7 million I believe from the context of your post you are perplexed as to "how" retired persons live and get along just fine with so little income?

Let use your number of $27,000 per year or $2,250 per month.

First one must understand their house is generally paid for so there isn't any mortgage payment nut to crack each and every month. Typical payments today of $1,200 per month is not uncommon.

Next their car is paid for so they don't generally have a car payment nut to crack each and every month. $400 per month is average.

Additionally, generally they are NOT in credit card debt up to their eyeballs. I don't know what the average is but I don't think $500 per month would be unreasonable.

Finally, on average, most Seniors generally have about $250,000 in cash.
You would NEVER know this however because they generally live well below their means. One of my all time favorite client's lives in a double wide with $1,000,000 dollars in cash and drives an old used car. That's not a typo, $1 million dollars in cash!

The only bills that have to be paid from their $2,250 monthly income are relatively inexpensive basic cost of living items, i.e. food, utilities, car/home insurance.

The $250,000 cash generates on average about an additional $17,500 per year that if structured correctly will only be taxed if and when they use it. Now their total disposable "available" income is an average of $44,500.

Most persons if debt free could live quite comfortably on $44,500 per yr.

That's it in a nut shell.

Persons 60 years old and above control the vast majority of wealth in the USA.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

Gary, I agree with you, to a point.

First off, all that is correct, but is it really what people want in retirement?
I don't know about you, but I want to spend money on my family. Also, I want to travel to places I don't have time to get to today while I'm working. My wife and I would like to the best options in healthcare, just in case. Lastly, I want to make sure I'm taken care of in my elder years.

These goals will not be accomplished at 50-70% of pre-retirement income, even with no mortgage payment, no car payment, etc. Also, most of the families today are concerned they won't have social security and most already do not have any type of pension. So their primary savings has to not only generate an income for them, in retirement, but also provide emergency savings, healthcare, home improvements, etc. And if you don't have permanent life insurance, you may even wish this money to be your Legacy.

The retirees I've worked with over the years have significantly higher expenses in retirement than you'd expect.
1. Cost of health insurance is increasing, and Medicare/Supplements are not cheap. Aside from teachers, none of the retirees I've worked with have healthcare provided by their former employer in retirement. The cost of these plans can rival a car payment, sometimes two.
2. Cost of healthcare is increasing, including prescription drugs. Some of these prescriptions can run $100+ per month even WITH partial insurance coverage.
3. Most of those I've worked with have purchased Long-Term Care insurance. The cost of these plans, since many wait until their 60's to purchase them, are considerable. They work very well, but a quality policy is not cheap.
4. People are living longer, which means longer-term wealth erosion. Inflation is only going to make living on a fixed income that much tougher. Living off fixed interest of investments works just fine over the short-term, but can be deadly over longer periods, like 20-25 years.

I agree that, if appropriate planning is done ahead of time, and effective strategies are implemented, then it is possible to live a good life in retirement on less than you think. But, honestly, those that I've seen cannot afford to take a significant paycut in retirement. And since most people today are not even saving *that* much, let alone what they will probably need, we'll be lucky if they can live comfortably on what they will have. And, if they bet their entire future on the stock market, they could be in for an even bigger awakening.

Most people fail financially, not because their dreams are too big, but because their dreams are TOO SMALL.

For example, conventional thinking says to look at your current salary then it says that in retirement you need some larger-or-smaller percentage of that salary to live on (hence you need a certain lump sum invested in a certain way to produce that weekly or monthly withdrawal).

Now, this may produce the RIGHT result for SOME people, but I believe that any resemblance to what MOST PEOPLE would want to retire on is purely coincidental.

Here are two examples - obviously extreme - to illustrate:

1. Less is more

Let's say that you like surfing ... in fact, to surf every day and just 'be one with the waves' is your Life's Dream. Cash in your 401k and other assets now, move to Byron Bay (Australia) and you can pretty much live the rest of your life on the beach, living off government handouts. Plenty of people are happily living this 'dream' right now ...

Requirement: 0% (give or take) of your current salary

2. More is more

In 1998 I had the audacity to imagine a life where I could be 'free' to travel physically, mentally, and spiritually ... I costed this life in terms of (a) time (I would need to retire within 10 years so that I would be free to travel), and (b) money (I would need about $250k a year in PASSIVE INCOME, indexed for life).

The only problem, in 1998 I was running a struggling business employing 5 people, losing $5k a month, $30k in debt, drawing only $50k a year, and my wife still had to work ... what's more the business had been running that way for 5 years!

Requirement: 500% (give or take) of my (then) current salary

The point here is that your LIFE should dictate your finances, not the other way around ... dream first, financially plan accordingly.

I agree that your life should dictate your finances. The majority are a slave to their money when they should really be the master of their money.

It is really simple to accomplish that (not easy but very simple) but regardles the majority will always fail to capitalize on opportunities presented to them.

Click HERE for an in depth understanding of how a retired couple living on $2,250 per month has more money and disposable income than a younger couple netting $6,000 per month.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

IMO, the reason behind the fail is lack of time or busy schedule as a result of which the majority always fail.

will i ever retire?

I am 27 now and aiming to retire at no later than 40 years old. I work full time and when I'm not working, I'm working at home making money with side jobs. I then amplify those earnings by investing in the stock market. Its a lot of work, but everyday when I wake up, I just picture myself in that dream retirement home and remind myself all over again that the work is well worth it.

40? You are going to generate enough income in the next 13 years to live off of for 30+ years? Good luck with that.

I fully agree with you. Some retirement planners and calculators scare people into targeting 70-80% of their pre-retiremnt income. Here is how I look at it.

Savings
1. Like you said, the home should be paid of before you retire. I would not want to retire until I have paid off my home or have enough equity to downsize into a paidoff home. If you downsize your home, you save on utilities like electricty and fixed expenses like property tax
2. You do not need two cars (just one) if both spouses are retired. That saves another 60 a month in insurance alone. Since you drive less, you would save in gas and maintenance too - like new tires and oil change
3. Clothes - you do not need to wear business casual ... you wear denim all day even if you are visting friends ... casual clothes last longer and are cheaper.

The only expense that should go up in retirement is health care expense. All other expenses likely to go up are discretionary types - like eating out more often, spending money on hobbies, traveling - car/plane/cruises, pampering grandkids with gifts etc.

Your pre-retirement income is usually taxed in a higher tax bracket. So, if you were making 100k (annual for both spouses) before retirement and paid 25-30k in social security, medicare, federal and state taxes, living off interest income of say 50k will incur taxes of only about 5k as interest income is not taxed for social security and medicare and federal and state taxes would be assesed at a lower rate. So, instead of a take home of 70-75k annual, you take home 45k annual.

Hey I'm all gung ho for the 10-20 year retirement plan, and I'm just graduating college and heading for an MBA :-p

It's totally doable, just buy a house you like the first time that's reasonable, and live below your means. All of a sudden, you sell your home business to a major firm and retire fairly well.

no vacations every 3 weeks, but dinner every friday night out is prolly doable. :-p

Always exercise the 10x rule before considering retiring.

What the 10x rule means is that you would have 10x your yearly income set aside in saving before you retire and thats not including inflation or what not.

From my experience I can say that such article are usually overoptimistic. First of all you need to check this info with more reputable sources and then use military retirement calculator to calculate the details of the retirement. Only after that you can make a decision.