Thursday, April 27, 2017

The retirement projection exercise

Most of the time, in the back of my mind, is worry that we got such a late start on retirement savings (aged 41) and we won't have near enough. Then about every year or two I actually do a projection of where my 401k should be by the time I retire, as well as get online and see what our estimated social security will be.  Then I kind of breathe easier. It's not really that bad.

I plan (ya ya - I know how plans go) to retire somewhere between 67 and 70. I'm healthy, don't feel my age, I should be able to work until I'm 70. I've always pretty much figured I'm going to have to work that long since we started so late saving.

Monday I did a little spreadsheet for yearly contributions and estimated earnings. They say over time the stock market has averaged 7% a year. I also have my 401k in an aggressive portfolio, since I still have quite a few years to ride it out (about 17 years). I put in my current starting balance, added my yearly contributions, my employer matching and my employer profit sharing contribution. I just left it the same every year and didn't even increase it (though it will most likely increase). I was a bit more conservative on the earnings and put in 6% per year.

By age 70 I would have about $400,000. While at first that sure doesn't seem like enough..who could live another 20 or more years or so on that? But, I'm going to assume social security or some form of it will still be there. I really don't think the voters and politicians in this country are going to cheat us out of putting into it for over 50 years and never get anything out of it. So, I'm going to assume I'm going to get what they are telling me I'll get when I retire. At age 67 I would get $28,000 a year. My DH will be eligible for his or 1/2 of mine, which ever is larger, so 1/2 of mine. Bringing our annual income up another $14,000 to $42,000 a year. Each year, waiting past age 67 to collect adds 8% to the amount. By waiting until age 70 to collect our social security benefits our annual benefit total would be $52,000 a year.

Assuming a (recommended) 4% draw from my retirement funds per year, I just put the first year at a flat $16,000 draw in my spreadsheet along with a much lower earnings estimate at 2.5%.  That would give us $68,000 a year total to live on. I increased the draw 2% per year for inflation needs. With the principal balance (while declining) earning a rate of return every year, by age 95 (Gosh, I hope I don't have to live that long LOL) I would still have about $50,000 left. Money that can go towards living in assisted or a nursing home, which I'm sure we'll end up in before we'd reach 95 years of age. Plus by that time we'll have a paid for house we can sell and that money can be used, as well, for our remaining years, if we have to live in assisted living or nursing home. If that runs out then, I guess it's medicaid, like my grandma had to use after her money ran out (she lived to 95).

I really don't think we'd need to draw down 4% a year if we are making $52k a year in social security.  Changing it to 3% gives us $64,000 a year to live on and assuming the same other variables (2.5% earnings and 2% draw increase each year) - we then still have over $200,000 left by age 95.

At some point, I'll also have some amount of inheritance from my mom. She's very frugal and her annual draw is usually less than her annual earnings on her principal. (plus she gets social security), so she's not even touched her principal yet (at age 76).  I don't anticipate it being until past when I actually retire, but then of course I'll still most likely have another 20 years or so to live. My mom isn't likely to run out of money, that's for sure and even if it ended up only being $50,000-$100,000 she had left, that's still something to add to our retirement money. Plus that's not even counting her house she owns.

So, I don't think we are going to end up poor and destitute. Obviously we will have to manage our money closely and wisely. As long as our house and cars are paid for I do not see any reason whatsoever we could not live on $58k a year - or less! My mom lives very comfortably on $50k a year. We don't plan on living some extravagant lifestyle in retirement, that's for sure. In another year or two I'll start panicking again and have to do this exercise all over again.

11 comments:

  1. You are very sensible to go into such detail. Whether the outcome was good or bad I would want to know where I stand but can you imagine how many people have no savings and no idea of where they stand at retirement. THAT is scary stuff. Anna

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    1. I saved this little spreadsheet so I can refer back to it as the years go by and see how we are doing according to projection.

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  2. We are in the same boat. Hubs is 46, I am 44 - we are about $100,000 in 401(k). He wants to retire around 63, but I don't know if he will be able to. Maybe a less stressful job, though. I will probably sew until I cannot sew anymore as a side gig. But, I am with you - if house and cars are paid for, living on around $50-60,000 per year seems very doable!

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    1. you are in a better position then we are and a few more years longer to save. Sounds like you are on the right track.

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  3. Good on you for keeping an eye on how the retirement $ is faring.
    I'd keep an eye on getting long term care insurance if possible too and make sure you adjust for future inflation on what you'll need to live on because it's bound to be substantially more in 17+ years from now to live an equivalent life.
    Planning is good to do but you just never know when life will intercede so have a Plan B if you aren't able to work that long.

    We spent just under $46K here all in for 2016(and that's after taxes). This doesn't count health insurance premiums or CB's college expenses, but every other expense down to the last loaf of bread. But then again, we are still supporting our son and somewhat the daughter too so our expenses should go lower once they are off on their own.

    The biggie is all debt paid off- house, cars, student loans and credit cards.
    No matter how close/far off it's always wise to revisit your retirement plan annually.

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    1. I agree, the biggie to be able to live on that per year is no mortgage and no other debt. The only thing we have is mortgage right now. Don't plan on taking out any other type of debt or credit cards. Plan B, would be to sell house and back into something smaller and less expensive, like we are in right now, until we build.

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  4. Not to be a downer but please also consider and plan for the (unlikely possibility) of a single survivor making it in retirement. Could your H make it on the 14,000 if something God forbid would happen to you. The sad thing is the larger expense remain fairly stable even if there is one or two, utilities, taxes, housing etc. I am a widow and hang with several retired friends. I have a good pension but when I listen to them about purchases, finances etc just in general conversation all are married with another pension, SS or parttime job etc and I realize what a profound difference they are at. ( most of us retired from the same government type place) but wow they have other options compared to my single hood.

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    1. That's a great point to consider! I have a life insurance for the next 15 years. After that, yes, he's going to take a big cut. BUT, he certainly wouldn't need a big house to roam around in by himself. He'll have the 401k and could easily downsize and put a bunch of money in the bank, at that time. If he passes first, I'll lose his soc. security, but again, I'd for sure sell the house.

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    2. Keep in mind that if you died before your husband, he would then get bumped up to your Social Security benefit level. So in your example, he would get $28,000/year (not $14,000).

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    3. oh that's right! I had just read about that a little while ago and it completely slipped my mind, so that would help!

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  5. I agree with Sluggy about long term care insurance. A decent nursing home can cost a fortune (my mom was in and out of one for 10 years) and this insurance is one well worth looking into.
    While we still have a lot of debt to pay off, we do have retirement savings...though not near enough. I'll feel better about things once everything including the house is paid off.

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