Quote:
|
Originally Posted by Big G
I've always heard to set aside 10% but I don't know why. So I guess I'll take you up on examples. I have no idea of what percentage I'm investing now, I know 5%(401k)+3%(employee stock option) =8% I would assume stock options do not count in this figure.
|
If any of this gets too long, either start a new thread, or ask me to hone in on what questions you have.
You have the distinct advantage over many people which earn more... SS will replace a larger % of your income than it will mine (SS replaces only 25% of my income, it will probably replace close to 75% of yours).
You make 32k per year. Saving 10% knocks your "livable" wage down to 29k and invests 3.2k per year. You will be conditioned to live on 29k (90% of your income level).
To earn 32k in retirement you need to have $1,000,000 ($1 M) to replace this income. This assumption includes a 25% increase in wages (you could make up to 40k and this is still true), and assumes 4% is withdrawn every year in retirement.
the 3.2k you save each year will be enough to reach the $1 M goal. I'll list this later. You have many cushions built into the $1 M. One is you have been conditioned to live on less (have you read you need 80% of what you make in retirement?), as you are living on 90% to begin with.
All retirement savings rates come down to saving "relative to an income level". Meaning save 10% of income level (or 15% or 20%). The issue for someone making 6 figures is $10,000 (or more) a year is MUCH MORE to save, and much harder to actually do.
Here are some checkpoints for you to replace 32k in income for retirement
Assume retirement at age 67. $1 M goal. Current age of 24.
If you have saved
15k by age 31, you need a 12% return to retire
31k by age 34, you need a 11% return to retire
31k by age 31, you need a 10% return to retire
31k by age 27, you need a 9% return to retire (or 62k by age 35 @ 9%)
62k by age 31, you need an 8% return to retire
62k by age 25 (can you get there by next year? LOL), you need a 7% return to retire
125k by age 31, you need a 6% return to retire
If you hit any of these ages/milestones, you will be "on track" AND be able to replace 100% of 32k income.
Now take a person making 100k. If they saved same
amount as you (3.2k) each year, they are only saving 3% for retirement. They would have same milesstones as you... but would be only replacing 30% of their retirement income. This person would likely have to move (to a smaller house) and spend less money in retirement because they saved too little.
However, if the person making 100k saved 10%, their milestones would look like this. Need 3.125 M to retire (income range betwen 100k and 125k), 4% withdraw rate.
48k by age 31, need a 12% return to retire
98k by age 34, need a 11% return to retire
98k by age 31, need a 10% return to retire
97k by age 27, need a 9% return to retire (or 195k by age 35 @ 9%)
195k by age 31, need an 8% return to retire
195k by age 25, need a 7% return to retire
390k by age 31, need a 6% return to retire
So if you made "more money" notice how you need to still stick away 10% just to sustain your income level/ spending level in retirement.
The milestones show savings needed to retire at age 67. If you hit ANY of those milestons (amount saved by given age), you could contribute "nothing" more and still reach goal (based on rate of return and compounding).
Couple of points- if you want 11% or 12% return, good luck.
10% and 9% return would be ~100% equity (maybe 90-10?)
7 and 8% return are 75-25, maybe 60-40 if early years are higher than 7-8%.
6% could be 30-70 mix.
This chart always favors getting more money in early. For example, on my chart, I am REAL close to the age 35 miletone (I just turned 34) for 9% return. Meaning that my additional contributions contribute to early retirement and my existing fund are enough if I leave it be... We are "selling out" this year to get more into the accounts, knowing we'll probably cut back a few years later.
Saving early is more important than saving often.