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Tuesday, December 11, 2007

Retirement: The Million Dollar Question?

In the most recent posts, I've addressed the necessity of having something (sizable) put away for old age. The million dollar question is how much money is enough to take you through old age? And, of course, what do you need to save (and when) to reach your target?

Retirement calculators available on the web, such as this one at Yahoo, are ,fun downright terrifying even for the fiscally responsible (!) to play with. I find it informative to change some of the numbers around and to see what a difference an extra percent of salary put towards retirement makes in the long run. Of course, these calculators are simplistic, but they provide a good overview what you need to be doing now, even if the can only provide a limited amount of information as certain factors are unknown.

A difficult factor to estimate is how income you will need to replace during retirement. Financial Planners will tell you that you need to replace 70-85% of what you spend. This is probably a safe estimate. But, frum families might have a number of other factors to consider, especially if they have run up debt putting on smachot, sending children to school, or whatever else (remember debt spirals up). Another major factor is the amount of support you foresee providing your children during retirement. While I hope to give my children a nice debt-free start and will consider helping with certain things, I'm not intending to provide regular support. But, many of my friends consider regular support to be their pleasure. So, they might want to estimate a replacement income of over 100% of their current expenses (the math should put a damper on any future plans).

While I think these calculators are informative and helpful, I think the most important thing is just to put away something now, if you haven't already, and to try to increase your retirement savings, if you have already established the habit. The hardest dollar to put away is the first dollar.

Continuing with Parshat Miketz from the last post, it says that at a certain point the count [of grain being preserved] ceased. The financial planner I work with at a local bank told me a little anecdote. His wife discovered a huge stack (a few years worth) of unopened envelopes for his retirement accounts. She asks him, "aren't you going to open these." He tells her, "no, I'm not counting." She was taken aback by his relaxed demeanor. But the relaxed demeanor is a function of a consistent and disciplined approach towards saving. At a certain point you can just "stop counting."

10 comments:

Somewhat Anonymous said...

On the other hand - frum families, particularly large ones, will see their expenses drop dramatically as they get older and most and then all of their children are out of school and they are no longer paying Yeshiva tuition, or paying for clothes, food and so on for a large family, but only the parents and maybe the youngest child or two.

Of course one has to factor in the potentiality of continuing support of children as you mentioned, but for many people that will not be for all of their children (some people do go get jobs - don't they?),

My parents (who are now in their late 40s) will see their expenses drop pretty dramatically over the next five or ten years as more of the kids get out of yeshiva (college is cheap or free - viva CUNY), get married and so on. The peak of their tuition expenses has already passed by my math, and the expenses of supporting some of the older kids is less than the combined cost of tuition, food and clothing for them. Additionally, that support will end or at least diminish for some of them as they get out of college or grad school and start to pay their own way.

SephardiLady said...

I agree with your comments. But support isn't just limited to learners. There is getting kids though grad school, helping with downpayments, etc.

Lots to consider.

twinsmommy said...

If we wait to start saving until we're out of debt, we'll be in retirement before we begin saving for it. :) So I guess we're supposed to start saving now but I just can't wrap my mind around HOW. I did build 2 IRAS up to around $1000 each but then had to take the money out to catch up on bills. We're almost 34. Maybe by the time we're 40 we can start. I hope there's hope for us. If we don't retire until 70 and save for 30 years......

David said...

wait a minute - supporting grown children once one has retired is even on the table?

This is lunacy.

SephardiLady said...

Agree David. But many parents reaching their retirement years are still trying to get their children on their own feet.

another jewish accountant said...

how much do you need to save for retirement?! A LOT!!!!! the sooner you start, the better off you are.

Unless you are in a situation where things are very tight now, but will almost certainly change at a certain point in time (in residency program, and income will increase by a significant multiple once you are finished, or other similar situation) you cant put it off! you may think you cant afford it now, but as teh saying goes "im lo achshav ei'matai?"

Ahuva said...

I agree with David-- parents should not feel responsible for putting their children through grad school and providing down payments for houses. At some point you have to teach your children to live within their means-- or you're setting them up for trouble later on down the road.

Anonymous said...

We put away as much as we can in savings but so far I haven't had a pension (I'm 31). You've inspired me to get one sorted and I've already put the wheels in motion. Thanks for your always useful blog.

SephardiLady said...

Anon above-I am so flattered that this blog was a motivation for you to start a retirement plan. That makes my day.

Anonymous said...

A frum family at retirement, age 67, oldest child is how old? Even for a very modern liberal family whose first kid is at 30, the oldest is 37, and for most, the oldest child is in their 40s. I hope by then your oldest children are self sufficient. Even if you had your last child at 42, they are 25 at retirement, and should be on their way to self sufficiency?

You expect to put your children through grad school AND put a down payment on their home? Might want to rethink that investment in graduate school if after grad school your kid still can't support their family.

I'm really shocked... I'm 28, wife due with child 2, put my own down payment together for my house, put money away for retirement, and figuring out how to support my family. I don't object when my parents (still working), buy stuff for my child, or take us to dinner, but I wouldn't expect them to be supporting me after paying for school and later grad school, that's crazy!