Thinking...thinking...

[ksmith]

Next week, I'll be attending an in-house retirement workshop. I'll bring all my statements and a monthly budget and calculate how long the money will last before Under the Bridge becomes more than a cool song by the Red Hot Chili Peppers.




I have purchased a couple of retirement books that claim to support the concept that you don't need to have saved enough to supply 120%+ of your current income, that 70-80% may be sufficient. The problem is, the scenario they discuss to death and beyond is one that doesn't apply to me. They assume that you're part of a couple who at some point bought a Very Big House on one of the Coasts, and that as the kids have flown and retirement nears, you will sell that house, recoup appreciation sufficient to provide almost half your retirement income, then move to a less expensive part of the country, buy a smaller, much less expensive house, and invest the money leftover.

Well. I don't live in a particularly inexpensive part of the country, but I live in one of the cheaper areas in the county. I bought the home I could afford 19 years ago, a late 60s shoebox ranch with tiny everything, but with a decent sized lot and lots of mature trees. My mortgage payment including escrow account is now 12% of my gross. IOW, I've already scaled back the living quarters. I missed the MacMansion housing boom.

But it may not have hurt me as much as I feared. Now retirement advisors like this guy (WSJ article--may require registration) are suggesting that buying smaller right off the bat and investing what you would have otherwise thrown at the mortgage may be the better option.

The bottom line: Unless you lose nearly half your investment portfolio to taxes, the small-house strategy wins hands down. And, of course, the margin of victory would be even larger if we use more realistic assumptions.


So, I feel better. For now. Until some genius comes along and starts telling people that you need 300% of current income because of the economic downturn that is going to occur Any Minute Now.

I just wish I lived in a prettier part of the country. I would like to take the house I have and make it the smallest house on the block in Portland Oregon or Madison Wisconsin or Tacoma (couldn't afford Seattle) Washington.

Comments

[amyirene-40.livejournal.com]

There's the question of how much you want. If retirement to you is Travel! Adventure! Time To Do Everything You've Ever Wanted To Do! than 300% of current income is what you need to aim for. If you want to live pretty much the way you've been living, then you probably want an income that's pretty much what you've currently got.

Here's the assumptions that lead to the standard "you'll only need 70-80% of current income":

1) You're not paying any more Social Security tax (a biggie - there's 7.65% extra in your pocket) and, since your income is lower, your income taxes will be lower.

2) You don't have work-related expenses (commuting and clothing, although even the little things like going out for lunch with co-workers add up)

3) Retirement = Old. Old people don't run around and spend money.

Here's the things that make other retirement advisors say that 70-80% won't cut it:

1) (this is the REALLY REALLY big one) Medical expenses. Remember that "retirement = old"? Well, old also means "parts of the body that used to work really well are starting to wear out." And health insurance keeps getting more expensive and covering less.

2) Retirement means time to go places and do things, so there goes all the savings from not comuting and hanging out with co-workers.

How much the items in the first and second parts apply to you will go a long way toward helping you to figure out if you need to aim higher or lower than 100% income replacement.

(hey, just because I don't do retirement stuff professionally any more doesn't mean that I'm willing to shut up about it when the subject comes up)

[kristine-smith.livejournal.com]

And I want to hear all you have to say, because you know a lot.

Yeah. I spoke with one of my co-workers who's fresh from his first meeting with a financial advisor, and the guy told him that it's not how much money you have, but how much money you'll need.

The thing that gives me some wiggle room, I think, is that I expect to work at *something* until I can't work anymore. If I'm lucky, I'll be writing books/stories. If I need to fill in with something else, I will. The retirement funds are in place to cover the bills. I would work for things like travel and optional stuff. Maybe I'd go back to school and train for something else. A co-worker who's bailing late next year when she hits 50 is going to become a grade school teacher.

The Art Institute of Chicago offers an MS in Historic Preservation. Unfortunately, not a cheap degree, but it's out there. There's so much out there. I won't have every option possible, but I'll have a few. It's a little scary to contemplate at times, but once I accepted the fact that a second career might be more than just a fill in the gaps job, it started getting a little exciting.

[nlbarber]

Could you tell me the author's name on the WSJ article? I'd like to look it up, but can't get through the att.net link. I have a WSJ subscription, so I can read it directly on their site if I can find it. :)

[kristine-smith.livejournal.com]

And of course, the link today leads to a different article.

I *think* the guy's name was Jonathan Clemons. Please let me know if that's not right. I saved the article on the home desktop, so I'd be able to get you the info later today.

[nlbarber]

Found it--by Jonathan Clements, title is "Saving Too Much for Retirement? Don't Kid Yourself, You'll Need Every Cent". The WSJ link is http://online.wsj.com/article_print/SB115505641496829993.html
For non-subscribers, I often have pretty good luck searching on the title and then finding a non-subscription place that reprinted it (or that Google cached).

[kristine-smith.livejournal.com]

Nope--I remember that one. The article I cite is a newer one that specifically addressed buying a large home vs buying small and investing the difference. I'll dig out the title tonight.

[nlbarber]

This one sounds closer--it's got the full real estate discussion: "Forget the Mansion: Why Buying Bigger Doesn't Guarantee a Rich Retirement".

[kristine-smith.livejournal.com]

That's it!