tag:blogger.com,1999:blog-26981669.post5875405014384643065..comments2024-03-23T10:55:30.196-05:00Comments on Cold Fusion Guy: Retirement: The 80% rule?Jim Peethttp://www.blogger.com/profile/07649414726939918803noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-26981669.post-51447877954648090292011-12-02T20:07:26.542-06:002011-12-02T20:07:26.542-06:00Amen. I've always found some amusement in the...Amen. I've always found some amusement in the calculations that one "needs" 25x one's income to retire, which more or less assumes 4% or less interest on securities. On the flip side, financial advisors promise closer to 7-10%. <br /><br />OK, which is it? Personally, I'm expecting a fair amount of trouble as boomers retire, which means a bit part of my retirement plan is called "six kids."<br /><br />Bert (for Don's benefit)Bike Bubbahttps://www.blogger.com/profile/08193546045614393425noreply@blogger.comtag:blogger.com,1999:blog-26981669.post-35040221630388213312011-12-02T10:33:23.919-06:002011-12-02T10:33:23.919-06:00My thoughts - You can never have too much saved, t...My thoughts - You can never have too much saved, though "skimping unnecessarily" is certainly possible. I have always thought the 80% figure was too high (some recommend 100%). I personally think 50-60% is more realistic, but it obviously depends on your circumstances. To arrive at that figure, I look at expenses/income reductions as a percentage of current income that will not be present during retirement years:<br /><br />- FICA at 7.65% (reduced this year, and possibly in the future; conservatively use 5% figure).<br />- Savings specifically designated for retirement - 10% is a good rule, as you suggested, and is what I use (hey, I like your (my) Pastor and his suggestion!)<br />- Housing costs (mortgage P&I - I plan to not have a house payment during retirement years) - Easily 15-20% for most people, higher for many others; conservatively use 15% figure.<br />- Other taxes - if your taxable income is 50% of current, your overall tax bill will be lower, and quite possibly put you in a lower bracket; plus, if you have significant income that is not taxable (e.g., from a Roth IRA), it could be even lower; conservatively use 10% figure.<br />- Income sources other than retirement savings to replace income (e.g., - Social Security, pension) - while pensions are becoming less common, and who knows whether Social Security will even be there when I retire, it is likely that there will be something to draw from. The last statement I got from SSA projected that I would receive approx 25% of current income; I conservatively use a 10% figure.<br /><br />So if you add those figures up (5%+10%+15%+10%+10%) , I can realistically reduce my current income by 50% and effectively have the same standard of living. There are many other factors to consider, such as additional medical expenses, travel, etc., but it is a good starting point. I'll have to send you the spreadsheet I developed that allows you to see if your current savings plan is allowing you to meet your retirement goals.<br /><br />Don SteinhartAnonymousnoreply@blogger.com