Saving 15% works!

[LivingAlmostLarge]

I have a feel good story I thought I'd share. A friend of mine was telling me that saving 15% of her income was the easiest thing when she was working and that it did a lot of heavy lifting for retirement.

Well she started at costco at 18 and didn't go to college. She started saving 10% for the first 2 years then 15% from years 20-38, she only ones part-time now because of her kids. She maxed out at $50k/year and has always saved 15% of her income and she's 39 and has $300k in her 401k. She's now set for life even if she never saves again. All the early saving did it for her.

She said I always tell people starting out to save 15% of their income and it'll do it for them. But most people never do. She looked at me and I said "no worries we're fine."

We missed saving in our early 20s and so we had to save A LOT more money to make up for it. We're still socking it away because of it. But the compounding works!

[rennigade]

Maybe im missing something but you said shes 39 now and works part time. How is she set for life if she only has $300k in her 401k? Dont get me wrong thats a lot of cash but if she isnt even 40 yet hopefully she has a long healthy life ahead of her.

[LivingAlmostLarge]

She just stopped at year ago working full time and shifted to part-time. Before that she worked almost 20 years making $50k and saving 15% the entire time. It compounded to $300k

[Petunia 100]

Maybe im missing something but you said shes 39 now and works part time. How is she set for life if she only has $300k in her 401k? Dont get me wrong thats a lot of cash but if she isnt even 40 yet hopefully she has a long healthy life ahead of her.

She's not living on it yet.

She could easily have 600k at 49 and 1.2m at 59. If she works until her 60s, she will retire with SS benefits and a nest egg somewhere between 1.2m and 2.4m. Not too shabby. It will take an average annual return of 7.2% to get there. Not guaranteed, but not pie-in-the-sky either. Quite possible.

[thestrongprofessional]

This just goes to show how setting aside just a little bit of your income each month can set you up for financial independence in retirement. Thanks for sharing.

Raphael

[StormRichards]

She's not living on it yet.

She could easily have 600k at 49 and 1.2m at 59. If she works until her 60s, she will retire with SS benefits and a nest egg somewhere between 1.2m and 2.4m. Not too shabby. It will take an average annual return of 7.2% to get there. Not guaranteed, but not pie-in-the-sky either. Quite possible.

Although this woman has done very well, I am with rennigade on this one regarding the set for life part.

[TexasHusker]

All depends on how you define "set for life". As an example, you could invest the $300K in a business that's throwing off $100K profit as a passive investment. I know those deals are out there - speaking from personal experience.

If you're going to rely on the old "take no more than 4% out annually", then yes, this lady has many miles to go.

[corn18]

How do I block all posts from a single user?

[97guns]

All depends on how you define "set for life". As an example, you could invest the $300K in a business that's throwing off $100K profit as a passive investment. I know those deals are out there - speaking from personal experience.

If you're going to rely on the old "take no more than 4% out annually", then yes, this lady has many miles to go.

But with her funds being illiquid and locked up she has set herself up to work another 20 years before realizing any income from it

[scfr]

How do I block all posts from a single user?

On your control panel, under Settings & Options, click on "Edit Ignore List" and add the member's name.

[TexasHusker]

But with her funds being illiquid and locked up she has set herself up to work another 20 years before realizing any income from it

That is the downside of government endorsed forms of savings and investment plans (IRA, 401K, etc.)

The gubmit's prescribed way to retirement is save all you can, defer the taxes, and then live off of whatever you've saved when you are 60, 65, etc.

That is the line of thinking that most folks take. Not a thing wrong with it either.

But if you want to retire at say 45 and have the risk tolerance to find significantly better income streams, the government endorsed stuff is going to leave you pretty disappointed.

[Petunia 100]

Although this woman has done very well, I am with rennigade on this one regarding the set for life part.

The most she has ever made in her life is 50k. Using the standard 4% withdrawal rate, her 1.2m to 2.4m nest egg will provide 48k to 96k per year. Her SS benefits are in addition to that. Please note this is substantially more than she ever made working and she no longer is paying FICA or saving for retirement. Why would it not be enough?

[Petunia 100]

But with her funds being illiquid and locked up she has set herself up to work another 20 years before realizing any income from it

That's really not true. You can access the money earlier, you just have to carefully follow the rules so you aren't penalized.

[TexasHusker]

That's really not true. You can access the money earlier, you just have to carefully follow the rules so you aren't penalized.

I assume you are referring to "substantially equal" withdrawals. That's the only way to legally withdraw money without paying a penalty other than certain specified hardships. This is a highly restrictive situation that only allows access to a fraction of the nest egg at a time - without a penalty.

The government endorsed savings plans have their pluses (although the only real plus I know of is deferment of taxes), but they are also fraught with minuses.

You don't hear much about the minuses.

[TexasHusker]

The most she has ever made in her life is 50k. Using the standard 4% withdrawal rate, her 1.2m to 2.4m nest egg will provide 48k to 96k per year. Her SS benefits are in addition to that. Please note this is substantially more than she ever made working and she no longer is paying FICA or saving for retirement. Why would it not be enough?

You are assuming that her nest egg doubles two more times. A multi-year bear market would prevent that.

Example: If in 1999, you had $300,000 invested in a mutual fund that tracked the NASDAQ, you would just now be getting back to break even. That was 17 years ago.

Bear markets break the backs of many retirement plans.

We are long overdue.