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How much needed for retirement?

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June 12, 2011 – Comments (7)

I came across an article that mirrors some of my feelings on retirement income need, http://www.moneysense.ca/2011/05/12/why-there%E2%80%99s-no-retirement-crisis/.

To me it is just common sense that you need more income when you are paying a mortgage then if you own your home, that you don't have the work related costs of transportation and perhaps business attire, raising a family costs money, and you no longer need to save money for retirement.

When I was in Vancouver we typically put about 25% of household income to mortgage.  If household income was cut in half, 2/3rds of the tax bill would be gone, and about 10% was put to retirement saves.  Those three things bring income required down to 45% of pre-retirement household income.  The reduced taxes and to have no mortgage in Vancouver would be huge.

I think the comment about health care and home care are very valid.  There is also no question that you can spend a fortune if you are intent on doing more of the things that are expensive, like travel and some forms of entertainment.  

I remember a discussion with a friend who was coming up to retirement and was undecided about when to retire.  He was saying his wife's retirement travel desires would cost $20-30k per year.  Those kinds of expectations really would reduce how far retirement income goes.

7 Comments – Post Your Own

#1) On June 12, 2011 at 4:11 PM, dwot (42.85) wrote:

Here's a wealth calculator I came across, http://howrichami.com/data.php

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#2) On June 12, 2011 at 4:52 PM, fullbookcases (< 20) wrote:

  I used the following method which assumed I was living on my current income - ie not going into debt.  It also I assumed I would pay off my morgage when I retired. 

 

Current salary minus money into retirement savings (roughly 15%) minus morgage (roughly 10% for us) minus FICA (roughly 5-7%).  Yes I save a little on work related expenses but do spend a little more on hobbies / travel.  For me the one item that went up was health insurance ( add 7%).  Taxes are a bit of a wild card mostly dependent on if you were being taxed on investment earnings prior to retirement or if you are replacing your previous salary with IRA proceeds and pension/social security.  My taxes went down significantly so minus another 7%. The last item is expenses for kids - I am withdrawing money from a "separate" college savings account so that didn't enter into my calculation. So in my case, retirement income needed to maintain a similiar lifestyle is about 32% less than my previous income. 

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#3) On June 12, 2011 at 7:21 PM, vriguy (68.40) wrote:

Rather than a percentage of income, I like to think in dollar terms. In todays $ I'll need at least $100K each year.  To provide that one needs at least $2.5 million given the lousy returns on safe investments - and safety is paramount in retirement - when there is no recovering from losses by working.

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#4) On June 13, 2011 at 12:50 PM, Jbay76 (< 20) wrote:

I am no were near this point in my life, though I do think about it often.  I would think that health care costs would take a greater chunk of your retirement, especially here in the US, and as such those costs aren't truly being calculated into the equation.  That said, I have another 30 or so years before I retire and am anticipating a rougher road than what is before us now.  This is a very subjective question I might add as it depend on so many variables that can be different from everyone

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#5) On June 13, 2011 at 2:26 PM, imobillc (< 20) wrote:

I agree with the article!

Common sense that is it....

Mars 

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#6) On June 13, 2011 at 4:18 PM, davejh23 (< 20) wrote:

Either way, it's probably best to plan, like vriguy, to save 25x you're desired, or last year's, annual income.  If you fall a bit short, you'll probably be okay.  If you plan to save enough to produce an annual "income" of ~45% of your pre-retirement income and fall short, you're probably going to be hurting.  I'm planning to have real estate investments to provide a portion of my retirement income, a core portfolio of dividend stocks to provide the bulk, and a growth portfolio that I'll continue to "play" with.

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#7) On June 14, 2011 at 10:45 AM, Jbay76 (< 20) wrote:

davejh23

I like you're retirement plan...it's the same approach I am taking as well

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