This can't be right

[ceejay74]

I just tried to find a retirement calculator, and did one on CNN.

As you regulars may remember, I have 3 adults to account for, so for the purpose of the calculator, I combined 2 of our salaries and retirement amounts into one person. Also used our two oldest ages.

I said I wanted $80,000 income in retirement (we have about $125K now pretax, and a lot of expenses/debts that will be gone by the time we retire).

Ages 37 & 38, planning to retire at 70, life expectancy 90-95, no raise typical. (Haven't received one in several years and don't know when we will again.) I set expected Social Security to 0 since I don't know how it will work moving to England, plus craziness of US govt. (I suspect England will take care of us to some degree, but who knows?)

Current retirement accounts total balance $127K. We put 4%-6% of annual income away in 401(k). Also 2% of $46K income thru matching.

We also have about $10K in Roths. Put $3600 more in annually. Most of our accounts are aggressive.

Here's the result I got from the calculator:

"In retirement, you and your spouse will need $80,000 a year in income. (Because of inflation, in 2043, that will be equivalent to $206,006.)

"Part of that income will come from your Social Security and/or pensions. To produce the rest, you and your spouse should build up your nest egg (including your 401k, IRA and other savings accounts) to $1,367,842 by the time your spouse retires. (In 2043, that will be equivalent to $3,522,307).

"YOUR CHANCES OF GETTING THERE
To save $1,367,842, your investments need to gain an average of 8.28% from now until retirement. We estimate that there is a 91% chance of this happening."

I was assuming we're a looong way from where we need to be. This is telling me if we stay the current course, we are pretty close. Can that be true? Do I need more in retirement than I'm saying? Is something about the numbers I entered off kilter?

Here is the calculator: Calculators - Retirement Planner. Does anyone know if that's a good one?

I don't want to rest easy if this projection is too optimistic. I don't feel like we put enough toward retirement, and I intend on putting more away once we've paid off more debt (in about 5 years we should be debt-free except mortgage). But if we are closer to our ideal than I thought, I want to know that too. There are other things I could do with money (kids' college savings, charity, fun stuff) than save more for retirement, if that isn't necessary.

Anyone care to weigh in? I still haven't thought about retirement in an organized fashion because I've been mostly focused on getting out of debt and other necessities.

[kork13]

I've designed my own minor calculator, and it mostly matches up, though I'm not sure where the >8% comes from...

My calculations:
~$11000/yr saved for 30 years with an average 6% annual gain will bring you to ~$1.5M. That $1.5M (at ~4% return, withdrawing $80k/yr) would last you for about 30-35 years before it dries up. By planning to work until 70, that helps out your numbers alot. Saving for only 25 years, that drops your future balance (today's dollars) to $1.1M, which would only last 20 years.

DISCLAIMER: Those numbers are all VERY approximate, but probably decent at least for a "ballpark" look.

[ceejay74]

Thanks so much for working it out, kork! Maybe their 8% requirement is because they adjust for inflation. I think they're trying to get me to where I would be drawing the 2043 equivalent of $80,000. Does that sound right? In your calculator, are you figuring I would literally take $80,000, or are you adjusting for inflation?

[kork13]

I don't deal with inflation, everything is in 'today' dollars, taking out $80k worth of cash however far down the line it may be. Think of my 6% & 4% figures as "above inflation". If inflation is 2.3%, you need to average 8.3% over the next 30 years. I think that's about equivalent to what they did... I plugged the numbers into my calculator again (accounting for that 2.3% inflation), and came up with $3.4M at year 33. So as I said, my figures are only guesstimates, but probably good enough to give you the right idea.

[jpg7n16]

I got a little bit different numbers from Kork.

Using a beginning balance of $127k, annual contributions of $11k, and an average return of 8%, for 31 years (70-39) - I got to a balance of $2,736,998.57 at retirement.

Withdrawing 206,006/year (accounts for the rise in expenses due to inflation), reducing returns to 6% in retirement (to reflect lower risk tolerance), and keeping inflation at 3% - I got that you would run out of money in about 17 years. Meaning that without social security, you'd be broke at 87.


I always like to overestimate for retirement to give yourself a cushion. Yes 4-6% + 2% match of $125k seems like a large dollar amount ($11,000 is a lot of money), but you've got a long way to go to get to the suggested 15-20%. (This should be $19-25k + 2500 employer match)

If you began saving 15%, your money would extend to 29.4 years - aka age 99. (same assumptions)
If you began saving 20%, your money would extend to 39.1 years - aka age 109.

Those numbers give you more wiggle room.


So do you need to start saving 15-20% immediately? No. It's a goal to work towards. But at least do 10%, and start increasing that by 1-2%/year.

[ceejay74]

Thanks jpg. It makes sense that I need to put aside more than we are now. We do have $137K, not $127K, because of the Roths, but I don't suppose that changes the facts much.

Even feeling like we are within spitting distance makes me more motivated to up the retirement contributions, actually. It's so counterintuitive, but I thought we were so far off, I couldn't really comprehend, so I just decided to work on things which seemed controllable and finite (EF savings and debt reduction). If I get us all to 6% on our 401(k)s and add another $100 monthly to the Roths, that would bring us really close to 10%.

I think I'll work on that over the next few months.

Thanks so much to both of you for taking the time to advise me.

[jpg7n16]

My apologies, I saw 'total retirement accounts' and went with that number.

Adding the $10k in your Roth will add about a year to all the estimates I posted above (current pace 17.92 years; 15% - 30.7 years; 20% - 40.8 years) So yes it's all very close. And they are estimates anyways (or as Kork called it - guesstimates ). You may do better, you may do worse. That's why I prefer a little cushion.

I'd rather save a little too much, than a little too little.

You seem like you'll do just fine! Just don't let your great income go to waste. Save up now while things are going very well for you guys.

Best of luck!