Retirement Savings with Potential Pensions

Re: Retirement Savings with Potential Pensions

• Xstatic3333 member

  

  October 2013

  I'm worried about the same thing. DH has to pay 9% into a pension account. I'll probably be able to max out my Roth IRA most years, but after the rest of our savings "envelopes" and loan payments it will be tough to get one going for DH as well right now, as much as I know we should.

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• CuriousKiddosMama mod

  

  October 2013

  Do you know how your money is invested through the pensions, and how well managed they are? I have a pension that I feel pretty confident it will be there when I retire. I was a teacher and contributed to TRS. Every year I get a statement from them that describes how the fund is doing, how much is going in every year, and how much is being paid out to current retirees. We always tried to contribute 15% on top of that though because I've never known how many years I will teach, and therefore, how much % wise I will get of my salary when I retire.
  With 2 small kids you may be doing what you can right now! When you get raises, maybe you can set aside some of those raises each year to contribute more towards your retirement.
  

  

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• hoffse member

  

  October 2013

  I have a some thoughts on this.  As always, these are just opinions.

  
  

  First and foremost, the 15% rule is just a benchmark.  It's an average.  The vast majority of people won't run out of money in their retirement if they invest 15% of their gross incomes starting in their mid-20's.  Do thousands of people retire successfully each year after investing less than that?  Absolutely.  So while I think 15% is certainly the goal - and don't get me wrong, it should always be the goal - don't panic if you aren't quite there.

  
  

  To get a better idea of what you need for your specific situation, take a look at some calculators to see what you are projected to have outside of your pensions, given the rate at which you are contributing.  There are dozens of growth calculators online to help you figure this out.  I'll repeat: don't include your pensions in this calculation.  Also, I wouldn't include social security (though I'm admittedly a negative Nancy about that).  
  

  
  

  Also look at some retirement calculators that tell you how much money you need to live on X dollars per year in TODAY'S dollars.  It might take some time to figure out what you would need to live on (look at your expenses, subtract things like daycare, maybe add some wiggle room for things like increased healthcare costs and a more expensive standard of living, etc.).  Make sure you are using a calculator that takes inflation into account - otherwise your number will be too low.

  
  

  The retirement "formula" assumes you withdraw 4% of your retirement funds in your first year - usually the age of 65.  Then every year after that you withdraw the same amount plus a bit more to keep up with inflation.  That essentially gives you a fixed income for 30 years and makes it highly unlikely that you are going to run out of money, as long as you stay invested in safe funds.  The remaining money will continue to have some slow growth even as you pull cash out of those accounts.

  
  

  If it looks like you are going to need way more money than you can reasonably save at the rate you are contributing, get creative with ways to shorten that gap. I'll post some ideas about ways to do this in a new window - trying to keep my individual posts less wordy

  

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• hoffse member

  

  October 2013

  OK, some ways to close the gap between what you will have and what you should have:

  
  

  1) Take a hard look at your expenses - not just your bottom line, but what that bottom line is buying: do you have a gym membership you never use?  Do you throw away a lot of food every few weeks?  Do you pay for cable to watch 3 or 4 big games each year?  Are you pouring money into cadillac baby gear that's reasonably only going to last one year at most before baby outgrows it (and remember: these are things your baby will absolutely not remember having)?  If so, re-evaluate not just how much you are spending, but what you are spending your money on.  

  
  

  Money is a finite resource, so you need to be strategic with it.  I'm not saying that you should never eat out again or  you should refuse to buy groceries unless there is a coupon.  I don't think that's sustainable.  But really take a look at what you are buying with your finite resources and be open to the possibility that you might be making some poor choices here and there.  People tend to get really defensive about their spending habits, and ultimately that sort of stubbornness only hurts them.  The great thing about spending is that it can always change if you're willing to be honest with yourself.

  
  

  2) Consider funding your retirement before the e-fund.  After the 2008 mess a lot of people lost their jobs and the e--fund became the thing that everybody wanted to talk about.  E-funds are very important, yes - but I think retirement is more important.  With decent health, you might have 30+ years of retirement that you need to prepare for.  

  
  

  You do need some cash in case your car breaks down, you need to max out your health insurance deductible, etc.  But after you have what is truly an emergency amount stashed away (for me that's about $3K - $5K), turn your attention to your retirement first and then focus on growing your e-fund after you've gotten your retirement contributions up.

  
  

  3) Definitely fund retirement before your kids' college accounts.  I am all about getting parents to help pay for their kids' college experience, but at the end of the day you can take a loan out for college.  You can't take a loan out for retirement.  Your retirement is your future.  College is your kids' future.  It might feel selfish to fund your future instead of your kids', but in the long run that approach works in everybody's favor.  When you don't have to spend the last 20 years of your life in your child's basement, s/he will thank you.

  
  

  4) If you are worried that the gap is still too big, consider retiring 5 years later.  Or think about semi-retirement.  Plenty of retirees take up second jobs or part-time work to stay active.  Realistically, we probably won't be sitting on a beach sipping pina coladas for most of our retired lives, and we're probably going to want to do something to get us out of the house.  Why not have that be something that earns a little income too?

  
  

  5) Consider expenses you can reduce or eliminate before retiring.  Best example: your mortgage.  Wouldn't it be nice to retire with your house paid off?  Suddenly you need a lot less money to live on.  Another example: HELOCs or loans you might have taken out to help a child or grandchild with school.  I'm normally not about pre-paying a low-interest mortgage or loan, but if you are approaching retirement age, I think it's worth considering.  

  
  

  Alternatively, consider working until that debt is gone.  That would be my preferred solution if we were only talking about needing a few extra years to retire debt free.  Working until it's gone without pre-paying means you have more time to save, more cash available to you each month to save, less time spent in retirement that you have to fund, and you also retire debt free.  That's a grand slam.

  
  

  6) Finally, keep the pension out of the equation until you get your first pension check.  At that point, once you know it's happening for sure, you can celebrate having enough money to not only retire, but to really enjoy your golden years.  Who knows?  Perhaps you'll even leave a little bit behind.

  

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