Remember Ben Franklin’s aphorism: “A penny saved is a penny earned?” I doubt Ben realized it when he coined that phrase some 250 years ago, but he actually came up with some good financial advice for those retiring in 2008 and beyond.
The reason: after the precipitous drops in home values and stock prices that we’ve just experienced, who knows when they’ll rebound? So those of us who plan to retire in the next few years will probably have to retire on less than we expected. That means when it comes to managing our retirement finances, our focus will have to shift from boosting our retirement income to finding ways to cut costs. Here’s why….
When it comes to income, the conventional wisdom is that retirees need to make 80% (or even more) of their pre-retirement earnings to maintain their same standard of living in retirement. It’s a goal that’s now harder to reach. Nevertheless, that assumption is still embedded in the software of many online retirement calculators. As a result, those calculators will increasingly be bearers of bad news: a readout showing that a person’s finances are inadequate to get him or her through retirement. (I’ll have more to more say about those calculators later).
But Fred Brock, author of Retire on Less Than You Think, thinks the 80% equation is vastly inflated. Brock says if you know how to cut costs, it’s possible to live comfortably on 50% (or less) of your pre-retirement income. And he says you can do that without resorting to radical tightwad methods—like reusing teabags or repairing torn shower curtains with duct tape. (Attribution: the latter method was actually suggested by Jonathan Pond in his book, 1001 Ways to Save Money. But I haven’t tried it…)
How? If you’re living in a big city, Brock says the single best way to save money is to move out to a less-populated, lower-cost area. Brock—who himself left New Jersey for Manhattanville, Kansas—says by selling your home in a big-city suburb and moving to the country, you can own your new home free-and-clear and still have cash left over. He also says retired couples can get by on just one car…a move that will save thousands in insurance and maintenance costs. (For more ideas, tune into Joe Collum’s report on Monday, December 8).
Now back to those retirement calculators. Figuring out whether you’ll have enough money to retire on is no small matter—so can you rely on these free online tools for such an important piece of information? We wondered as well…and to find out, we plugged one person’s numbers into three different calculators to see what would happen. The results turned out to be pretty surprising. (To see for yourself, be sure to tune in to Connie Hicks’ report on Monday, December 22).
These days, even with the best calculator, it’s tough to project how much money you’ll be able to draw from your retirement accounts. But if you don’t have to spend a dollar—then it’s a dollar you don’t need to earn from your investments. Sound familiar?
Comments
CL - We reported on this in the program last night. Here's the script:
IT LOOKS LIKE SENIOR CITIZENS WILL GET A BREAK ON RULES REQUIRING THEM TO TAKE MONEY OUT OF THEIR I-R-A AND 401-K PLANS. BUT IT WON'T COME UNTIL NEXT YEAR. THE HOUSE AND SENATE HAVE PASSED A MEASURE FREEZING THOSE REQUIRED DISTRIBUTIONS IN "2009." THE PRESIDENT IS EXPECTED TO SIGN IT.
THE BIG QUESTION NOW... WHAT HAPPENS FOR "THIS" YEAR? MANY AMERICANS AGE 70-1/2 AND OVER HAVE BEEN THEIR RETIREMENT FUNDS TORCHED IN THE MARKET MELTDOWN. THEY'RE REQUIRED TO TAKE MONEY OUT BASED ON THE VALUE OF THEIR ACCOUNTS AT THE "BEGINNING"... NOT THE END OF THIS YEAR.
BUT OUR TAX GURU, KEVIN MCCORMALLY OF KIPLINGER'S, THINKS THE TREASURY MAY STILL CHANGE ITS RULES... SOMETIME IN THE NEXT FEW DAYS. HE SUGGESTS YOU WAIT A WEEK OR SO TO SEE IF THAT HAPPENS. WE'LL TELL YOU WHEN, AND IF, THE TREASURY MAKES THOSE CHANGES.
What is the latest news on suspension of IRA Required Minimum Distribution Rules for 2008? Please let me know. Thanks.
I am amused....and confused. You put forth as a good idea, Mr. Brock's suggestion that retirees sell their "big city" homes and move to the country. It certainly is a buyer's market, but to whom might you be selling your city home? Which big city would that be? One of those that are experiencing major job losses of high-end jobs in the financial services sector and others? The Comptroller in NY estimates that with the loss of each of those jobs goes 3 to 4 lower paying jobs. M-m-m, doesn't sound like a great time to trying to find a buyer to me. But, wait...Mr. Mameesh comments below, that you should give up your car to save retirement money. But you can't move from the city to the country and give up your car! And depending on what big city you're leaving, you may not even own a car. That means you'd have to buy one. Oh, I forgot. Mr. Mameesh says, you should sell your house in the suburbs (really...to whom?) and move to the city. Then you could give up your car. And the money you get for your car would pay for the difference you'll have to pony up for that cute city apartment? And if you're newly retired at age 62, as I am, you'll be putting that $1000 Social Security check he mentions toward your monthy health insurance payment...remember that? I won't qualify for Medicare for a few more years. And where am I going...to the city or the country? With a car or without? Am I amused or confused?
I am amused....and confused. You put forth as a good idea, Mr. Brock's suggestion that retirees sell their "big city" homes and move to the country. It certainly is a buyer's market, but to whom might you be selling your city home? Which big city would that be? One of those that are experiencing major job losses of high-end jobs in the financial services sector and others? The Comptroller in NY estimates that with each of those jobs goes 3 to 4 lower paying jobs. M-m-m, doesn't sound like a great time to trying to find a buyer to me. But, wait...Mr. Mameesh comments below, that you should give up your car to save retirement money. But you can't move from the city to the country and give up your car! And depending on what big city you're leaving, you may not even own a car. That means you'd have to buy one. Oh, I forgot. Mr. Mameesh says, you should sell your house in the suburbs (really...to whom?) and move to the city. Then you could give up your car. And the money you get for your car would pay for the difference you'll have to pony up for that cute city apartment? And if you're newly retired at age 62, as I am, you'll be using that $1000 Social Security check toward your monthy payment for health insurance...remember that? I won't qualify for Medicare for a few more years. And where am I going...to the city or the country? With a car or without? Am I amused or confused?
Jack:
Exactly. The traditional method of calculating retirement savings needs, 80% of current salary, is a complete guess which over-estimates actual retirement savings needs.
There is a new formula and method, which more accurately calculates retirement savings needs, the Green Retirement formula and method.
Now, you can calculate that if a person gives up their car in retirement, a $600 per month expense, they can retire with $180,000 less in savings. And, if a person lives in a suburb and works in a city, by moving to the city and giving up their car, over 20 years they can save an additional $455,000 in retirement savings.
Get rid of your $150 per month mini-storage, and you can retire with $45,000 less in required retirement savings. The examples go on.
If a person earns $80,000 per year, according to traditional retirement planning, they will need $1,600,000 to retire. With Green Retirement Planning, if they are aged 56 and create a $2,500 per month retirement budget, they will need $660,000 to retire. Almost a million dollar difference.
If the person is age 62, they need $630,000 to retire, and if they collect $1,000 in Social Security, then they only need $380,000 to retire. Their is a calculator on the main page which compares Green vs. Traditional.
I urge you to take a serious look at Green Retirement Planning, after a few moments you will realize, that retirement planning has changed for good. There is hope for the millions of Americans who have lost trillions of dollars in the housing and stock markets.
http://www.iplanretirement.com
Sincerely,
Ramsay Mameesh
CEO Green Retirement LLC.