having trouble making a plan

[jIM_Ohio]

I'm 24 and save 25% of my income (plus I have a pension building), and I make $35,000 a year. I plan on retiring when I am 50-55 years old though, so that is why I am being pretty agressive in my savings.

Personally though, 10% sounds like a pretty small amount to me though, unless you are 18-20 years old.

Anyone in their 20's starting off should do just fine with 10%. I started with 6% at age 25 and am doing fine (up to 16% at age 34). 100% of my current income will be replaced (9%-10% return) by age 68, based on present contributions only... current and future contributions are for early retirement, even at 16%.

The issue is 10%, as "conventional wisdom", or "basic advice" forces several big picture benefits.

gets people living on 90% of what they make (in your case, you are at 75%)
gets people starting. I have read that the most successful are the ones which save more than 20%, but I don't see enough to confirm that.
the sticker shock gets people to look at debt and other expenses which are taking priority over saving.

[jIM_Ohio]

You can never account for everything. And by attempting to include everything including the kitchen sink, it just overly complicates matters. It's like trying to measure the distance from L.A. to New York with a yardstick.

The sub step reporting is where I like seeing "info". I know why one calculator said "save more" and one didn't. I have a system setup at Vanguard to increase contributions 1% a year to 401k, and that allowed calculator to assume the 10% I put in now to be 11% next year, 12% the year after...

But seeing the sub steps and what is returning what/constributing what to assumptions is where both were lacking. I don't like Vanguard's reporting at all... T Rowe has a graph I can see which plots contributions vs returns, and that picture really helps.

But neither shows true cost basis vs returns vs balance the way I'd like to see them. So therefore I need to track some of this myself.

I use the online calculators to check my work. They are a tool, not the answer.

[crabbypatty]

Actually Jim, it was your blog that got me thinking about this. I am often confused by your posts but they get me thinking.

Cal me a dinosaur but the thing I don't like about the OL calculators is plugging all my info into it. It might be silly, but I don't want my financial plan "out there". I like to write it all down step by step.

I guess my small steps can be getting to 10% savings. Then max my Roth, maybe next open a Roth for DH, max his. Go from there.

[sweeps]

These are all "tools". Unless you can predict the future, you'll never have the "answer".

[disneysteve]

These are all "tools". Unless you can predict the future, you'll never have the "answer".

I'm reading a very thorough well-written book right now called "The Savage Number" by Terry Savage that attempts to answer the question of how much you need to retire. Of all the books I've read, this one is easily the best in that it really goes into everything you need to consider from taxes, estate planning, long term care, life insurance, healthcare costs, social security, how to draw down your investments, etc. I think it is a great resource for anyone trying to plan the future as best as possible without that crystal ball.

[jIM_Ohio]

Actually Jim, it was your blog that got me thinking about this. I am often confused by your posts but they get me thinking.

Cal me a dinosaur but the thing I don't like about the OL calculators is plugging all my info into it. It might be silly, but I don't want my financial plan "out there". I like to write it all down step by step.

I guess my small steps can be getting to 10% savings. Then max my Roth, maybe next open a Roth for DH, max his. Go from there.

Let me run thru a few things, see if this helps. If you want me to mail you my spreadsheet I can do that. I attached it to this post (it is zipped), let's see how good technology works. On the attached sheet, if you fill in blue text cells at top, the rest of sheet should populate. There are two sets of columns linked to same cells. This is for "if then" analysis, simply break equation of top cells in one group and manually type in to compare.


Here's the layout of "how much you'll have"

If you have spreadsheet, this would work best. You can do this by hand as well. You need 5 columns of lined paper and a calculator.

column A- age (A1 is present age). Add one all the way down. You need to get to age 68.
column B1-enter current amount saved
column C-enter the amount you save each year (8% of income based on earlier thread posts). This is a dollar amount.
column D, enter a rate of return (10% is my suggestion). Keep rate of return constant (10%) from now until age 68.
column E is "year end balance". Add (B1+C1)*(1+D1). The result is what you are projected to have at end of year.

B2=E1. Copy this formula all the way down.
copy column C all the way down.

The result at age 68 is a rosy picture of what you might have in retirement.
Do a check- divide age 68 "retirement amount" by 25. If this is close to your current income, you are doing enough.


The assumptions:
negative:
10% is an aggressive return. Change this to 8% for something more realistic
age 68 is an "old age" to retire. I plan for 68 as "worst case", the real goal is age 60 or earlier
10% is not a realistic return goal within 10 years of retirement.

positive
it assumes contributions based on today's savings level (if you get a 2% raise, this did not account for 8% of the 2% going into savings)
10% returns can be exceeded over short periods. This did not take into account asset allocation.

Logical follow ups to this:

What is asset allocation to get 10% returns
What is value of increasing from 8% to 10% contributions
What is value of Roth?
What is value of looking at taxes (now and later)

[jIM_Ohio]

Patty- check my blog today and see if that helps...

[bigsaver]

Besides saving, I think a good idea to invest in a disability plan. Right now, I save about 20-25% on top of the disability plan, but I also have almost no expenses.