Stop saving for retirement?

[Jimmy Higgins]

I'm not planning on living large in retirement, but I presumed a decent percentage of my current salary just to help with presumptions. Also, assume 90 for end of life, if not me (males don't live long in my family, so not too conservative), my wife (mistress? ) . I also assumed retirement at 62 and early FICA withdrawal because why the heck wait?! So I'm pressuring the numbers. I just need 6% annual growth, which is definitely in line with what I've seen.

I'm thinking, based on the number, to continue until as is until late 40's, then revisit and see how much I want to shift towards college and vacations while I'm still mobile.

It is just I hadn't heard about stopping saving before, but looking at the numbers, it really does seem to be a viable option, if you save hard enough early on.

 

[Jarhyn]

There are already people walking around with lab-grown organs. So far it's only the simple stuff, but as time goes on they'll be able to do all of them. An awful lot of the body will be replaceable.

Personally, my retirement strategy is: own my own home, pay off my mortgage.

Because the money I throw at that will always appreciate faster and more ethically than the money I could throw at claiming ownership of the work of others.

I've multiplied my investment by about 1000% in the last 5 years, and paid nothing in taxes.

We haven't had anything like that sort of gain but I agree on the mortgage being the first investment.

As to the math, gain is frontload biased on home purchases: I've put in little, and gained much.

Over time, appreciation will look differently, I am sure.

The mechanics of it are just so, that my total payments towards the mortgage are at this moment 10% of the appreciation of the property. It will asymptomatically approach normal appreciation of investment as I pay my mortgage down. That said, that's still a damn sight more than I would get even in a "risky" high yield fund.

 

[Loren Pechtel]

You can stop saving if you have achieved your goals, or can confidently predict that your current retirement savings will get you to your target by the time you stop working.

I assume that I will be drawing 5% of my savings every year without touching my principal amount, which is a very conservative estimate based on the actual returns I have realized over the last 20 years. If you know/estimate how much money you want to draw each year in retirement, and multiply that by 20, that would be a good, conservative target.

That's not a safe level because you need to allow your principal to grow at the inflation rate or you will find your standard of living eroding over time.

Lots of people downsize when they retire because they don't need a large house or a house at all anymore. I think we naturally lower our standard of living as we grow older, I certainly have, but it sure doesn't feel like I'm missing anything. It's all been a conscious decision to not want that or not need that and life becomes much simpler. It also becomes less costly because you just don't have the same outlays.

Unless inflation really takes off again like it has in the past I wouldn't be too concerned about maintaining a high standard of living. But if one is already living relatively modestly then yes, plan accordingly.

That's a one-time step-down, though, inflation will still be an issue if you have a long life.

 

[crazyfingers]

Or end up in assisted living or a nursing home due to mental or physical deterioration. Rent at assisted living can be around $7500/month. Nursing home is double. That's per person. Have a spouse and it can. Lose to double again.

 

[Toni]

My thoughts? Do NOT quit saving for retirement. You simply do not know what the future will look like. For comparison, when I was about your age (guessing here), my husband and I thought $1M was more than enough to retire on, for both of us. Of course, we assumed a growth of 6-8% and frankly $60K was more than we were earning at the time, so including what we thought we might get from Social Security, we thought we'd be in grand shape.

Three times, the stock market plunged/corrected and we lost a great deal in our conservative porfolio, postponing that $1M mark we hoped to reach each time when we were very nearly there. That can also happen.

I'm not knocking $60K/year. At. All. But I know what my inlaws paid for a senior living apartment and for my MIL's nursing home. $60K would not have covered my mother in law's nursing home care/year. It would have left precious little after paying for the (very nice) senior living apartment where my father in law lived for about 4 years. Maybe enough to cover taxes. Maybe not. My inlaws did not move into senior living until well into their 80's. Their home was paid for, and they moved because it was too much house/becoming too difficult for my MIL who was rapidly losing mobility. They sold their home in a very upscale suburb of a major city for much more money than I will ever be able to sell my home for. My father in law had retired early. Near the end of his life, he was very much afraid of running out of money. If my mother in law had not predeceased him by a few years, he might well have done.



I also have experience looking for nursing homes for Medicaid patients. This is not a situation you (or your family on your behalf) wish to be in, believe me. It isn't that you are treated less well. It's just that, at least at the time when I was looking for my mother, nursing homes had X number of beds set aside for Medicaid patients. X was a small number, and usually filled at any place I was willing to let my mother stay---and by that time, a nursing home was really needed for her. You have fewer choices and the best homes fill their beds very, very quickly.

Whatever your employer, please consider maximizing your contribution to whatever retirement plan they may offer. I realize you have young children and you are probably looking ahead to funding their education. Yes, do that, to the extent that you possibly can BUT DO NOT SACRIFICE YOUR RETIREMENT SAVINGS FOR THEIR COLLEGE!!!!

I truly hope that the US takes its collective head out of its ass and starts to adequately fund post secondary education as well as it did 40+ years ago-or better. I truly hope that the US goes to a more sane way of handling medical care, end of life care, retirement care.

But you can always gift your children money after you reach 59.5 without incurring penalty.

More wisely even, you can start to think about what you want your life to look like in your 60's and 70's and 80's. So with that in mind, look at your home and think about how well your parents or your inlaws would be able to live in it today--and project out another 10-20 years. Think about whether you have a first floor bedroom/bath/laundry. Think about how accessible your home would be if you or your wife had mobility issues. How well can you reach your shelves? How well do you think you'll be able to in 20 years? 40 years? If you consider remodeling or purchasing a new home, think about these things. You want doorways wide enough to accommodate a wheel chair, should the need arise. Ditto shower. Ditto kitchen. Think about flooring. Think about closets. Think about yard work. Sure, your kids might be close by and willing and able to mow lawns, clean windows, etc. Or maybe not.

Prepare for the worst case scenario. Take care of yourselves with an eye to preventing the worst case scenario.

 

[Rhea]

We made a decision to not save any money for kids’ college, but to instead put it all into retirement. That’s worked out pretty well, as we can help them with college from our retirement accounts, but if they had decided to avoid college, we wouldn’t have been able to use a college plan on us.

We’re over 50 and still saving, because as the kids do move out and go to college, (okay, when they are DONE with college - not there yet) we will be paying much less to live than we were when they were dependents. Kids ae expensive! So lifestyle maintains, and we are still putting way money for retirement (imminent < 3.5 years, basically, my husband plans to retire as soon as our youngest graduates college).

I agree with Toni’s points on how expensive elder housing can be. And while I’m personally hoping to not go into one, that’s real, and one needs to decide if one is okay with being broke while old.


Conversely, if you’re never going to have enough to help your long term care costs, and you know you’re going to be on medicaid, the idea of spending it on you for fun while you can still have fun is an idea with merit.

Toni’s arguments make sense for those with enough money to actually stay off medicaid and appreciate the money while infirm. But that doesn’t describe the majority of Americans; I don’t blame people for saying, “spend it while you can appreciate it!”

 

[Toni]

Our kids are all self sufficient adults and have been on their own for some time.

What I have found is that budgets, like nature, abhors a vacuum and.....we had a lot of fixed costs that were not child related: mortgage (now paid), utilities, car insurance for our vehicles, cost of the vehicles! , property taxes are all independent from how many live here. Prior to the pandemic, we are out more than when kids lived here but not that much. We are no longer paying tuition for college—and that money has gone for home improvement projects that were postponed.

Biggest change is that I actually did retire early. I had a very long commute and it was just getting to me too much. Working a few more years was not going to make a big difference in our retirement—I ran the numbers a dozen different ways many different t times for a couple of years before turning in my papers. We had enough saved that if there was a health crisis or if my husband could not continue at his job, we’d be ok. Not great but OK. He planned to continue indefinitely which has been revised to another year or maybe a few more, depending on the day/week. The pandemic and other work issues have started to pile up and weigh him down. Next year may be his last year.

We’re still saving for retirement. And when I do our speculated budget fir our retirement years, I factor in shorter term savings to cover vacations, periodic home maintenance, unexpected expenses. We plan to always do savings. It just won’t be going into a retirement acct.

Now, given how low interest rates are, we are not planning to do what we would otherwise do and invest in CDs, etc. we’d lose more to inflation than we’d gain in interest. We’ll simply draw from our retirement earnings, trying to preserve the capital to hopefully go to our children when we die or to help pay for those expensive elder care situations that might arise.

 

[Loren Pechtel]

We made a decision to not save any money for kids’ college, but to instead put it all into retirement. That’s worked out pretty well, as we can help them with college from our retirement accounts, but if they had decided to avoid college, we wouldn’t have been able to use a college plan on us.

The situations aren't equal--the college plans have tax advantages. I do agree it's a big problem if the kids decide against college, though.

 

[Toni]

We made a decision to not save any money for kids’ college, but to instead put it all into retirement. That’s worked out pretty well, as we can help them with college from our retirement accounts, but if they had decided to avoid college, we wouldn’t have been able to use a college plan on us.

The situations aren't equal--the college plans have tax advantages. I do agree it's a big problem if the kids decide against college, though.

Every financial expert I know or have read recommends to NOT sacrifice savings for retirement for your kids' college fund. And I agree. We have always lived modestly and have always saved for retirement, although I will absolutely confess that there have been times when it was a good thing that we could not raid the retirement account because I really would have done that. We paid for most of our kids' undergrad. Two of them took out small loans because they decided (initially--both ended up changing schools) to go to private schools and because they were not only children: we had other kids to feed/house/educate. Aside from those small loans, we/they paid for all of their undergrax degrees. One went to law school and my choice literally was to offer to help pay/pay outright for law school at the expense of our retirement fund or let him incur the debt which he could pay off by doing what he intended to do anyway: work as a public defender. It was with a heavy heart that I chose the latter because it simply would have been unwise for us to neglect saving for retirement and risk being a burden to any of our kids down the line. One can borrow to pay for education. It is difficult to borrow to fund retirement unless you do a reverse mortgage, which is generally a bad idea.

I absolutely 100% believe that as a nation, and even within my own state, we (taxpayers) do not sufficiently fund education, including post secondary education.

I also think that we should do a much, much, much better job of providing affordable and accessible high quality health care for all, no exceptions. That alone would remove a lot of insecurity as far as retirement goes.

 

[Rhea]

We made a decision to not save any money for kids’ college, but to instead put it all into retirement. That’s worked out pretty well, as we can help them with college from our retirement accounts, but if they had decided to avoid college, we wouldn’t have been able to use a college plan on us.

The situations aren't equal--the college plans have tax advantages. I do agree it's a big problem if the kids decide against college, though.

Exactly. That makes it a huge gamble.
While the retirement money can be taken out with a penalty for other kinds of emergencies, the college fund can’t.
And in our situation, we do not need to take that gamble when the only payoff is lack of income tax on the money. As it turns out, we don’t have to borrow from retirement anyway, so while we may be paying a “premium” in paying our kids’ college with taxed money, we could not have known 20 years ago that they would go to college, that we would make too much money for scholarships, or that they would choose private schools. If we’d chosen to save that much back then, and they opted OUT of college, we would not have been able to recover the money without a 10% penalty

 

[Toni]

We made a decision to not save any money for kids’ college, but to instead put it all into retirement. That’s worked out pretty well, as we can help them with college from our retirement accounts, but if they had decided to avoid college, we wouldn’t have been able to use a college plan on us.

The situations aren't equal--the college plans have tax advantages. I do agree it's a big problem if the kids decide against college, though.

Exactly. That makes it a huge gamble.
While the retirement money can be taken out with a penalty for other kinds of emergencies, the college fund can’t.
And in our situation, we do not need to take that gamble when the only payoff is lack of income tax on the money. As it turns out, we don’t have to borrow from retirement anyway, so while we may be paying a “premium” in paying our kids’ college with taxed money, we could not have known 20 years ago that they would go to college, that we would make too much money for scholarships, or that they would choose private schools. If we’d chosen to save that much back then, and they opted OUT of college, we would not have been able to recover the money without a 10% penalty

A note re: paying for college.

We were very upfront about how much we could pay for for each of our kids--and a few things we would never pay for (spring break trips). Two of our kids started out at private schools with the knowledge that it would involve some degree of loans that THEY WERE RESPONSIBLE FOR, not us.

The other thing I learned rather by accident. At least some private colleges and universities will negotiate tuition rates/grants. That happened with one of our kids who had excellent GPA, test scores. They initially offered only a small amount of financial aid, basically work study which did not amount to much. We did the campus tour, visited financial aid and they were asking which other schools she was applying to. She mentioned a public in a neighboring state which has reciprocity with our state re: tuition, so it would have been effectively instate tuition for us, a bargain in comparison with the privates. We then left to do some activities and were to meet back at financial aid a couple of hours later. By magic, they had located a grant for her that dropped the price of attending to within a few hundred dollars of the public.

The other thing is that there are services which will pay the tuition/housing for you and you pay it off in 10 monthly payments--which can be really helpful because if you have multiple children, especially if more than one is in school at a time, or even if they are attending in sequence, it can be difficult to save up the cost of tuition plus housing upfront each year, especially for multiple students, even if you are quite frugal. Unfortunately, it's been some years so I can't recall the name offhand, but I do know that this was provided us through each school. I don't recall any interest being charged, either, which was nice.

 

[Rhea]

Two of our kids started out at private schools with the knowledge that it would involve some degree of loans that THEY WERE RESPONSIBLE FOR, not us.

We told ours that we would pay 100% for As, 75% for Bs and 50% for Cs. They will get a bill when they graduate and they will owe it to us.

The other thing I learned rather by accident. At least some private colleges and universities will negotiate tuition rates/grants.

We did that with both kids. Or, tried it with both kids. It worked for my son, but not for my daughter. (Odd because her grades were better! But it was different schools )Still, that helps.

The other thing is that there are services which will pay the tuition/housing for you and you pay it off in 10 monthly payments--which can be really helpful because if you have multiple children, especially if more than one is in school at a time, or even if they are attending in sequence, it can be difficult to save up the cost of tuition plus housing upfront each year, especially for multiple students, even if you are quite frugal.

Sounds like a nice plan. We are okay without - we live FAR below our means, so we are able to pay their tuition out of our paychecks - but good advice for those who need the extra time!

 

[Toni]

We told ours that we would pay 100% for As, 75% for Bs and 50% for Cs. They will get a bill when they graduate and they will owe it to us.

We did that with both kids. Or, tried it with both kids. It worked for my son, but not for my daughter. (Odd because her grades were better! But it was different schools )Still, that helps.

The other thing is that there are services which will pay the tuition/housing for you and you pay it off in 10 monthly payments--which can be really helpful because if you have multiple children, especially if more than one is in school at a time, or even if they are attending in sequence, it can be difficult to save up the cost of tuition plus housing upfront each year, especially for multiple students, even if you are quite frugal.

Sounds like a nice plan. We are okay without - we live FAR below our means, so we are able to pay their tuition out of our paychecks - but good advice for those who need the extra time!

We had children at a really young age and while we lived very modestly, it was always going to be beyond our means to save tens of thousands of dollars per kid for college.

 

[Rhea]

We had children at a really young age and while we lived very modestly, it was always going to be beyond our means to save tens of thousands of dollars per kid for college.

The cost of living here is extremely low. You can get a 3BR house on 2 acres for less than $100K, If you’re handy, a livable fixer-upper can be had for <$50K. Even if you want to live big, the McMansions are $300K. So it is possible to do a lot with that.

 

[Toni]

We had children at a really young age and while we lived very modestly, it was always going to be beyond our means to save tens of thousands of dollars per kid for college.

The cost of living here is extremely low. You can get a 3BR house on 2 acres for less than $100K, If you’re handy, a livable fixer-upper can be had for <$50K. Even if you want to live big, the McMansions are $300K. So it is possible to do a lot with that.

Cost of housing is very low in my town but other basic necessities? Not so much. And it’s a very low wage town.