?) ==> 67% spending ratio which is about his take home pay anyway. Plus, he gets cola's on his SS and his initial 4% withdrawal rate.
I agree that everyone is different and needs an individual retirement plan. However I think Fidelity is actually in a better average ballpark in reality than most retirement calculators that actually often assume a way too high 80-90% replacement rate for a majority of people - ironically especially those with higher than average incomes that have saved a lot and lived below their means - and happy with their spending levels. I am single and retired at 56 and spend about the same as when I was working BUT my pre-tax income is only 35-40% my pre-tax income when I was working. The first factor is no longer paying FICA taxes and half the combined Fed and state income taxes I was paying while working. Most people discount this snd it’s a HUGE deal! Also to save 10x my final salary by age 56, I saved aggressively for retirement - esp my last 10-15 years working which was further boosted the last several years after I paid off my mortgage. So, I have much less in taxes, no mortgage or debt payments, and I’m no longer saving for retirement - so I can spend the same as I’ve been accustomed to long term and am happy with - and I do it on 35-40% of my pre-tax income. My distribution % is well below what is recommended.. and when I take SS I will need even less. I feel comfortable because I’m not cutting it close or depending on no unexpected expenses. Unless you go through the proper individual planning far enough ahead of time, you could end up working TOO long OR not saving enough and have to work TOO long! I think a lot of the financial planning calculators and articles are too much fear porn actually that do a disservice to many people! I think for someone who saved well and lived a bit below their means the Fidelity Tool is pretty good place to start.
Retire at 67, that's 10 years wasted already.
Fantastic advice.. My financial advisor started out showing my money lasting until I was 93 also. The truth is I am 67 and have copd. So 93 isn't an option I don't believe. I am out of debt and own my home. So for sure getting out of debt was a huge benefit for me before I retired. Thanks for sharing your thoughts with us!
You have what you have. And that's it.
The valuable point is made that a "rule of thumb" is not a good way to measure your own unique situation. But in this example, where there is disagreement with Fidelity, the point is iffy. Even when adjusting for much higher retirement income or lower returns, the woman in the example still has 500K or more at age 93. For the overwhelming majority of people, that would be a great outcome. I think Fidelity makes a fair point in "targeting" 10x savings of income. Many, perhaps most, will do quite well if they achieve that target.
Thanks for you opinion, but most of us don't have near a million dollars saved.
We currently live on about 30% of our take home. Much less if considering gross income. In retirement, we plan for increased travel so we will experience the "retirement smile". That curve that has an increased spending in early retirement and then slows in mid retirement or as you get older and then picks back up should you live long enough to experience more health needs. Since we have no debt, house paid for and have been doing all the large remodels and upgrades now while we are working so we won't have those large expenses later. Also our investments , etc. only have to do the heavy lifting for 8 to 10 years. Sometime in there we will turn on SS which in my case will almost cover all our household expenses at the time. So less need to pull from investments after that. In truth if both my wife and I turn on SS, we will have more money coming in than going out just on SS alone ! Good place to be because everything after that is just gravy money.
Any article that stats a certain number times your pre-retirement salary should be dismissed right away. Everyone's situation is different. Expenses are all that matter, not how much you have. Also, why aren't you including SS in this calculation also? If she was making $170k for a good chunk of her career then her SS is going to be pretty high...probably almost the max, which I believe is near $4k at age 70....that's near $48k per year. Then she would need under $30k from her portfolio annually.
Personally I’ve always taken that 10x to 12x estimate as a way to scare people straight because very few people I know who are saving know how much to save - and I’m guessing what they do think they’re shooting for is far less.
It’s certainly not perfect but I think it’s a good starting point - have at least 10x/12x saved and you should be in a good position.
Or I would say that if current inflation, market instability, and how questionable our dollar remaining the reserve currency has me very worried no strategy is good enough.
Great topic and great content too !
You’re pretty much right that each and everyone needs different retirement plans because there isn’t a defined formula to achieving success in life, and retirement isn’t left behind. To me, retiring is one of the most easy thing to do just that people haven’t really realized that!
I definitely agree-- simplistic calculations based on a certain number of times one's income are bound to be inaccurate since they don't take into account that you might be saving half your salary, or very little at all. Going by your current living expenses might be a better place to start, and also considering if you expect to be living in a higher or lower cost of living area, once you retire.
Retirement is simple. Be debt free! If all you need is food clothing and shelter you don't need millions.
What you have to do is save as much as you can and then, near retirement, reduce consumption to reflect a reasonable drawdown rate on what you’ve saved. The yearly amount that you spend in retirement can be any percentage of your pre-retirement income that you choose.
Fortunately, I had a college economics teacher that taught me a lesson at 18. That lesson was: for every purchase you make, you can't buy something else. Varied sources of income is wise and especially living within your means. Think about taxes and how you get your income. I made $72k combined net last year and paid no Federal taxes.
Talk to a friend or family member who is retired! See how or if they down sized, ask questions. See what expenses decreased such as commuting and which ones increased. Then plan accordingly.
Vanguard and your presentation don't include social security benefits, our combined benefit is $50 k per year which is $1,000,000 in the bank at 5% interest, and it's not affected by market. So, planners need to use all the income numbers.
1. Be debt free and own your home
2. Have a pension
3. Have Social Security
Average lifespan for American males is 78. My personal retirement plan has a 30 year draw down, I intend to be broke at that age. ️
I think that I will need 80% or most likely more of my current income in retirement. 45% seems unrealistic unless you seriously downsize.
Interesting content as always, videos like this and insight from an expert goes a long way.
Wow, thanks for breaking this all down. Excellent!
It seems like all the “save this amount by this age” are really front loaded. If you’ve saved 3x by age 40, returns alone should double that by age 50. I realize the salary might go up some, but that’s not a challenging savings rate. And after 50, return alone should easily take you from 6x to 10x at age 67.
Thank you. You point out exactly our concern when retiring. The Monte Carlo program has a built in flaw. It’s what you point out.
So at 93 in every condition demonstrated(increase expenses, lower yield, etc), she ends up with money in the fund at 93. This also did not show the income from SS on a $170K income pre retirement. So the plan of 10X works. I don't know if an input 10% makes it to the 10x fund, but that is a different story.
As others have said, every situation is different; there is no “once size fits all.”
I think that for anyone who has saved for retirement, "how much do you need to retire" is the wrong question. The right question is, "what will your lifestyle be when you retire?" While I may have greater healthcare costs in old age, that greater cost is not predictable. What is predictable is that I'm not going to suddenly start spending more money in retirement than I spend now. If you are worried about having enough to retire on, chances are you equate spending money with enjoying life. Which may indicate a _pre-retirement_ spending problem.
I retired at age 54 and the first thing I took care of was no debt and house mortgage paid off
Unwanted debt is not included in my retirement is the reason why I'm enjoying my retirement 😎
Thank you for this video.
My pleasure!
Everybody's situation is different.... The example doesn't factor in as she gets older she will not spend as much. This woman is more than secure.
I'm not a financial guy so I have a financial planner that does my investments for me. It's a huge weight off my mind. He mixes things up so there's a portion of money that can't go down, but can gain some, and instead of mutual funds, it's individual stocks that they can offset tax gains by selling to offset losses. I'm 66 almost, own my house, I make 130 k and my wife makes about 10k I and would like to retire in the next year or two. Our expenses are about 80k and we have about 1.5 million saved up plus the house which is worth about 700k. The problem is we live in an expensive area in the northeast. I would like to retire to a foreign country, e.g. Thailand / Vietnam, but my wife is definitely not on board, she likes it exactly where we are. So I'm plugging away rn. Still not sure when to retire. It's not like I hate my job, but I wouldn't mind not putting in the long hours.
Depends on current and projected spending.
I tend to translate these rule of thumbs a bit differently, 10X your income can be a good shock factor to get clicks. Being a FI (Financial Independence) hobbyist found the math at 10X yearly spending a bit more realistic. Accounting for taxes, COL increases, SS income, rate of return, taxes etc. are all very important. Pay off your mortgage and all other debt. If you're a good to super saver then it's pretty straight forward. If you prefer to travel going top shelf all the time, out to dinner often and basically living high on the hog, then save accordingly.
Buy a mobile home for $50-100k cash, live on $15k-20k/Yr. SS income $25k-30k or so. One doesn't need to travel and eat out every night. One can live very comfortably on next to nothing.
Oh, and living until 90+ is a pipe dream for most people.
Except both my parents lived 90+
The message I got was: Make your best decision with the info you have but adjust along the way. Thanks for the video
I like that summary. Thank you!
Only thing you need is your health, invest in that, I also have 200k in savings and half my 50 k salary paid till I die, own my house n car. Ground beef n Irish whiskey and a rusty set of dumb bells will take care of the rest 🇮🇪👍🏼
45% replacement income seems a bit low. I skimmed the article and footnotes and couldn't see that it specified, but maybe they are assuming 45% just from investments, and additional from social security (they did state "no pension").
It depends
Dave , what suggestions would you have for someone who is planning on retiring in a few years but with only $50,000 to invest?
This is what we learned, we don't need 1 million dollars.
Even based on the worse scenario shown she will outlive her assets. I would not be too concerned with the woman. Looks like Fidelity did a good job.
What planning / scenario software are you using in the video?
But income peaks at late 40s early 50s. So should the multiple be peak income or at that moment ?
Great Video!
This is insightful, I lost my wife 5 years ago, being alone sucks. I don't believe much in luck so I took my time to make proper use of the money we saved together and invest it appropriately. I thought of leaving it in the bank, but I wasn't making any profits and I had to give up a lot to keep saving. grace came after meeting an IA through a friend of my late wife, and he has assisted in bringing stability to my life.
So much comes down to your mindset.
Very true.
If you do not know how much you need to retire on ... believe me, you are not ready. Keep working
Using your calculator would a couple with $2.5M in 401k, $125k in savings, no mortgage on main home, and a mortgage of 1/3 the value of lake home be able to retire at 59 1/2?
I'm not sure you interpreted the Fidelity footnote correctly. Do they mean you draw 45% of your pre-retirement income from assets, and SS is additional? You could read it either way.
My strategy is to invest as much as I can until my investments can pay for my lifestyle. If I reach retirement but don't have enough invested, then I will just have to do without. Afterall, what else can I do. I was already investing as much as I can.
It literally makes me sick to my stomach at the thought of retiring at 67. I'm 36 and cannot see myself working a full-time job until I'm 67. I'll pay the fees and penalties to retire earlier I don't care. I want to retire between 50-55 and have a paid off mortgage
1. Have a plan. 2. Change the plan as you go, according to changing circumstances.
first time viewer, and subscribed now, so i'll dig in more of your content. but my question is 10x what income? ie: no more deductions for ira and roth, medicare rather than health ins, etc, etc. then to ballpark it, could we say income is closer to our take home pay now?
What is that software?
I am now 57, alone and retired now. I have taken advantage of the stock market here and other financial assets. which has been a good investment with minimal risk and a good ROI. I can't advise you on what to do with your money, but this has been substantial for me.
Not much but I do own 3 properties in Hawaii.
Love the Greenbelly bars. Try their Mud Meals also if you get a chance. Good stuff.
Covid has been an eye opener for what is import in life, and money is not that thing. You just need enough to be happy.
This video is not for low income retirees.
I really like the video.
Thanks, Jared!
But she still makes it till the end, with money in the bank.
If the last check you write doesn’t bounce, you did something wrong.
😆
The location you live in is critical.
Simple answer: don't spend more than you have. Easy peasy.
How long do you plan on living?
You should be calculating annual expenses and not use pre retirement income.
As a fellow planner and RICP for a decade, Dave is being nice - it’s not just this “one article”… this is the mutual fund institutions playbook “hey listen just save X your income - stay Invested with us so we can eat it up with fees - if you have a decent/great sequence of return in your retirement - then yes! You’ll be just fine with this strategy! If you get a bad sequence or returns, while having no choice but to take withdrawals for income at a loss, we’ll that’s not our fault. 🤷🏻♂️ it’s just a bad luck of the draw! Sorry you ran out of money! Not like you only get ONE chance at retirement!”
Save 10X your income - yes that’s a good start - but you need to blend actuarial products (annuities or cash value life insurance) to maximize income potential and to guarantee base income for life to mitigate longevity risk as well as sequence of return risk and spending shocks
10X Net or Gross?
Who in the HELL wants to live on only 45% of your working income……????
I’m 23 but I still want to learn
The variable not address is the age that ones parents , grandparents passed as this is the best predictor of duration of need .
93 not likely for most
if she never runs out of money, what's the problem?
Why would you assume a 6% return when the S&P 500 has averaged 10% over the last 100 years. 13% over the last 10 years? Not to mention that there are mutual funds that beat the S&P. Of course not every year, but have averaged higher over the same period.
Depends were you live Hud 202 senior building rent is 30% of SS and Pension GREAT DEAL
There’s always gonna be “what if”
Very true.
A person spends and lives off of their Net income not Gross income.
I figure whatever shortfall I have for retirement I will borrow from the pew trust And payback after my retirement
I could retire on 800k to 1 million.
75k a year seems a bit much … but hey, if you have 10x I your salary you should be able to stretch it 10 years at the least.
“income” seems to be the wrong variable to discuss here - for example, a person making $100k and saving half of it has different lifestyle needs and expectations than someone making the same but saving 15%. “spending” seems to be the right variable. firstly, because working income is subject to higher taxes and is reduced by social security and retirement contributions, and secondly because retired people may have different expenses, eg a paid off house or one car vs two.
"More"
Your income is irrelevant to how much you need to retire. What matters is your expenses.
Take two people, each making $100K/year after taxes. One spends everything they make. The other lives on 50K and saves the other 50K. Do we really think they'll both need the same amount in retirement?
Most calculators use income rather than expenses because income is a much more likely to be known number ... but that doesn't make it the correct one to use.
I'm planning to leave just enough to pay for my funeral and executor. Also, when I'm in my 80s I don't plan to out painting the town red. It's not one size fits all.
With all due respect, the notion of diy financial software programs, as well as wealth managers, estimating life expectancy of 93 is rather absurd. I don't understand it at all! The average American doesn't life past 80 years old. That is just a reality. How about we put life expectancy to 85....then take a looksy at how the nest egg lasts.
Are you married? There is a 50% chance that one of you will live to 95. And remember, after the first dies the social security income goes down and the taxes go up.