Saving for the future

[musicrocks0304]

Most financial planners have advised that I save 10-15% of my pre-tax income each year for retirement. My wife works as a teacher in Texas, and has her own retirement plan. Does the fact that she has her own plan change anything for me?

[disneysteve]

Most financial planners have advised that I save 10-15% of my pre-tax income each year for retirement. My wife works as a teacher in Texas, and has her own retirement plan. Does the fact that she has her own plan change anything for me?

No. I see no reason why that would change anything.

You need to save 15% of your income for your retirement. Your wife needs to save 15% of her income for her retirement.

[musicrocks0304]

Where does this 15% figure come from? It seems widely universal, yet in reality the figure would be completely different for someone who is starting to save in their early 20's to someone who can't start saving until their mid-30's.

[disneysteve]

Where does this 15% figure come from? It seems widely universal, yet in reality the figure would be completely different for someone who is starting to save in their early 20's to someone who can't start saving until their mid-30's.

That's true. If you are getting a late start, you will need to save more to reach your goal (unless you also work to a later age).

The figure comes from calculations to amass an adequate nest egg to retire comfortable and replace 80% or so of your pre-retirement income.

[musicrocks0304]

So being in my mid 20's, I should still aim for 15%, correct? I've been saving about 10% for 2 years.

[disneysteve]

So being in my mid 20's, I should still aim for 15%, correct? I've been saving about 10% for 2 years.

I would say your goal should be at least 15%.

A good broad budget system is 50/30/20. That's 50% for needs, 30% for wants, 20% for savings. Of the savings piece, 15% for retirement and 5% for other needs. If everyone followed that, this country would be in far better shape.

[bigdaddybus]

To the OP. Since you didn't state where you are at currently, its hard to say how much you should be saving.

Here is a "rule of thumb" that I have read before.

you should have 1X your salary in retirement savings by age 30. 3X by 45, 5X by 55, and 8X by 65.

Many things play into this. Do you or your spouse have a pension? What age do you plan to retire? Do you plan to spend more/less/or about the same in retirement?


So what I would do is this. (at a minimun) Take 30 - your age to determine how long you have to save 1X your salary. take you annual salary - current retirement savings and determine if you have a surplus or shortage. Since you are asking I assume you have a shortage.

take the shortage you have divided by the months until age 30. If you contibute this amount into your retirement savings each month you should be on a good track. (I realize I did not account for growth from interest so this should put you over 1X your income at age 30, and that is a good thing!)

[bjl584]

15% to 20%. That rules applies no matter where you live or how much you earn. If you are older you will want to save more, but you said you are in your 20's, so 15% to 20%.

[SeanH]

If you are handy with excel I'd recommend setting up a rough spreadsheet looking at potential savings and return rates. See where it takes you. How much would you have to save to generate say.. a $1 million* dollars, under a lower rate of return. I suspect you'll find what I did - it takes a lot of time and a lot of saving to generate any sort of amount that seems like real money. I don't say any of this to be discouraging - I just think its something most people you'll meet have never considered. If someone told you they had $2k in income and 2.5K in expenses you'd say - whoa! that's a plan for failure. Most people's retirement is the same way - they are desperately short every month, but the bill won't come due for a long time. I didn't feel 15% was enough for me. Best of luck!

*Number completely made up. It seems like a lot though, right?

[Gailete]

Not only do you need to be saving for retirement, you need to be saving in the right kinds of vehicle. Putting the money in a bank savings account isn't going to be much use. You need to invest in something that over time will multiply it over and over. But for sure be saving 15% and learn to live your life with a little less 'stuff' so that when you are old you will still perhaps own the home under your feet and will have food to eat and clothes to wear plus some 'stuff'.

[scfr]

The ability to save for retirement ebbs & flows through life stages. You said that you are in your mid-20's. If you're in good health and don't have children now but plan to have them in the future, I suggest getting a serious head start on your savings now. Save as much as you possibly can. If you can live on just one income and save 100% of either you or your wife's income, that would be great. Down the road, when your life's circumstances change (children, health issues, career setbacks) you'll be glad you did!!

[jIM_Ohio]

To the OP. Since you didn't state where you are at currently, its hard to say how much you should be saving.

Here is a "rule of thumb" that I have read before.

you should have 1X your salary in retirement savings by age 30. 3X by 45, 5X by 55, and 8X by 65.

Many things play into this. Do you or your spouse have a pension? What age do you plan to retire? Do you plan to spend more/less/or about the same in retirement?


So what I would do is this. (at a minimun) Take 30 - your age to determine how long you have to save 1X your salary. take you annual salary - current retirement savings and determine if you have a surplus or shortage. Since you are asking I assume you have a shortage.

take the shortage you have divided by the months until age 30. If you contibute this amount into your retirement savings each month you should be on a good track. (I realize I did not account for growth from interest so this should put you over 1X your income at age 30, and that is a good thing!)

a person needs 25X to retire
so 25X at age 68
12X at age 60
6X at age 52
3X at 44
1.5X by 36

If you are behind the key is to not take un necessary risks, and focus on good habits. It is easy to catch up, whether by increasing savings rate or making better life choices.

[KTP]

The 25x is a little misleading.

Say you and your spouse make a combined $200,000 a year. 25x $200,000 would be $5,000,000

Here is how the 200,000 a year might be distributed. You pay $40,000 in federal tax, $15,000 in state, social security, Medicaid. You put $17,500 in a 401K each You save $30,000 each year in a taxable account.

So your takehome pay is $80,000.

Do you need 25x $80,000, which is $2,000,000 or do you need the $5,000,000?

Obviously in retirement you don't have to make SS payments or contribute to a 401K.

[feh]

The 25x is a little misleading.

Say you and your spouse make a combined $200,000 a year. 25x $200,000 would be $5,000,000

Here is how the 200,000 a year might be distributed. You pay $40,000 in federal tax, $15,000 in state, social security, Medicaid. You put $17,500 in a 401K each You save $30,000 each year in a taxable account.

So your takehome pay is $80,000.

Do you need 25x $80,000, which is $2,000,000 or do you need the $5,000,000?

Obviously in retirement you don't have to make SS payments or contribute to a 401K.

I'd say the rule of "25 x your income" is more than misleading - it's often terribly wrong, as illustrated above. It's a horrible rule of thumb. It's based on an assumption.

What's important is your expenses in retirement, not your income while working.

[bigdaddybus]

What's important is your expenses in retirement, not your income while working.

agree 100%