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How do you plan for Retirement?

On a Personal Finance and Money board within the Stack Exchange Network, I’m a frequent poster, answering questions as they come up. On occasion, I’m struck by a question that’s so well thought out, it’s worthy reading in its own right. The question asked was “One should save about 15% of their income for retirement.” What assumptions are tacit in that statement? and the clarification follows:

What assumptions are tacit in the statement that “saving and properly investing 15% of one’s income over a lifetime is a pathway to a successful retirement?”

By this, I mean items along the lines of:

  • Single, married, or single and dating at time of retirement?
  • Retire at 55, 60, 65, 80?
  • 25K/yr income, 50K/yr income, 150K/yr income?
  • That 15% goes to a tax advantaged account? (i.e. 401k, IRA, Roth, your nephew’s 529?)
  • Kids or no kids?
  • Paying for said kids’ college or not paying?
  • 2003 to 2007 returns, 2008 to 2009 returns, or “I averaged the whole S&P500 over 2 world wars and order of magnitude technology advances” returns?
  • Dual incomes the whole time?
  • Making a lot more money at time of retirement, or making about the same money as early to mid career at or about the time of retirement?
  • Renting a house the whole time, or owning a house as early as possible?
  • Obscene ROR’s on that house, or assuming it loses money?
  • Your expenses go down at retirement, stay the same, or go up?
  • Medicare exists? Social security exists? Tax rates go up, down, stay the same?
  • You’ll never get laid off, you might get laid off, you get laid off often?
  • Family helps you out with major purchases, or does not?
  • No, big, or modest inheritance?
  • Live in a cheap area, or live in a “statistically average for costs, land, CPI, wages” area of the US?
  • Taxes go up, taxes go down, taxes stay about the same?
  • Leaving a nest egg when you die? Or, dying broke?
  • Living to the statistical average age of men and women in the US, or, living to be 101.2?
  • Inflation under control? Inflation to the moon? Has it considered deleveraging and deflation?
  • State with an income tax? Or only a state with sales tax?

The truth is that no answer could really address this list. 22 items to consider, each of which might greatly impact the money you’ll need to retire in the manner you’d like. In general, I think many people will prefer a downsize, if they hadn’t done it soon after the kids took off for college. In which case, money for housing expenses might drop and can be used for travel or other things that the retiree might want to do.

What do you think of this list? What’s missing? Is it possible to plan for every variable decades away or does the picture only get clear as retirement gets closer?

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