Are You Saving Too Much for Retirement?

[Barefootsies]

Interesting. For a long time the discussion was people were not saving 'enough'...

Retirement planning almost always starts with one number: A guesstimate of the percentage of pre-retirement income you're expected to need after you retire. That's called the "replacement rate" and is often pegged by industry experts at around 80 percent of a household's earnings.

For example, a recent paper from the Center for Retirement Research at Boston College titled "How much to save for a secure retirement," relies on that 80 percent figure. "Households with earnings of $50,000 and over needed about 80 percent of pre-retirement earnings to maintain the same level of consumption," writes Alicia Munnell, author of the study.

She goes on to say that high earners need to save extremely high percentages of their income -- as much as 77 percent for the 45-year-old just starting to save for retirement at age 62 -- to produce that 80 percent.

The concept underlying Munnell's paper, and a lot of other retirement planning advice, is that you can figure out how much you need to save once you have a number for that 80 percent replacement rate.

But there's reason to believe that oft-quoted 80 percent figure is wildly on the high side. That, in turn, makes the retirement calculations based upon it also wildly off. And that means if you're trying to save enough money to produce that 80 percent figure, you may be putting away too much, or skimping unnecessarily on the early years of retirement.

Now, some academics are taking aim at that rule of thumb. "It's a sometimes bizarre measure that could have absolutely nothing to do with your standard of living," said Bonnie-Jeanne MacDonald, an actuary who currently holds two fellowships, one at Dalhousie University in Halifax, Nova Scotia, and another with the North American Society of Actuaries.

Another retirement rule of thumb says you should pull out only 4 percent of retirement savings in your first year if you want your money to last 30 years. So, if you've saved $500,000, you could withdraw $20,000, or $1,667 a month. But, if you're willing to curtail spending down the road, you could start with bigger withdrawals early, says Christopher Van Slyke, a money manager in Austin, Texas. He tells some of his newly retired clients they can start by pulling 5.5 percent or 6 percent out of their portfolios for a few years, as long as they understand that that rate isn't sustainable for three decades.

FULL ARTICLE

[Brent 3dSexCash]

Start early. Had my first IRA when I was 15, 27 now and have quite a bit saved already (more than the american average for people 50 and older).

Only save about 12% of my income myself, have my wife saving about 35% (her company matches too).

My goal is to have enough to live off the interest/dividends when I retire (adjusting for expected inflation, about 120k/yr), then have something to pass onto my grand kids.

[moeloubani]

oh those unfortunate souls with all that money

[Chosen]

I don't

[Operator]

I retire when I expire but I also make money from money

[Caligari]

Retiring is for pussies.

.

[directfiesta]

I am near retirement ....

I am puting most of my funds in real estate .

I hope to close tomorrow a rental property for 359K, with 60K down, making payments of 1725/month , and income on rents of 2265.oo .
With the principal of 5300.00 paid yearly, I net 11k on 60 K ...

Will have to invest another 115K in may, as funds will become available ( now paying 6.5% on the last year of a 10 year term deposit ) .

I also have what is knowned here as RRSP ( equivalent to 401K in the States I think ) .

Retirement hits you way faster then expected

[BareBacked]

Originally Posted by directfiesta

I am near retirement ....

I am puting most of my funds in real estate .

I hope to close tomorrow a rental property for 359K, with 60K down, making payments of 1725/month , and income on rents of 2265.oo .
With the principal of 5300.00 paid yearly, I net 11k on 60 K ...

Better hope nothing goes wrong on the property
tax and all that I would guess you will be lucky to break even..

[lagcam]

I think the idea of saving "too much" for retirement is ridiculous.

Life isn't going to get cheaper, and whatever you save will soon start reducing once it is your only source of income.

If you have excess money come retirement, then improve your standard of living or help your family or the less fortunate and "problem" is solved.

[Barry-xlovecam]

Originally Posted by Operator

I retire when I expire ...

Good one

[directfiesta]

Originally Posted by BareBacked

Better hope nothing goes wrong on the property
tax and all that I would guess you will be lucky to break even..

Taxes and insurance are calculated in my monthly expenses, plus a 150$ monthtly provision .


So, it comes down to this :

- Positive cash flow / year : 6000.00
- Payment of principal : 5334.79
Subtotal: 11 334.79

Now, I coul as well factor in the increase in property value ( this is not in the USA ... but in Canada where no real estate balloon exist ) : 4000.00 as well as future incease in rent ( about 400.00 a year ) .

Now compare it with the lousy interest I get on the same 70K in the bank ( $94.00 )

Date Transactions Debit Credit Running Balance 3
Jan. 04, 2012 Internet Banking INTERNET TRANSFER 000000851420 $900.00 $74,434.99
Dec. 30, 2011 Branch Transaction PROMOTIONAL INTEREST $18.91 $73,534.99
Dec. 30, 2011 Branch Transaction INTEREST $75.62 $73,516.08
Dec. 28, 2011 Internet Banking INTERNET TRANSFER 000000695543 $1,650.00 $73,440.46

I know, I should invest that in adult ...

[Paul Markham]

Originally Posted by lagcam

I think the idea of saving "too much" for retirement is ridiculous.

Life isn't going to get cheaper, and whatever you save will soon start reducing once it is your only source of income.

If you have excess money come retirement, then improve your standard of living or help your family or the less fortunate and "problem" is solved.

Yes it's complete BS. Even the 80% is BS. yes if you're 60 and retire at 61, then you should only need 80% to replace the same life style. In fact you will need more than 80%. You're at home all day long, have nothing to do and need something to do. so you're paying for extra power and heating and your "hobbies".

Still at 61, you should have no mortgage, no school fees, no kids eating you out of house and home or needed to be dressed and mobile phone bills, etc. We don't have a mortgage, do face school bills and keeping our 9 year old for the next 10 years. And I have the heating and lights on more.

Save now for your retirement. I did from 30 and now get a few very nice wires every month that will see me through to the end of my days. Admittedly it doesn't look good on the markets at the moment and you need to think long and hard about what you invest in. Still living off the State in most of the world at 60 sucks.