How much does retirement cost?
An annoyed retired man wrote to TheMarker this week. He was angry about the paper's ranking of pension fund managers between 2001 and 2005. He has no provident fund and doesn't care that we chose Excellence-Nessuah, not say Meitav, as the best manager. He was mad about something else entirely: our calculation that a couple in Israel needs between $200,000 to $300,000 to finance 15 years of life after retirement. That did it.
"According to that calculation," he rebuked us, "as a pair of retirees, our expenses range from NIS 5,000 to NIS 7,500 a month." Then he listed his and his spouse's real monthly spending.
Food: NIS 1,200 a month.
Kupat Holim: NIS 260.
Drugs: NIS 200.
Nursing care insurance: NIS 330.
Maintenance (vaad bayit): NIS 275.
Maid, other help: NIS 800.
City taxes: NIS 450.
"And that's before we walk out of the house," he wrote, "before buying anything, we've already reached NIS 5,175? and we have other modest expenses."
They include: NIS 440 car insurance
NIS 200 cellphone bills
NIS 175 for television (HOT cable's minimum charge)
NIS 220 for Haaretz
NIS 80 for Internet
And this and that, adding up to NIS 3,465 more.
"So far," writes our angry retiree, "We have spent NIS 9,180, which is NIS 1,680 above the maximum that you set for a couple of retirees. And there are other expenses that are crucial to active retirees. I shall not quantify them here, because you could categorize them as luxuries, such as membership in a country club, support for the kids and presents for the grandchildren, entertainment outside the house, trips around Israel and abroad.
"By our experience, a couple of healthy, active, modest and thrifty pensioners like us needs at least NIS 14,000 a month to live respectably and with dignity," he summed up. And both had until recently been taking care of parents, which just raised the bar. In other words, $300,000 doesn't cut it.
We stand rebuked and accept it. Our calculation of $200,000 to $300,000 in the bank after retirement was based on the average of two figures we received from the Central Bureau of Statistics.
One was the average expenditure of a couple in Israel before retirement: NIS 9,375 a month. The other was the average expenditure of a couple of retirees: NIS 6,656 a month.
It is hard to know the reason for the gap. Perhaps pensioners have less needs and so spend less, or they don't save enough and are forced to spend less and lower their standard of living.
Since we don't know what the right explanation is, we chose the average of the two figures, NIS 8,000 a month, as representing our couple of retirees. That multiplied by 12 (for the year) and then by 15, for 15 years, brought us to NIS 1.4 million, or about $300,000.
That average is a national one, and naturally it cannot do for people of the upper middle class who want to live in comfort, in the style to which they were accustomed, after retirement. For that, $300,000 will not suffice.
Remember that pensions savings are the biggest expense a person has, more than buying a house.
He is right, the author of that letter. One needs a great deal of money to live comfortably after retirement, so one should strive to increase one's pension savings.
What does that mean? To start saving as early as possible, even at the expense of not buying a house when young. To deposit the money with managers who achieve the highest returns for our money; in savings over decades, each fraction of a percent counts. And to insist on discounted management fees: each 1% can translate into tens of percent to your pension.
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