Retirement Planning: Will You Really Need Less?

Roger Nusbaum submits: Last night as Joellyn watched all of her shows on TLC I caught up on the last couple of issues of BusinessWeek. I was amused to see articles on several topics that have come up as posts here recently.

There was an article on the Currency Harvest ETF (DBV) that I mentioned selling, personally. The trade was more about managing exposure to one outcome as opposed to trying to make a big call. I think that if the yen made a fast move to 108 or 109 that it could disrupt a lot of things, and I had too much exposed there.

There were several short pieces about various aspects of retirement planning. One of which was about retirement planners on brokerage firm web sites. I have a different take than most of what I read. Basically whatever you have saved; you can only take 5% out per year. Actually a reader left a comment on this topic ages ago saying it is closer to 4.2%, but 5% gives what I believe is a 92% chance for success.

Another point I differ on is the "plan on needing 70% of your pre-retirement income." How much will your expenses decline when you retire? Expecting an instant 30% decline in expenses, which what I think that cliche is saying, doesn't really add up to me. If you do some planning such that your final mortgage payment and final car payments come the month before you retire, it is possible your expenses could drop by 50% or maybe more. If you will still have those expenses, where will the decline in expenses come from? Well fewer lunches out, less dry cleaning and less commuting cost seem like possibilities, but is that 30% of anyone's expenses?

Notice in that last paragraph I said nothing about income (save for quoting a cliche). Some people spend less than their income and some spend more. Relative to your income you either spend to much or you don't. If you do, well something is going to give at some point. So back to "whatever you have you can't spend more than 5%." If that is not enough you will have to do something fix the equation: either keep working or spend less. Maybe you have another idea you can share.

Another article in this retirement series was about whether to pay off the mortgage early or not. It is very rare that numbers work out such that paying off the mortgage early makes sense. That being said, we paid off our mortgage a couple of years ago. The emotional benefit, which the article does touch on, is huge. When I am asked about this I tend to say the same thing which is it makes no sense money wise, it is an emotional decision that needs to be made by the individual.

Comments

[dwot:]

What about the not putting money into retirement savings any more?

In Canada you also get a extra tax credit when you retire, reducing tax load.

2007 Feb 06 12:28 AM