So, how much are you trying to save for retirement?

[aida2003]

Hello,

I am curious how you approach the whole retirement planning and how much are you shooting for?

Do you go by online calculators only?
Do you have a financial planner who does it for you?
Do you make your Excel spreadsheets?
Etc.?

I personally find it overwhelming sometimes.

Let's say you retire at 62 and now you (alone or with your SO) make $80k.
Many conservative planners advice 100% pre-retirement income for retirement.
Is there a simple math?
Based on the scenario above, do you multiply $80k/yr by 30 (hypothetical life expectancy) = $2.4mln and then you adjust it each year based on inflation and current savings/investments.

Share your thoughts, pls.

[Slug]

I honestly haven't found an online calculator that I like. I just max out the 401k and the Roth for right now. I'm not really capable of going much beyond this to add to traditional IRA as well so I don't. I'm also in my 30's so it's easier to just max it and forget it for now. That's probably stupid, but like I said, I really haven't found any forecasting models I really like and predicting the market environment in 30 mths is impossible so predicting for the next 30 years is basically ridiculous. Without a model I can trust, I'll just stick with my simple mantra of "Max it and forget it"

I'd love better advice too.

Slug

[sweeps]

I'm trying to save $2.2 million (in today's dollars).

[disneysteve]

Originally Posted by aida2003

Let's say you retire at 62 and now you (alone or with your SO) make $80k.
Many conservative planners advice 100% pre-retirement income for retirement.
Is there a simple math?

The simplest formula is 25 times income. That allows for a 4% annual withdrawal rate in the first year of retirement which then gets adjusted for inflation each year.

So if you want to have a retirement income of $80,000 in year 1, you'd need a nest egg of 25 x $80,000 or $2,000,000.

You can subtract from that, however, any anticipated pension and social security income. So if, for example, you would get $1,500/month from SS, you only need to generate $62,000 from investments and need 25 x that, or $1,550,000.

If you plan to work in retirement (which is kind of an oxymoron), that changes the numbers again as you can reduce the draw from investments by whatever you are earning from working.

[PauletteGoddard]

I found Henry K. Hebeler's Analyze Now Website a worthy visit for online retirement calculation. I choose the Free Pre Retirement Planning worksheet.

Disclaimer: I am not Henry K. Hebeler, AnalyzeNow.com is not my site. I gain nothing but a temporary glow to the ego by sharing the URL here.

[Broken Arrow]

I'm similar to slug actually.

I currently do not rely on any calculators.

I don't need a financial planner yet....

I don't do Excel, but others may and there's nothing wrong with it.

Speaking only for myself, I am way behind. At least, that's what I believe. Therefore, to borrow slug's catchphrase, I "max it and forget it". And if I should somehow end up over-saving for retirement? Well, there's no law saying that I can't retire early.

I gain nothing but a temporary glow to the ego by sharing the URL here.

Wow, that's the most comprehensive calculator I've seen so far. May your ego bask warmly in the glow.

[safari]

Originally Posted by aida2003

Is there a simple math?
Based on the scenario above, do you multiply $80k/yr by 30 (hypothetical life expectancy) = $2.4mln and then you adjust it each year based on inflation and current savings/investments.

It's not as simple as that. Your money will be earning interest, so for example, if you have $2 mil saved and you earn 5% a year, that alone will give you $100K income during retirement without reducing your principal. So if you will only need $80K a year, you won't have to save anywhere close to $2 mil. Here is a nice retirement calculator that you can play with.

[My English Castle]

The always amusing if not always right Dave Ramsay says 16% of income, or 15% or some number like that.
But I'm gonna try Paulette Goddard's recommendation. Perhaps we can all bask in the temporary glow....

[disneysteve]

Originally Posted by safari

It's not as simple as that. Your money will be earning interest, so for example, if you have $2 mil saved and you earn 5% a year, that alone will give you $100K income during retirement without reducing your principal. So if you will only need $80K a year, you won't have to save anywhere close to $2 mil.

You are forgetting a couple of important details.

1. INFLATION and TAXES: Sure, your savings can earn 5% each year but if inflation is 4%, that's a net gain of only 1%. If that 5% is also taxed at a 20% rate, there goes the other 1%, so you've now had a net gain of zero.

2. LIFE EXPECTANCY: I don't know about you, but I've got no idea how long I will live. It could be 70 or it could be 100. I don't want to spend based on dying at 80 and end up living to be 95. That means you can't plan on living on principal. Between inflation and spending, you would most likely run out of money if you live a long healthy life. That's the reason behind the 4% withdrawal rate that most planners recommend.

[Scanner]

I am shooting for $1,000,000 in liquid wealth and owning my home, so around 1.4 million dollars in worth.

I'd also like most of my marbles.

Oh, why a $1,000,000?

It's a nice round number.

I'm very scientific that way.

[sweeps]

Here is the problem. Even the most sophisticated, comprehensive calculators out there still have to take in assumptions. A lot of them. Your personal rate of inflation, your rates of return, your future earnings, your future expenses, your investing behavior, your asset allocation, macroeconomic changes, your future earnings, the future effect of taxes and other fiscal policy changes, the future of Social Security, your future goals, etc. etc.

One bad data entry and your final result could be off by a million dollars.

[disneysteve]

Originally Posted by Scanner

I am shooting for $1,000,000 in liquid wealth and owning my home, so around 1.4 million dollars in worth.

I'd also like most of my marbles.

Oh, why a $1,000,000?

It's a nice round number.

I'm very scientific that way.

$1,000,000 will generate an annual income in retirement of $40,000. If that's all you need to live, then a million is plenty. Personally, I wouldn't want to live on 40K.

As for the marbles, my favorite scene in Hook is when the old guy is crawling around on the floor and is asked what he's looking for and says he has lost his marbles.

[disneysteve]

Originally Posted by sweeps

Here is the problem. Even the most sophisticated, comprehensive calculators out there still have to take in assumptions. A lot of them. Your personal rate of inflation, your rates of return, your future earnings, your future expenses, your investing behavior, your asset allocation, macroeconomic changes, your future earnings, the future effect of taxes and other fiscal policy changes, the future of Social Security, your future goals, etc. etc.

All true. That's why we should all be saving as much as we can and investing aggressively, not in CDs and money market funds.

[bjl584]

Right now, as much as I can. It's too early on to know exactly what I'll need or where my life may take me. I figure if I can put away as much as possible, then I should be ahead of the game. Long live the anti-consumption life style!

[lucasrd]

I'm going for a minimum 10 million

[Caoineag]

I want a min of $1mill but am hoping for more. Basically, will be maxing out tax advantages accounts and then start on taxable accounts. However, as I am fairly young, a lot can change between now and then...

[brig2221]

Originally Posted by disneysteve

You are forgetting a couple of important details.

1. INFLATION and TAXES: Sure, your savings can earn 5% each year but if inflation is 4%, that's a net gain of only 1%. If that 5% is also taxed at a 20% rate, there goes the other 1%, so you've now had a net gain of zero.

DisneySteve,

I always look for your comments on any threads that I read because I very much respect your thoughts and passion for most of these personal finance related posts.

That said, if I see someone throw around those inflation and tax percentages like you did above, it will be too soon.

I would agree with you that inflation is definitely a concern for retirement, as well as any and all tax implications. That said, I don't believe it is that black and white, or easy to sum up. I would think you would agree that inflation does not affect all of us in the same way. If you own your home, your car, and don't drive all over gods green earth, you probably aren't going to feel the effects of inflation as much as everyone else. So I don't think it's realistic to just take 3% off the top of any interest earnings on principle.

I don't know, but it just bothers me that everyone thinks that is the absolute truth. It's like my cash savings that I have outside of my 401k retirement investments. I have people actually telling me that I am losing money in money market accounts and CD's? OK, so are you telling me it would be better that I just spend the money and not save it, as I am just losing it anyway to inflation? The whole concept throws me for a loop sometime.

[PrincessPerky]

Originally Posted by disneysteve

$1,000,000 will generate an annual income in retirement of $40,000. If that's all you need to live, then a million is plenty. Personally, I wouldn't want to live on 40K.

neither would I but I have been living on less for most of my life..so I guess living on it in retirement wont kill me......


I have to agree with brig2221 in that I do respect your posts..but sometimes I wonder if you realize how little many of us make in a year....

[disneysteve]

Originally Posted by brig2221

I would agree with you that inflation is definitely a concern for retirement, as well as any and all tax implications. That said, I don't believe it is that black and white, or easy to sum up. I would think you would agree that inflation does not affect all of us in the same way. If you own your home, your car, and don't drive all over gods green earth, you probably aren't going to feel the effects of inflation as much as everyone else.

I have people actually telling me that I am losing money in money market accounts and CD's? OK, so are you telling me it would be better that I just spend the money and not save it, as I am just losing it anyway to inflation? The whole concept throws me for a loop sometime.

Nothing in finance is black and white. I'd certainly agree with that.

As for inflation, you are correct that it doesn't affect everyone equally, but it is impossible to predict that. I referred to how inflation might affect your investments, but what ultimately matters is how inflation affects your purchasing power. If you currently earn 50K, for example and 10 years from now you are still earning 50K, you'd be in a lot of trouble as your money wouldn't go nearly as far no matter whether you own your home and car or not. Utilities will go up. Groceries will go up. Medical costs will go up. Gas will go up. The cost of pretty much everything increases over time.

Regarding your CDs and money market accounts, you aren't losing money, of course, but you may not be making much either. The numbers I used earlier are true. If your money market now pays 4% and inflation is 3%, your net gain is only 1% as far as increased purchasing power is concerned. Your balance will increase by 4% but those dollars will have lost some of their purchasing power so they aren't actually worth 4% more.

[disneysteve]

Originally Posted by PrincessPerky

neither would I but I have been living on less for most of my life..so I guess living on it in retirement wont kill me......

I have to agree with brig2221 in that I do respect your posts..but sometimes I wonder if you realize how little many of us make in a year....

My apologies if that comment about living on 40K inadvertently offended anyone. Certainly not my intent. I wrote that specifically in response to Scanner saying he was hoping to save $1 million. I know he is a chiropractor and I'm assuming (always dangerous, I know) that he earns a fair amount more than that. If that is true, I'm not sure that 40K would be a comfortable retirement income for him, just as it wouldn't be for my me and my wife.

I do realize that I'm very fortunate to earn what I earn and I'm well aware of the fact that many people earn less than me. Median household income in the US was about 48K in 2006, so fully half of all US households earn less than that. A retirement income of 40K would be fantastic for a great many people. But if you currently earn 100K or 150K or more, 40K just wouldn't cut it. Heck, here in NJ, property taxes alone would eat up nearly 1/4 of that or more.

Again, sorry if I sounded insensitive to those who earn less than me. Please feel free to point that out to me if I do it again in the future.