Sunday Musings: Retirement Issues

Random Roger made some interesting observations in a recent post called “You Lost Me At Hello.” Here are some highlights:

Yesterday Yahoo Finance ran this article from BusinessWeek about a “rule” for assessing where your savings compares to where it should ideally be. Meaning if you are 50 years old you should have X. X is not a number but a multiple of your salary. The basis for the formula cited “starts with one of the basic tenets of retirement planning—that people need at least 70% of their pre-retirement income during post-working years.” Insert scratched record audio file.

Rules like this are woefully incomplete. Complications arise in individual circumstances, vagaries of the market beyond anyone’s control and any number of other things.

For what it is worth, the article says that a 45 year old should have 3.6 times his salary saved, a 55 year old should have 5.4 times and when you retire you should have 7.7 times your annual salary.

If you still work what are your biggest expenditures? If you are retired what are your biggest expenditures? What are the likeliest changes to expenses between working and retiring? Our biggest expenses are estimated tax payments and savings. If I ever stop working and start living off of savings then I would think tax payments would go down and savings would mean taking less out of the portfolio one quarter.

Another ouch is about disciplined spending habits. Anecdotally, living beyond ones means is a big problem and many people living beyond their means are either in denial about it or don’t understand how the numbers work. I’m telling you this afflicts a lot of people.

This might be a good spot to bring up one of my favorites, the one-offs. Some people never have to deal with anything major while others may be very unlucky. Envision a scenario where a year starts out with an expensive trip of a lifetime (we all need to have fun) followed by needing a new roof, then a deadbeat adult child (sorry but they’re out there) hits you up, then the car needs a new Johnson rod (Seinfeld reference) all coming in a year that the portfolio turns out to drop by 20%. That combo may not be a deathblow but it would surely cause some sleepless nights. Now how much planning can you do for that?

These are all very interesting considerations and no one can perfectly plan every little detail of his future life ahead. While I talk to my share of retired people in my day to day business affairs, I get only incomplete responses when probing about the challenges of retirement.

If you are retired, please share with us (in an anonymous comment if you wish) the surprises and short comings you have encountered as you moved into this phase of your life. What has been disappointing or what exceeded your expectations? Did you need as much money as you thought you would? Are some of your expenses now considerably less than during your working years? Did you scale down in terms of living quarters or automobiles?

And last not least, which will help all readers most, what would you do different if you could do it all over again?

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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