Ask HN: How much wealth do I need to retire at 65?
Are there some rules of thumb that can reach a plurality of consensus here?
I'm hoping for some simple phrasing like "20x your current annual income".
Or do I need to be a legislative-prognosticating actuarial economist to even guess?
14 comments
[ 3.2 ms ] story [ 47.8 ms ] thread"Do you think Social Security will exist? We can model your retirement both ways..."
"How much risk do you want to take?"
"How much do you think you'll want to spend in retirement?"
"How much do you want to help your kids go to college, and how much do you think that will cost?"
Yeah, great, thanks for costing me money and just asking me fairly obvious questions - that are almost impossible to answer.
If you just want an answer, I'll give you an answer: $1M. That'll give you $50K for 20 years, plus whatever interest income you earn over it. Of course, whether $50K is enough depends upon your personal circumstances, and 20 years depends upon your expected lifespan, and interest income depends upon the rates of return at retirement, and your principal might be depleted by sending kids to college or big home repairs. But that's why the financial advisor asks you questions.
1. If you believe you can live on $5000 a month then you need to know there is $5000 a month available to you. If you believe social security will exist and you believe you will get about $1000 a month from that, then you really only need to come up with $4000.
2. Would you like to have just X in the bank at age 65 or do you prefer to have X + Y, just in case of emergency? If X is your maximum what is your minimum number you would take? That's your risk.
3. Are you looking to travel extensively, buy a nice home on the water, give to your kids, grandkids, etc...? These all again impact X. And while you may not know the answer for certain, you should at least have a general idea of what you would like to do since you are obviously trying to plan for retirement.
4. Simple question, are you going to help your kids with their education or not. Nothing wrong with either answer, but knowing the answer will impact your X number.
So going back to your original question of how much wealth do you need to retire at 65, it really depends on what you plan to do when you turn 65. Do you plan to live in a small home that is paid off or purchase a new home, do you plan to have kids or grandkids, will you drive a car, do you plan on being married, do you want to travel at all, I can go on. The point is there is no single answer to your question. I could probably easily retire with $1M in the bank and never look back. But a friend with 5 kids will probably need a whole lot more.
We're not discussing that I must also predict inflation, health care costs (or socialization), and the likelihood of various markets crashing or exploding... including housing or renting...
2. That's not a REAL question. The real question there is, can we come up with ways to save more now, while maintaining my current comfort at adequate levels, with an expectation of future happiness? Because OF COURSE I'd like to have X + Y. The ways to try to achieve that are to save more, or risk more. BUT, you're asking me to establish my risk level, given my GOAL of reward. That's like starting by asking me how much money I want to win in Vegas as the first question. The FIRST question!
3. Again, those are not real questions. The closest to a real question there is, do I want my percentage of pleasurable spending to increase or decrease, relative to my current spending. Sure, I can TRY to consider the things you've brought up - but again, as I complained, I would need prognostication skills to come up with remotely accurate answers to any one of those questions, let alone a slew of them.
4. Okay, I'll pay for my daughter's education 100%. Can you tell me how much that will cost? Oh, you need to know what school she's going to? Well, hmm, I can try to estimate her SAT scores, but she's currently in DAY CARE. Again, this is not a real question. I would need prognostication skills to know whether college costs will quadruple, in CONSTANT DOLLARS, or maybe college will be socialized and my daughter will get a STIPEND!
I don't mean to sound arrogant, insulting, and condescending. I really don't. Sorry. Sincerely, sorry.
But I reject the premise of why you're asking the questions. "How much will you spend on socks?" "How much will you spend on hats?" ... "Okay, let's sum all those things up! TADA, you'd need to make twice as much as you currently make, and save 100% of it to achieve that goal!"
The first rule of data is to know how it's going to be used. Yes?
I do not believe you have a formula, where you can punch in my answers to your questions, and then achieve a measurably correct confidence level in my future, self-reported happiness with the outcome.
Since you don't have that formula, why are we gathering individual numbers that we will pretend to plug into it?
And yes, they're all great things to consider. But I do not believe you that considering each of them carefully will allow me to come up with a plan that is remotely likely to succeed. "Everybody has a plan until they get punched in the face." -Mike Tyson
...
Instead, I think it makes much more sense to look at the past. Let me filter huge amounts of data, by my known demographics... And see the histogram of self-reported happiness, for people who had given amounts of wealth at retirement.
1. $X of income at Y age
2. Spouse at retirement or not
3. X kids, at Y age
4. Retire at age X
5. Live and retire in the Mid-West...
Allow me to see confidence intervals. High and low graphs, based on recessions or booms... Constant dollars only, please.
I mean, isn't AARP capable of collecting this data, and distributing it in meaningful ways to pre-retirement people?!?
...
And again, really, honestly - the three biggest things that are going to affect my retirement, in rough order are:
1. Life expectancy for me and spouse (My grandfather died before reaching retirement. My great-grandmother died at 101y 6m.)
2. The economy
3. Percentage rat...
You don't sound "arrogant, insulting, or condescending", but the way you come off in your answer is that you want someone to give you a specific number (let's say X) without providing any context as to what you expect out of your retirement. You come off sounding as if you don't want to take anyone's advice or answer anyone's questions yet you want them to answer your question.
You don't have to predict anything or know the specific answer to any question, and I think that is where you are misinterpreting the questions. There is no right or wrong answer to the questions, they are only asked to gather details about your perceptions. Your answers are then used to compare to known financial data to determine a good retirement amount. They are "real" questions. If you have no intention of having kids or being married, that is significantly going to impact the amount of money you need to retire. If you plan to sell your belongings and live in an RV and travel the country till you die that is going to impact the number. While these may change down the road, you plan for the future on what you know now. You say you plan to live/retire in the mid-west. How do you know that is not going to change in a year.
From my own personal perspective I plan for my retirement based on what I foresee my future holding. I work with a financial planner to determine a good investment strategy based on those plans. However, I am consistently reevaluating those plans on an annual basis. My adviser asks me similar questions. But he also uses freely available data on what current retirees are doing based on the economy. He evaluates my strategy against the pros/cons of what current retirees are seeing in their retirement. I don't know how much my kid's education will cost, but I do know I want to pay, or at least help pay, for that. I base my planning number on current costs and add a cost increase for each year based on previous history of cost increases. The questions are not meant to be answered specifically, they are simply meant to get you thinking about your future and where you see yourself. You are right no one knows what it will cost in the future and you are right you can make assumptions based on past numbers. However, in order to use the numbers from the past you need to know what numbers to use. Thus the point of the questions.
With all that said, I am not going to go back and forth with you here. I am not a financial planner. I can't answer your question specifically. I'll leave you with this: http://money.usnews.com/money/blogs/on-retirement/2015/06/25...
So you don't need to draw down your principal to pay your living costs.
Let's say you spend $100K per year, and you can earn 10 percent per year, then you need $1 million.
But you don't even need that much, because there's no reason to die with $1 million in the bank.
So it's probably some kind of calculus problem, an integral or a derivative, or something.
And maybe you can do better than 10 percent! ;-)
http://awealthofcommonsense.com/worlds-worst-market-timer/