What does retirement really cost?

[MoneyGal]

I think the main thrust of such articles is to not listen to the "financial advisors" who are paid to get you to invest. No one is being paid to get to to save.

A thousand times this.

I don't think it is realistic for someone in their 30s or 40s (for example) to accurately estimate what their spending needs will be in retirement. But if you save, and live below your means generally, you will be FINE. It's just that no one makes any money putting that message out there, so you almost never really hear it (except in places like this).

My own philosophy is to spend in areas that are important to me (food, travel, coffee, clothes, personal grooming, house decor stuff), and scrimp mercilessly in areas that are not (cars, cruises, whatever).

[Four Pillars]

I think the answer will be different for every one of us .For my sister in law it went horribly wrong as all their plans were based on two incomes and her husband working until he was 65.She stopped working at age 50 ,they bought their retirement home in another province and at age of 56 her husband dropped dead of massive heart attack.That was about 5 years ago and the retirement they planned and the one she is living because of underfunding is completely different.I set myself 5 year goals as I am winding down the debt phase of our life and entering the catching up of saving phase.

That's unfortunate for your sister in law.

I'd venture that this is an example of not having enough life insurance.

[MoneyGal]

I was actually going to say that. If your plans in life depend on a future stream of income from employment, better insure that stream of income.

[steve41]

I think the main thrust of such articles is to not listen to the "financial advisors" who are paid to get you to invest. No one is being paid to get you to save.

I will take it a step further.... I think the financial industry prefers you to be confused and scared..... 'you can never save too much.'.... 'Don't deplete your savings too aggressively.'
I recall many years ago when I was first trying to flog RRIFmetic. I had impressed a senior office manager of a major brokerage, and he was so enthused that he took it to show the president. He was severely reprimanded..... "We don't want our clients seeing this stuff, we want to keep them off balance." Granted this was about 15 years ago, and things are a bit more enlightened now, but read the current 'financial blueprint' articles that abound.... they don't show a written/numeric plan, it is just a lot of disjointed facts and information, with no detailed layout.... not even a link to an actual cash flow or spreadsheeted result.

[kcowan]

A friend of mine got cancer when he was 61. While in palliative care, he was advised to take early retirement with 100% joint survivorship. So his wife gets a reduced DB pension for life instead of just a $25k company policy payout. While he was not thinking of this, it came about by his friends looking after his interests.

[Eclectic12]

I will take it a step further.... I think the financial industry prefers you to be confused and scared..... 'you can never save too much.'....

That reminds me of when I first plugged in some numbers to an online retirement calculator. The result that came back was a "you should panic". It claimed that on a $22K salary, the "barely retirement comfortable" number needed to be saved was $8 million.

Funny that none of my relatives were complaining yet they didn't have anywhere this amount.


Cheers

[CJOttawa]

That reminds me of when I first plugged in some numbers to an online retirement calculator. The result that came back was a "you should panic". It claimed that on a $22K salary, the "barely retirement comfortable" number needed to be saved was $8 million.

Funny that none of my relatives were complaining yet they didn't have anywhere this amount.


Cheers

For giggles, let's run those numbers.

$8,000,000 divided by $22,000 equals 363.
As in "363.64 years until your money runs out." (assuming no investment returns whatsoever on the initial $8M)

Perhaps the creators of that tool were hoping to filter out anyone who couldn't do basic arithmetic, leaving the truly clueless to contract them for "financial advice."

LOL ($800,000 produces a more plausible 36.36 years until the money runs out, not factoring any returns on the $800k)

[steve41]

Think about it...... the rules/laws of compound interest are fixed, the taxation algorithm, while complex, is reasonably fixed, ditto CPP&OAS&GIS, albeit the latter are subject to inflation. Why then, when you subject your numbers (gross salary, salary inflation, retirement age, amount currently saved (reg/nonreg/txfree) along with market and inflation rate assumptions...... why, depending on the calculator or program you choose, get such a wide diversity of answers? After all if you compute simple PV, FV, annuity problems on a variety of different desk calculators, or submit your tax info to several different tax programs, don't you get the same results?

[Square Root]

many good posts here. it all starts with a retirement budget. I first did ours about 5 years before actual retirement. I t was based on many years of actual spending data. Agree that most people don't have this data so revert to a rule of thumb which is certainly less than ideal. i still remember a very smart guy(he was vice chair of a major bank) ask me how much do you think you need invested to retire. He had asked this question because he was retiring. if he didn't know the answer already, there wouldn't be much hope for the average guy.

[loggedout]

In a world where everything is changing so fast, it's so difficult to anticipate costs for retirement when you are so far away from it. How can one reasonably say how much is enough to save when you still have at least a quarter century to go before thinking of retirement? Maybe when you're closer to it, you can have a reasonable estimate but by then, you won't have enough time to make up the difference if you're short. I don't know what things will be like 5 years from now, let alone 25. IMO, the level of uncertainty present in the analysis of how much you need to save is so high, that it's an impossible question to answer, and you're better off saving as much as you can.

Being that I am very pessimistic about the future, and I don't think we can use models of the era of plenty to estimate on.