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DOES ANYONE DOUBT that planning for retirement is unique for each individual?
The way we manage money, how we handle debt, our desired lifestyle and our family status are all important variables to consider. From what I observe, however, many people ignore these differences and seek a one-size-fits-all answer.
I’m addicted to YouTube. In addition to history, archeology and general education videos, I watch many retirement planning shows. I also follow retirement groups on Facebook and bloggers who embrace the FIRE (financial independence-retire early) lifestyle.
I never knew there were so many experts out there. My favorites are those who give advice after disclosing they aren’t expert advisors. A question for those who listen to these folks: What makes you think someone else can tell you—in a video or blog post—whether you can retire?
One of my YouTube favorites is a retired financial advisor. He takes questions and then proceeds to construct answers using an Excel spreadsheet. He plugs in his own assumptions, including spending rates based on national averages.
A lot of videos focus on $1 million as the magic number for retirement savings. Several spend time criticizing the 4% withdrawal rate. Others claim to tell you whether you can retire and when. These experts press forward with advice without asking the person’s annual expenses or desired lifestyle.
“I have saved $750,000, can I retire?”
Who knows? Tell us about your debts, expenses, emergency fund and how you want to live. But no matter. The experts will just use national averages instead.
“I have $1 million. I’m 60. Can I retire spending $100,000 for the first 10 years, then $75,000 thereafter?”
That’s a 10% withdrawal rate. Yeah, no doubt that’ll work fine.
Here’s another good question from a video: “How much does the average person need in retirement funds to retire comfortably?”
Well, if that average person had a nest egg of $1 million, they could generate an average $40,000. So, I guess the answer is $1 million—on average, that is. Oh yeah, define “comfortably.”
Online experts will find ways to figure out how long that $1 million will last in retirement—with no details about your situation required. Okay, how about one detail: Where do you live? Here are your chances by city.
Sometimes, the questioner provides more details. “We live in Maine. This is a pretty expensive state to live in. For those of you who also live in Maine or another similarly expensive state, I wonder, what would you consider a reasonable monthly budget for two?”
To that I might say, “What’s your monthly budget today?”
All it takes to make any retirement plan work online is a willingness to manipulate the assumptions. If you assume high investment returns, plus low inflation for the next 30 years, then all will be well—and that’s an assumption, too.
“My husband is 55 and I’m 50. He would like to retire at age 60. We’ve saved $150,000 for retirement. Can we make that work?”
Nooooo problem. No Social Security for at least the first two years of retirement, no Medicare for five. Your current savings should give you about $6,000 a year to live on. But the good news is, with your low income, you can probably buy health insurance through an Affordable Care Act exchange for $1.15 a month.
Yeah, I’m being a bit snarky, but that’s a real question from a YouTube video. As I recall, the YouTube advice to this questioner was to start saving 70% of income. Or was it to get real and plan on working until age 70?
FIRE bloggers will post about their growing net worth, frugal spending and relaxed lifestyle. In reply, they’ll get touchy-feely comments praising their success and lifestyle.
Recently, a blogger told of the frugal travel habits of some young retirees living on $40,000 a year. This family of five took three or four trips a year using discount coupons, Airbnb lodging and rewards points. Their next trip is to Europe in 2022. They’ve used 300,000 frequent-flier miles to book the flights. I asked how they accumulated 300,000 miles, given their frugal lifestyle. The comment was deleted without being answered.
I’m thinking that many people who ask the type of questions I’ve mentioned are scared—or quite unsure—about where they’re headed.
Living in retirement isn’t about averages. It isn’t about what other people do or the opinions of experts, especially online instant experts who don’t know anything about you and have yet to experience many years of retirement themselves. Most people could use some one-on-one guidance from a real expert—along with a reality check on their retirement expectations. Let’s face it: 25 to 30 years is a long time to live on someone else’s assumptions.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.
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Nice article! What about the jabberjaws on CNBC?
I clicked on the link regarding where you live. I wasn’t surprised the Midwest would allow your money to last longer. Thats always been a key factor that isn’t discussed often. I make good money, but the fact I live in a part of the country where my dollar goes farther is a great tailwind.
I asked my friend from work who retired at 57 once over a beer what was the financial figure he used to take the plunge into retirement. He said he figured out his historical expected return and asked himself if he could live off half of that number. He said yes I can. So he felt comfortable retiring.
We’re still working, and we have an Excel spreadsheet that for some reason my husband calls “The Monthly Nut.” In one column, it provides an overview of what we spend now on various categories, and in the next, it makes adjustments for what will change in retirement (e.g., taxes and pension contributions). It’s not down to the penny, but it’s close enough. I go in and update if something changes, like our HOA fees go up or we paid off our car loan.
This exercise, which didn’t take long, was enough to show us that (a) considering guaranteed income from pensions and eventually Social Security, we’ll have enough income in retirement so that (b) we can retire whenever we want to. We’re still musing about (b)—when do we want to retire?—but it’s nice to know that because of (a), it could be tomorrow or five years from now.
What did that show you that your needed retirement income was as a percentage of pre-retirement income?
In my experience, after 25 years of retirement, the serious concern is health. Healthy people do not need a lot of income to enjoy their life if they have reasonable expectations and a self-sufficient family, but sadly some people have been driven into poverty by huge medical expenses, or needy relatives for others.
I have been blessed.
People in retirement 65 plus should not face huge medical expenses with the possibility of LTC and depending on definition of huge, dental.
When I got married 24 years ago, my wife informed me that she records every purchase she makes. So, we continued that and still do. The only difference was I started entering all that data into a spreadsheet and totalling it up monthly and annually. So, when we wanted to project how much money we would need in retirement, it was easy to just use our already known expense totals which are categorized. Now to project how much income we’re going to need in future years, we just make assumptions re inflation rate, investment rates of return and project the results. I’ve been retired over 10 years and my wife 2 years (due to big age difference). Until 2021, we had no need to withdraw any money from our savings, but inflation has really wrecked that this year. But all I have to do is update inflation assumptions per category and investment return %s. It’s quite easy once you get the initial data and it doesn’t take that long to keep recording the daily expenditures. We only assume inflation rates and investment returns.
Many people take that approach, but is it necessary to be so precise? When working your gross pay is reduced by taxes, payroll deductions for benefits perhaps and saving. What is left is what you spend each year. How can it be anything else- unless one lives on credit card debt.
The problem is each category has a different inflation rate attached to it and that varies each year. Gross numbers might be workable and good enough, but a retired accountant needs something to keep their brain active. At least that’s my rationale.
I guess I’m an expert of sorts since we’ve been successfully retired for almost six years. We spend almost exactly what we spent when working. Some costs went up and some went away. We have a paid for house and no debt of any kind. We are also overfunded for retirement by any measure since I enjoyed my job and worked to the age of 60, longer than needed for financial security. Social Security alone, when it kicks in at 70, will fund most of our lifestyle leaving only a very small withdrawal from our portfolio. A high income coupled with a frugal lifestyle is a no fail scenario. Everyone can do the frugal but earning a high income takes either a lot of effort or a lot of luck, with me it was luck.
And there’s they key. You (and I) spend the same pre and post retirement, differently perhaps, but the same. So the answer to retirement is simple. You need by various means to generate income that allows you to spend the amount you lived on the year or two immediately before retirement.
My assumption is also that we’ll probably spend about as much in retirement as before. If not, great but seems a fair assumption.
Great piece. I want to know averages, but I also know they lie to us. And on YouTube you need clicks, so all attention is good. I suspect people pose the “can I retire” titles because a) many do have that question; b) because those that don’t and see it’s a foolish might click on it anyway just to see the rationale or curiosity.
Hilarious. It’s like a student asking a math teacher to solve an equation, with no inputs. I guess that asking “How much do I need to retire comfortably?” is an easier (and apparently less painful!) ask than “How much is my average annual spending?”
Maybe that’s the “real* problem here; Pie-in-the-sky projections are a lot more fun than the mundane, uncomfortable work of figuring out an *accurate* annual budget, and figuring out a realistic way to cover it.
It’s like when Red Green talks about his buddies who aren’t interested in the Seven Habits of Successful People; all they’re interested in is the One Quick Cheat Method For Lazy Goof-offs, lol.
Your snarkyness is justified. Recall the 1950s snark “boobtube” applies to today’s YouTube.
The “expert” we never hear from on retirement are retirees. It would be wonderful to study what they used for assumptions and how they worked.
Well, look at “professional” financial planners. It’s always amazed me that someone will come up with a customized package of projections, showing that when you are retired in 2040 your income will be $85,321, and you will be paying $6,572 in Federal income tax, and $2,128 in state income tax. Well, the fellow does have a nice suit, and he presents his analysis of your future finances in a handsome binder….along with his bill.
Realistically speaking, no one knows what will happen in the future. A person with general knowledge of life and the world is more likely to be right than a nerd with a model on a spreadsheet.
If you want to see some good YouTube finance shows, check out the Money Guy, Holy Schmitt, and Rob Berger. At least they will tell you there’s a lot we don’t know, and can’t know.
I have read tons of articles about when to retire and I have never seen one quite like this but you are spot on.
I did a free financial plan with Fidelity a couple of years prior to retirement. The best part of their planning was that they forced you to do a detailed retirement budget. It became obvious to me that if I underestimated my retirement budget, it would cause the whole plan to be off. We are so prone to use “ballpark” numbers with this type of planning but we need to recongize that if those ballparks are significantly off, so is our plan results. This seems rather obvious but I do not think it is to many people, including some advisers.
Had no idea people went to YouTube for financial advice! Rarely venture there myself for anything. I see a fee-for-service CFP every few years for a checkup, otherwise I prefer the advice available at bogleheads.org
Well said!