Retirement Planning: Epictetus, Jimmy Buffett, and You

John McCumber

John McCumber

John McCumber is a cybersecurity executive, retired US Air Force officer, and former Cryptologic Fellow of the National Security Agency. In addition to his professional activities, John is a former Professorial Lecturer in Information Security at The George Washington University in Washington, DC and is currently a technical editor and columnist for Security Technology Executive magazine. John is the author of the textbook Assessing and Managing Security Risk in IT Systems: a Structured Methodology

Related Post Roulette

6 Responses

  1. Avatar Damon
    Ignored
    says:

    About a decade ago, maybe less, my advisor said my retirement plan “failed” because my expected life expectancy was longer than my retirement fund having money by one year. I told her I’d die before 92 anyway so my plan is still valid. 🙂

    Seriously, the best way to not spending money, I’ve found, is to not have it. Money gets taken out for my 401k, before I get my paycheck, then the credit union takes more money and shoves it into other accounts outside of my checking account. I live on what’s in the checking account, with only the occasional savings withdraw to cover large unexpected expenditures or vacations, both of which get re funded back into savings. But I also don’t drive a 50K SUV, and my car is a 2012 model year.Report

  2. Avatar Jaybird
    Ignored
    says:

    Okay. What would you need to have in the bank for you to *REASONABLY* retire?

    85%?

    Because I am lazy, let’s say that our hypothetical person currently makes $100,000. So, what’s 85% of $100,000? Um… okay. $85,000.

    Okay, first off, that’s *WAY* too much. That’s nuts. You’re retired! You should be living in a house that is paid off, at least, and what are your entertainments that they require that much money? Okay, okay, okay. So assuming you get paid out 4% of your interest payments from your retirement (so you can keep the nut of it), what’s 25 x $85,000? Get on the google and… $2,125,000.

    Huh. That’s not as bad as I thought. I mean, 2 and an eighth million dollars is a *LOT*. But if you’re making $100,000, it should be achievable. Right? By age 67, right? Is 4% an insane goal?

    $85,000 seems like an insane goal.Report

    • Avatar Michael Cain in reply to Jaybird
      Ignored
      says:

      The 85% applies to take-home pay, not gross. So from that $100,000 gross, subtract out $7,500 for FICA payroll taxes, some amount for income taxes, some amount for employer-provided health insurance, and whatever you were saving towards retirement. Let’s guess that take-home amount was $60,000. Now subtract out your Social Security benefit*, say $22,000, so $38,000. Add back in a Medicare Advantage plan ($148.50 per month this year) puts it at $40,000. Add 10% for income taxes but no FICA and arrive at $44,000. Assuming linearity on your savings formula, you don’t need $2.125M, you only need a nice round $1.0M.

      * In structured interviews, when people are asked a series of questions about government competence and solvency, they arrive at a stated opinion of “I won’t ever get a dime from Social Security.” When the questions lead up to funding a retirement, they arrive at “Well, first there will be Social Security…”Report

      • Avatar Michael Cain in reply to Michael Cain
        Ignored
        says:

        And reviewing my work after submission, I see that I never did apply that 85%. So even less.Report

      • Avatar Jaybird in reply to Michael Cain
        Ignored
        says:

        I am making *ZERO* assumptions about Social Security. The last time I looked, the report said something about insolvency right around the time I turned 65. Which, as I recall, was funny.

        So if so-and-so wins the lottery (not, like, mega millions or powerball, just the state lottery) and after taking the lump sum and paying taxes, ends up with 1 million bucks. (Maybe 1 million plus whatever remains on the mortgage. So they pay off the mortgage and end up with 1 million bucks.)

        If they drop this million bucks into a retirement fund, they could, in theory, retire now.Report

        • Avatar Michael Cain in reply to Jaybird
          Ignored
          says:

          If you don’t include it in your planning, that’s an assumption. Keep in mind that when conservatives in particular say that Social Security will be “insolvent”, they mean the trust fund hits zero and benefits will only be paid at 70-75 cents on the dollar (so, $16,500 rather than $22,000). That is, the massive trust fund that the Boomers built up — paid to prefund part of their benefits rather than the straight PAYGO public pension arrangement for earlier and later generations — runs out just about the time the last of the Boomers die off.

          This is exactly the 60-year future that the Greenspan Commission under Reagan recommended and Congress approved. They got all but one of the details right. Eg, lifespan and worker-per-retiree ratios are almost exactly on pace. The only thing they got wrong was the salary cap. The Commission’s actuaries assumed productivity gains would be uniformly spread across the full range of incomes. That wasn’t a bad assumption based on 1945-1980 data. Instead, those gains have been largely captured by high-income individuals.Report

Leave a Reply

Your email address will not be published. Required fields are marked *