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Revisiting Retirement Needs & a Pleasant Surprise!

August 9th, 2010 at 06:20 am

After reading the aptly titled book, "Get a Life! You Don't Need a Million to Retire Well," I decided to recalculate how much $$ I'll need in retirement.

In past calculations, I never included or counted on Social Security benefits because of the uncertainty the program would remain intact or would have any money left. Perhaps politicians will tinker with it but I highly doubt it would go away completely just before millions of baby boomers enter the system.

Anyway, in the past, I always aimed for a million dollars, plus an extra $250,00 for out of pocket healthcare expenses. So, $1.2 million.

Now I've redone my calculations including Social Security benefits and I am happily surprised at how much LESS I'll need, even when factoring in 3% inflation.

My target retirement age is 60, just 9 years away.

Here, then, are my detailed calculations, if you care to follow along to the remarkable conclusion.

Social Security Benefit Estimates
(These numbers are based on the annual statements we all get from the SSA. Since my income varies widely from year to year, I decided to include the last 3 years worth of estimated SS benefits so I had a low and high range of expected benefits.)

SS Estimate If I collect benefits at age 62
2010 $1454 x 12 = $17,448
2009 $1430 x 12 = $17160
2008 $1355 x 12 = $16,260

SS Estimate At age 66 + 10 months
2010 $2094 x 12 = $25,128
2009 $2064 x 12 = $24,768
2008 $1949 x 12 = $23,388

Expense Estimates
To calculate my average annual expenses in retirement, I knew I could start with my existing annual expenses and then subtract certain things that won't be an issue when I retire, such as my mortgage, the bulk of what I spend on gas (for commuting) and a portion of what I spend on clothing (office attire).

I've tracked ALL my expenses for over 15 years, so I already know what I spent, pretty much to the dollar, for any given year.

Average annual expenses from last 5 years: $43,300
Average mortgage payments, last 5 years: $10,400
75% of average commuting gas, last 5 years: $486
(Last year, I had a 45-minute commute while prior to that I had a 3-minute commute.)
50% of average spent on clothing, last 5 years: 365

To calculate average annual expenses in retirement, subtract:
Mortgage payments
75% of average gas expenses, last 5 yrs
50% of average spent on clothing last 5 yrs

Projected Average Annual Expenses in Retirement: $32,049

Retirement Scenario 1: Retire at age 60 and start collecting SS at age 62.

From age 60 until age 62 + 10 mths: (3 yrs)
Personal Savings needed: $32,049 x 3 = $96,147
SS benefits: 0

From age 62 + 10 mths. through 93 (30 years)
Personal Savings: $438,030 to $473,670

SS benefits, low-end estimate: $16,260 x 30 = $487,800

SS benefits, hi-end estimate: $17,448 x 30 = $523,440

Total Needed for Retirement at age 60 and Collecting SS at age 62: Between $534,177 and $569,817

Adjusted for inflation (assuming 3%) and 10 more years:
Between $715,797 and $$763,554

(Source p. 259 inflation chart, Get a Life book)

Retirement Scenario 2: Retire at age 60 and start collecting SS at age 66 + 10 mths. (full retirement age)

From age 60 until age 66+10 mths.(7 yrs)
Personal Savings: $224,343
Social Security: 0

From age 66+10 mths through 93 (26 years)
Personal Savings: $179946 - $225,186
SS benefits, low-end estimate: $23,388 x 26 = $608,088
SS benefits, hi-end estimate: $25,128 x 26 = $653,328

Total Needed for Retirement at Age 60 and Collecting SS at 66+ 10 mths:
Between $404,289 and $449,529

Adjusted for (3%) Inflation and 10 more Years:
Between $541,747 and $602,368


If Congress tinkers with SS benefits, it seems likely that any new law would affect benefits for those not yet collecting SS, and that any newly enacted law would take at least a year to take effect; even so, I could watch the news and take steps to start collecting SS at next birthday anniversary if I saw that Congress was discussing limiting benefits. (Of course, that's assuming they don't meddle with SS in the next 9 years, becus if they did then, I'd be stuck.)

Calculations DON'T account for 1) lower expenses due to selling house and moving into condo or 2) income earned from p/t work.

So, the interesting takeaway from all this number-crunching is how much LESS personal savings I'd need for retirement if I wait to collect Social Security until my full retirement age, 66 and 10 months, vs. taking SS benefits as soon as I was eligible to do so, which would be 5 years earlier, at age 62.

For all my money worries, if would seem likely that looking at my current investments of $459,000, I would reach the minimum target of $541,747 even if I made no further contributions.

So while I plan to add to my retirement anyway (once I get a job again), it's a huge comfort knowing that all I really need to do is stay the course, preserving the investments I already have. I won't be touching principal except to withdraw about $18K in a few years to buy a new car (the Ford Fiesta). I pay cash to avoid interest and car payments.

What do you think?

11 Responses to “Revisiting Retirement Needs & a Pleasant Surprise!”

  1. Joan.of.the.Arch Says:

    Excellent to have done those calculations! That must be a great book to have so inspired you.

    Have you included your health insurance costs as they might be at age 60 and beyond? Medicare benefits in retirement do not even start until age 65!

  2. PatientSaver Says:

    Uh oh. Poking holes in my calculations already! Smile Actually, that's a very good point. I guess my hope is that at age 60 I can switch from full-time work to part-time work and FIND a part-time job that offers health insurance benefits, but I'm not sure I'll want to work, even p/t, until age 65.

    Certain companies, like Starbucks, Home Depot and Costco, now offer health benefits to p/t employees. Hopefully, there will be more employers like this in the future.

    the other hope is that Obama's healthcare reform will make it more affordable to buy my own insurance, or buy into one of those pools, at an affordable price.

  3. Analise Says:

    Impressive calculations! It's great that you are on track so far.

    Don't forget to allocate for travel if you are interested. Looks like what you contribute in the next 9 years will be icing on the cake, so you may have more than enough for travel.

    What are you currently doing for health insurance? COBRA?

  4. Ima saver Says:

    Congrtulations!! You will be receiving an impressive amount from social security. I am only getting $486 a month or $5800 per year.

  5. creditcardfree Says:

    It's nice to know you will likely be 'secure' in retirement.

  6. MonkeyMama Says:

    I think many forced retirees are figuring out they can live on much less. Just, people like us are "prepare for the worst" types. I don't know how many of us will make out pie in the sky retirement goals, but nice to know if we fall short, we will be just fine.

    I think my parents have been pleasantly surprised how much less they feel they need for retirement now. They've never counted on SS either, but can easily live on it. Which means, they may only need to touch their principal investments for health insurance. My dad was not able to get on health insurance at his new job (due to pre-existing conditions). So they may need six figures for health insurance between ages 60 & 65? But aside from that, they feel more than prepared for retirement, though my dad wanted to work another decade and double his nest egg, before all his health problems. I think he has been pleasantly surprised how little he can live on. BUT, I have warned him that his SS can be taxed pretty heavily, along with IRA distributions, as he ages. Right now he has no taxable income because he is living off disability and unemployment. I have just warned him not to get used to the "no tax" thing.

  7. MonkeyMama Says:

    P.S. My dh has just told me he is eyeing the Ford Fiesta for his next car, too.

  8. PatientSaver Says:

    Monkey Mama, I've owned mostly Hondas all my life, and while I'd love to get a hybrid, I don't think the average $5,000 premium you pay over a conventional engine is worth the extra good mileage you get out of it, even if you do own the car for a lifetime.

    That's why I'm so enthralled with the Ford Fiesta. It gets 40 mpg from a conventional engine. I might note that if you're happy with the 4 door sedan, the base price is much lower, at around $13K as I recall. The hatchback starts higher, and the car I "built" on their website ending costing about $18k. But becus I mostly drive alone as a single person, I'm determined that my next car will be practical, and that hatchback is more practical.

  9. retire@50 Says:

    have you considered taxes in your calculations? If your average expenses include taxes, you will not be paying SS or Medicare and you will probably be in a lower tax bracket so you will need less after retirement. If your average expenses don't include taxes you may need more than you think.

    My experience has been I can live on a lot less than I thought once I retired, but I'm a homebody and my hobbies don't cost much.

  10. retire@50 Says:

    also you might like to read Stop Working, Start Living by Dianne Nahirny. I found it inspiring when I was getting ready to retire. You may have to get it from the library I think it's out of print.

  11. MonkeyMama Says:

    Yes, my dh told me we could get a new one for $12k. That must be why. Our current Ford gets about 40mpg too. The new costs was about the same when we bought ours. (We paid much less for a barely used vehicle). I am relieved that "gas sippers" are *in* again. We have been watching cars the last decade wondering what the heck we would ever buy. As gas mileage got worse and worse. We LOVE our current vehicle.

    OF course, I am hoping it is quite a few more years before we need to replace our vehicle!

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