Retirement - Managing your money

[Captain Graham]

One thing about plans they always change.
But doing a plan is still important it gets you thinking so when things in your life change you know how to change your plan.

In my case last summer my wifes car gave it up and last week I got rear ended and my car got totaled.
So in 12 months we have to buy 2 cars, not in the plan but we did have cash to buy 2 cars.
We spent $18K on my wifes car and I am planning on spending under $10K on mine.

We had been saving outside off our 401k to get a new kitchen.
So we will just have to wait on the kitchen.

PS both myself and the driver who hit me are OK.

[Captain Graham]

Originally Posted by Statistical

It isn't an 8% return. It is 8% higher but that is because you aren't being paid those years you defer.

If you live to 81.1 the amount paid out for all starting ages is exactly the same. The actuarial tables are telling SS you (or the average "you" of the same age) will live to be 81.1. If you live longer then deferring pays out more, if you live less then taking it sooner pays out more. Since we don't know how long we are going to live the projected benefit based on assumed average life expectancy is exactly the same.



We have the same idea. My SS benefit is significantly larger than my wife's so we will begin drawing hers as soon as possible and defer mine as long as possible. If our other finances remain solid I will defer mine to the last possible day.

This maximizes the spousal death benefit to her (as she will get my full amount if she outlives me). Like you I see SS more as insurance if something goes catastrophically wrong. I feel better knowing if something goes catastrophically wrong AND my wife outlves me she gets the largest benefit possible.

Thank again for some good information and we do think a like.

[Statistical]

Originally Posted by Captain Graham

Thank again for some good information and we do think a like.

You may find this interesting:
https://opensocialsecurity.com/

It shows the impact of spouses starting SS at different times and how delaying the spouse with larger benefit can improve benefit amount while still protecting the other spouse (because they get boosted by the death benefit).

[Captain Graham]

Originally Posted by Statistical

You may find this interesting:
https://opensocialsecurity.com/

It shows the impact of spouses starting SS at different times and how delaying the spouse with larger benefit can improve benefit amount while still protecting the other spouse (because they get boosted by the death benefit).

Thanks

[MicHughV]

SS did recently allow for a pretty decent cost of living adjustment....around 9%....so there is that. If you are...or were in the higher income bracket, that starts to add up.
But the key really is to be debt free. With no debt hanging around your neck, you can get by with relatively little.
Add some supplemental income and one can manage quite comfortably.

[Captain Graham]

Originally Posted by MicHughV

I should add, that SS for many people is a relatively small number. I know some people that only get around $1200/month or thereabouts.
It certainly is important to keep track of what your projected SS income will be so you can plan accordingly.

My guess is these people took their SS at 62 which is a greatly reduced amount.

Example from the SS web page
https://www.aarp.org/retirement/soci...0age%20of%2067.
A single person born in 1961 who has averaged a $50,000 salary, for example, would get $1,386 a month by retiring at 62, the earliest age to start collecting. The same person would get $1,980 a month by waiting until the full retirement age of 67. And he or she would get $2,455, the maximum benefit on those earnings, by waiting until age 70. Payments don’t increase if you wait to collect past 70.

[Captain Graham]

Originally Posted by MicHughV

SS did recently allow for a pretty decent cost of living adjustment....around 9%....so there is that. If you are...or were in the higher income bracket, that starts to add up.
But the key really is to be debt free. With no debt hanging around your neck, you can get by with relatively little.
Add some supplemental income and one can manage quite comfortably.

I completely agree.

[MicHughV]

Well, I count myself as one of the lucky one's...managed to retire at a very high income rate, SS figures your monthly stipend on the last few years of income, which negates my early cruising lifestyle, where I earned practically nil...

[Statistical]

Originally Posted by MicHughV

Well, I count myself as one of the lucky one's...managed to retire at a very high income rate, SS figures your monthly stipend on the last few years of income, which negates my early cruising lifestyle, where I earned practically nil...

SS benefit is based on average income for the top 35 years. If less than 35 years of work exist the "missing" years are considered 0 and the average computed.

Your high recent years income pulled the average up but it is still an average of the top 35 years of earned income.

On a related note since there is a SS wage cap this means there is also a maximum possible SS benefit which in 2023 is $4,555 per month. It would require working at least 35 years earning the maximum SS wage or more and waiting until age 70 to start collecting. Additional years won't increase the benefit because it is based on an average of 35 years (inflation adjusted). If you had any years below the wage cap you would need to work more than 35 years so that you have 35 or more years at the wage cap.

No matter how much average annual income someone has, how late they defer SS benefits, or how many years they worked it is impossible to get a benefit more than $4,555 in 2023 which would then be indexed to inflation for the rest of your life.

[CarlF]

Over 20 years, inflation is a much bigger risk to your retirement savings than dips in the stock market. If you assume just 3% inflation for 20 years 1 millioin dollars has the purchasing power of $553,000.

Holding cash or low risk bonds historically does not keep up with inflation after taxes. The taxes on interest are at ordinary income rates - sales of stock (and most stock dividends) are taxed at a much lower rate.

For the last 100 years the best return has been to hold 100% stocks in a low cost vehicle like a S&P500 ETF (such as Vanguards VOO). Yes, this will sometimes mean selling stocks during a downturn but most years you will be selling when stocks as they are going up.

Over time, you win as long as you are only selling a small percentage of your holdings each year. The rest appreciates with no tax. And the 1.65% average dividend on the S&P 500 continues even in downturns ($1375/month) at a low tax rate.

The other "up front" calculation should be how long you intend to cruise. Very few cruise more than 15 years. After that health causes the boat to be sold, your travel less and annual expenses go down. If you find your assets dipping too low for some reason then stop cruising a little earlier and reduce expenses.

At that point - hopefully around age 80 you really no longer need investments. You need enough assets to cover housing but you're unlikely to buy another car. You should have long term care insurance and an annuity or reverse mortgage on a house to augment Social Security. The plan should focus on having enough guarenteed income should you live to 100+

[MicHughV]

Assuming you have no debt, no mortgage, etc...it would be interesting to hear how much $$$ one really needs to live a reasonably enjoyable life, not just pay monthly grocery bills, etc, but also some play time, trips, etc, and so on.
Once that at figure is arrived at, one can back into that number and figure out a minimum required monthly income.

[ol1970]

Originally Posted by MicHughV

Assuming you have no debt, no mortgage, etc...it would be interesting to hear how much $$$ one really needs to live a reasonably enjoyable life, not just pay monthly grocery bills, etc, but also some play time, trips, etc, and so on.
Once that at figure is arrived at, one can back into that number and figure out a minimum required monthly income.

I've been retired for 9 years now, zero debt of any kind. I have found that the ideal baseline number to live a pretty amazing life is roughly $180k/year. As crazy as it may sound I could cut that in half and not have happiness impacted too greatly. My rule of thumb was multiply your annual burn rate by 33 and that gives you an amount with a safe withdrawal rate that has never failed in the history of modern investing if you have a diversified portfolio.

Admittedly that's extremely conservative though, but just because you can spend more doesn't mean you have to or need to. Most people croak with way too much money they traded hours/weeks/years of their lives for money they didn't need and will never spend.

[Lucky Luke 1]

People seem to think they need more money in retirement than they actually do and work years longer than they need to kicking the bucket with money they didn't get to spend.

By the time most people are 80 their expenses are very, very small. We don't tend to travel extensively or do to much after 75.
If we take 75 as a realistic active end date and want 20 good active years in retirement then the retirement age number is 55.

How much is enough? That is a different number for all of us but probably a lot less than most people think.

https://awealthofcommonsense.com/202...e-comfortably/
A 2018 report from EBRI studied income and financial asset data on older Americans to see how much of their nest egg2 they spent during the first 20 years of retirement. After two decades of retirement, most people spend less than you think:

Individuals with less than $200,000 saved only spent down about a quarter of their assets.
Those with between $200k and $500k had spent down around 27% of their money after 20 years.
Retirees with half a million or more just before retirement had only spent down less than 12% of their money.
One-third of all retirees, no matter their starting amount, had actually increased their nest egg in the first two decades of retirement.

[Statistical]

Originally Posted by Lucky Luke 1

One-third of all retirees, no matter their starting amount, had actually increased their nest egg in the first two decades of retirement.

These are the people doing it right. 4% with average stock market returns of 7% real (10% nominal) will most of the time show an increase in wealth after 20 years.

[Lucky Luke 1]

https://www.bloomberg.com/graphics/2...etirement-age/