Setting the Target Amount for Retirement

[jpg7n16]

FWIW, I only brought up the social security angle because almost every calculator I've used asks about it. I never figured it as part of my calculation before I looked online.

It's a reasonable question. The reason you save is so that you can provide an income through your retirement for the type of life you want. If you are receiving SSI, that is income, and reduces the amount you need from personal resources.

You should also consider potential inheritances, defined pensions, etc. - anything that you can reliably plan to use to have money throughout your life.

[iWilliams311]

Save what you can and enjoy life

It's good that you're using a scientific approach to calculating the amount you'll need for retirement. However, I think what's important here is to achieve a balance between what you can save and how you can still enjoy life. What I do is to set aside a certain percentage of my earnings every pay day and once in a while also set some budget for going out or having a nice dinner with my family. Nothing extravagant but still wonderful since I am with my family. Also, I suggest you start saving up/planning how you can fund post-retirement healthcare, such as long-term care services. I've read that most baby boomers forget to factor this cost in when they're planning for retirement.

[LivingAlmostLarge]

I've come to the thought retirement is expenses. I don't like the calculators who ask how much income to replace. It's ridiculous. Our income is substantially more than our expenses and replace even 70% of our income is about double our current expenses including the mortgage. Without the mortgage it's even less. So I don't think we need to replace as much as calculators keep saying. If we do then we're working a really long time.

[bigdaddybus]

Without turning this into a political thread, can I, a 30-something, count on social security benefits in my retirement?

My opinion is that SS will be somewhat reduced from what we see today.

We have an outside benifits consulting company provide classes to employees at the company I work for (Top Fortune 50 company) and they basically state the following about SS.
1. People lived an average of 9 yrs on SS when it was created.
2. People live longer now, and life expectancy continues to improve, so something has to change in the program to keep it around
3. The solution is a 25-30% reduction in benifits, later retirement ages, or a combination of both.
Its simple, right now there is too much money going out of the SS fund and not enough going in. To repair that, you slow the amount of money going out by (increase age requirements) or (reduce benifit amounts), or you increase the amount of money going in (get more people working)
4. Social Security will be around for you, just in a slightly changed form.


I plan my retirement on multiple income streams (wife and I are age 39)
1. my pension
2. wifes pension
3. my 401K
4. wifes 401K
5. my SS
6. wifes SS
7. my roth IRA
8. wifes Roth IRA
9. non retirement savings and investments
10. inheritence from my parents trust

Will all of these pay out as much as I expect, NO. Will some pay out more than I expect, YES. So its a best educated guess. I think the important part is EDUCATED. Too many keep their heads down ignoring their future. If you track your numbers, and adjust as needed through your career, I think you will be fine.



I agree with others that 20X income is a good baseline target number, the more the better.

[LizfromtheBronx]

As I mentioned in another thread I started over in Personal Finance, I'm getting ready to make my 401k elections at my new company. When deciding how much to put in, I used a few different calculators, including the quiz in the 401k plan booklet.

Based on 60k income, I got a projection of 2.4mm needed! That's 40x! 20x seems awfully low based on that....but if that's the rule of thumb...then I should be in good shape, even being as far behind as I am, not including anything from SS or my small pension from a previous job, or any inheritance I am likely to receive.

[PRICEPLUS]

Calculators are fun but can't show everything or predict the future. AT retirement expenses go down for most. In my case it is taxes, utilities, food and a few other things that will be constant. Save what you can and do the best you can.

[MonkeyMama]

As I mentioned in another thread I started over in Personal Finance, I'm getting ready to make my 401k elections at my new company. When deciding how much to put in, I used a few different calculators, including the quiz in the 401k plan booklet.

Based on 60k income, I got a projection of 2.4mm needed! That's 40x! 20x seems awfully low based on that....but if that's the rule of thumb...then I should be in good shape, even being as far behind as I am, not including anything from SS or my small pension from a previous job, or any inheritance I am likely to receive.

Consider the source. Any investment company benefits from you investing MORE.

[MonkeyMama]

I've come to the thought retirement is expenses. I don't like the calculators who ask how much income to replace. It's ridiculous. Our income is substantially more than our expenses and replace even 70% of our income is about double our current expenses including the mortgage. Without the mortgage it's even less. So I don't think we need to replace as much as calculators keep saying. If we do then we're working a really long time.

Exactly. My personal experience is that expenses are the largest driving force in retirement needs. If you live on a small fraction of your income, you will have no need to save 20 x your income.

Saving 25 x expenses sounds more than ample for our own retirement. I expect we will receive social security, but might try to work or save more, until we know for sure. Will likely receive inheritances too (large ones), but it's hard for us to count on those or rely on those. I think odds are we will receive all of the above, but we will be cautious and assume not. Which will probably put us in the "ridiculously oversaved" camp, like everyone else in our family. It's better than not saving enough, though.

[LizfromtheBronx]

Consider the source. Any investment company benefits from you investing MORE.

This makes complete sense. This particular calculator asked a lot of questions about lifestyle and plans for retirement, and seemed to tailor results based on those factors.

[sophiadcruise]

Re: Setting the Target Amount for Retirement

Every individual wants a safe and secure future even after the retirement from the job. The Financial rules of thumb are just meant for that. If you follow them, you have the satisfaction of knowing that you’ve taken action but they do not guarantee you’ll get the results you desire.

[feh]

This makes complete sense. This particular calculator asked a lot of questions about lifestyle and plans for retirement, and seemed to tailor results based on those factors.

How far away are you from retirement? Depending on that answer, you may in fact need $2.4M.

Is $60K your current income? If so, you're dividing future dollars by today's dollars, which ignores inflation.

[LizfromtheBronx]

How far away are you from retirement? Depending on that answer, you may in fact need $2.4M.

Is $60K your current income? If so, you're dividing future dollars by today's dollars, which ignores inflation.

At least 30 years (I'll be 35 this year).

Yes, $60k is my current income as of next paycheck. Fairly confident that will grow significantly before retirement - could easily see it doubling, and potentially more.

[feh]

At least 30 years (I'll be 35 this year).

Yes, $60k is my current income as of next paycheck.

Right. So it doesn't make sense to say they're recommending 40x annual income. One number is taking inflation into account; the other is not.

[MonkeyMama]

To be fair, I think the younger you are, and the longer before you plan to retire, the more nubulous the long-term future is, and the wiser it is to aim higher.

It's just that the reality of people I know retiring in this day and age is that "saving 20 x income," at or near retirement age, can turn into a ridiculous number. My attitude is thus, "prepare for the worst" early on, but I know at retirement age we can aim much lower for a very comfortable retirement.

[LizfromtheBronx]

Right. So it doesn't make sense to say they're recommending 40x annual income. One number is taking inflation into account; the other is not.

Fair enough...I was just doing a simple calculation, and wasn't taking into account inflation.

It's Friday...tooo...much....math...!