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BY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY
Guy I know named Buddy — in his late 70s, retired for 15 years or so, a widower — read my column last week. I had quoted a few financial planners saying that you need at least $1 million to retire comfortably in New Jersey.
Buddy emails me a message: "I guess I'm gonna have to go back to work."
He's got a good sense of humor.
Actually, it's serious matter. If you don't have nearly enough money to retire comfortably, you need a job — and jobs aren't plentiful in New Jersey right now.
Eve Kaplan, CFP, of Kaplan Financial Advisers in Berkeley Heights, believes that most people have far too little money saved for their retirement years. She believes that a couple who are retiring need $1,500,000. Minimum. Taking into consideration inflation, health-care expenses, taxes, and so forth.
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Steven Kaye, CFP, who runs the American Economic Planning Group in Watchung, has a similar estimate: He believes that a reasonable figure is $1,850,000.
His thinking: Say someone spends $100,000 a year. His Social Security benefits are (after tax) $18,000. His (after tax) pension benefits are $22,000.
So he needs $60,000 (after tax) income from his investments.
Assume that he has a pre-tax yearly income of $75,000 — and pays an average 20% tax rate. ($75,000 times 0.8 is $60,000.)
Also assume, Kaye goes on, that this would-be retiree decides to withdraw 4% of his nest egg every year. (A 4% withdrawal rate is considered pretty safe.)
That means that he needs a nest egg of $1,875,000. ($1,875,000 times 0.04 is $75,000.)
Jo-Ann Gallerstein of JG Advisors in Morristown is in the same ballpark. She suggests withdrawing 3.5% to 4% a year from your nest egg.
"Increase this withdrawal annually by 3%," she proposes, "to account for the steady rise of prices each year.
"For example, if your nest egg is worth $1 million, multiply this by 3.5% to get a withdrawal amount of $35,000. Next year, increase this amount by 3%, for a withdrawal of $36,050. Add this sum to your Social Security payments and any other annual income outside of your investments to determine your prudent retirement spending.
"To sustain this nest egg for a 30-year retirement, consider an allocation of 50% equity and 50% to fixed income. After a steep stock-market correction, the withdrawals may have to be curtailed for a couple of years to allow your portfolio to regain ground."
So, if your annual Social Security is $18,000, your pension is $12,000, and a prudent withdrawal rate yields $35,000 (all after taxes), your retirement spending should run $65,000.
If this number is too low, she continues, your choices are to save more aggressively or to think about spending less — or both.
***
At this point, I went back to my friend, Buddy, who has happily retired on far less than $1.8 million — or even a measly $1 million. What's his secret?
His response:
"Actually I've been retired 17 years and four months, and haven't worked one day since. If I made a budget, I'm sure it would scare me and I would have to search for a job. My career was in aerospace and not many jobs are available in that area now.
"My yearly income is $23,868 and my expenses
are $20,880 (Fios, car insurance, PSE&G, food, gas). Eating out averages about $1,000. My two vacations each year run about $900. That almost uses up all of my annual income."
Two vacations for only $900? His explanation: "My kids charge me only $300 for a week in Stone Harbor because they use me as a baby sitter. My Myrtle Beach trip only costs me $575 plus food."
"Also you can add in the $473 that I have to
pay the IRS this year for my Federal Taxes. Please pass the hat for me!
"I should add that my eight grandchildren have birthdays, Christmas, and Easter presents that Grandpa has to give to keep my good standing in the family.
"In spite of it all, I'm a very happy guy and, after three major surgeries in the last three years, glad to be here and enjoying life."
You're invited to send financial questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
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Good advice about your 401(k) plan
The assumed pension were $18K and $12K net (so perhaps $20k-$25k Gross). These low pensions are WHY these individual must save so much to be able to retire in reasonably comfort.
So .......... perhaps they would need a bit less if their NJ income & property taxes were lower .... by NOT having to provide pensions for out state, county, and municipal Civil Servants that (with a $140,000 - $15,000 Gross salary) are more likely $100,000/yr (and, inflation adjusted) .... eliminating ANY NEED for them to save AT ALL.
Just doesn't seem fair.... dose it ?
Governor Christie has just reached first base in addressing necessary pension changes, as so far, they only apply to NEW employees. WE desperately need to reduce pension formulas (not for PAST) but for FUTURE years of service for CURRENT (yes CURRENT) Civil Servants.
We need this not only for simple fairness (to Taxpayers), but to avoid the Public VS Private Sector Civil War that's sure to come in the absence of these changes.