Retirement Savings Rule Of Thumb

[Oyea Outdoors]

Bingo 60 Deluxe ! Agree !

[Chad_E]

Don't worry about saving for retirement until you are out of debt. The only exception that I can think of is if your employer matches 401K contributions. I never had that luxury. In the end, I didn't even have any health insurance benefits. Getting out of debt sometimes is the best return possible for your spare dollars. Once you are out of debt, stay out of debt. The whole dynamic changes at that point. You will be able to invest perhaps half of your income at that point. You also will be able to give a sizeable amount away to causes that you care about or to people that need help.

If you are talking credit card debt, I agree. However, there is such a thing as good debt. Everyday you are not saving for retirement is likely a day you are missing out on compounding interest. As much as I want to be completely debt free, the reality is the interest I'm paying on my mortgage is lower than the return I'll get on my retirement investment.

[HogHunter34]

Saving a certain percentage of your income is not a good way to know if you will have enough in retirement or not. That's too simplistic. You need to know how much you have saved already. You need to know how many more years you plan to work and save before retirement. You need to factor in a realistic rate of return on your investments. You need to estimate what your spending will be once you retire, and then apply an inflation factor to that spending number (every year from today until your death) - which brings up your need to project a life expectancy. You need to estimate what sources of income you will have - Social Security, pension, royalties, etc. - and then get an estimate of the amount of income from each of those sources you expect.

If your projected retirement spending needs amount is larger than your expected retirement income from Social Security and/or any other retirement income will be, then you do the math to see how much of a lump sum you'll need to have invested at retirement to withdraw from without running out of money before you die. Then you do the math to see how much you'll need to invest every month/year between today and retirement in order to end up with the lump sum you need at retirement. Maybe you need to invest 10% of your income. Maybe you need to invest 6%. Maybe 20%. It's not going to be the same percentage for everyone. It all depends on all the other numbers.....

I was hoping you would chime in on this.
Very thorough as I expected
I agree with this & of course the biggest unknown is life expectancy
Now let me ask you on withdrawal rate...some say 4%, I’ve seen some reduce that to 3-3.5% because people are living longer, & interesting enough here recently I’ve seen a new study saying you should be okay going as high as 4.5%
I guess it depends on how much supplemental fixed income you have at retirement might dictate this

[HogHunter34]

Don't worry about saving for retirement until you are out of debt. The only exception that I can think of is if your employer matches 401K contributions. I never had that luxury. In the end, I didn't even have any health insurance benefits. Getting out of debt sometimes is the best return possible for your spare dollars. Once you are out of debt, stay out of debt. The whole dynamic changes at that point. You will be able to invest perhaps half of your income at that point. You also will be able to give a sizeable amount away to causes that you care about or to people that need help.

Interesting. Two generations ago this was probably their standard. They rarely borrowed $ and if they didn’t have the cash in the bank they didn’t buy.

I’ve had the luxury of a company matched 401k pretty much most of my career.

[solocam_aggie]

If you are talking credit card debt, I agree. However, there is such a thing as good debt. Everyday you are not saving for retirement is likely a day you are missing out on compounding interest. As much as I want to be completely debt free, the reality is the interest I'm paying on my mortgage is lower than the return I'll get on my retirement investment.

This is a concept I've been struggling with lately. The wife and I have been saving like crazy. We could be at a point in roughly a year to be able to pay the house off and be 100% debt free. But at 3% on a 15 year, would I be better off investing it? Or pay the house off then start dumping that payment amount in? Tough decision.

[cva34]

We retired with everything major appliances/rvs/boats/vehicles/home paid off.We busted out buts to do it the last 5y of work to do it...we been retired 15y now and it Been great..

[bbqfan5909]

You pay the home off, then buy another home and rent paid off home. Something to be said for mailbox money!

This is a concept I've been struggling with lately. The wife and I have been saving like crazy. We could be at a point in roughly a year to be able to pay the house off and be 100% debt free. But at 3% on a 15 year, would I be better off investing it? Or pay the house off then start dumping that payment amount in? Tough decision.

[hunt247]

Standard of living and income replacement. As a general guideline the guy making 90k has a higher standard of living than the guy making 30k a year therefore he will need more savings to replace that income without changing his standard of living.

this

[Russ79]

I have a buddy that tracks his and his wife's spending- he says their spending/expenses is $35/day. That takes into effect all bills, going out to eat, groceries, etc. He watches it regularly and if it starts to creep up above that then he and the wife look at what is causing it and adjust accordingly. All I can tell you is I am screwed when I retire- didn't start putting enough into my 401k when I was younger and have been trying to ease that up over the last couple of years but about to run out of my working life.

[gingib]

Its called cost of living. Which is why the people who blow and go have to work when they are 70. Or retire then go back to work.

They had no plan and haven no clue

[MacDaddy67]

A million isnt what it used to be.....you better have a lot more than that at this rate

[Rush2Judge]

This is a concept I've been struggling with lately. The wife and I have been saving like crazy. We could be at a point in roughly a year to be able to pay the house off and be 100% debt free. But at 3% on a 15 year, would I be better off investing it? Or pay the house off then start dumping that payment amount in? Tough decision.

Normally I would advise someone to invest and not worry about rushing to pay off the house. In your case, you seem to be very close to paying off the house so maybe you could stay with that approach. That is unless you have all that money in a savings account losing value every day. Saving to pay it off in one lump sum is not a great idea. Again, you are close so the mental comfort and satisfaction should not be underestimated.

For most people it is a no brainer to invest the money since the return will be greater than what you are paying on a mortgage. I can think of three exceptions (there's probably more). 1) you are close to retirement so any investment would have minimal time to grow and debt free retirement should be the goal, 2) your job is at risk so it may be advisable to get your expenses as low as possible and 3) your situation where you are close so why not close the deal for the peace of mind?

[JB_Archery]

I think 10% savings and around 2-5% in an IRA/401k is a great goal for when your in your 20's but as you get into your 30's it should increase to 20-30% into your savings with 10-20% going to 401k/IRA. May take 18-24 months of tackling debt but once you get there you will see your money grow substantially. My wife and I plan to have our house paid off by 40 then hoping to increase savings and investment percentages even further.

I can't speak for the guys making 30k or 90k a year from the OP... one things for certain the lifestyles we get to live at 65 will be based on how smart we are with our money now. Also some us might not make it to 65 so you definitely have to find the balance.

[Shane]

I was hoping you would chime in on this.
Very thorough as I expected
I agree with this & of course the biggest unknown is life expectancy
Now let me ask you on withdrawal rate...some say 4%, I’ve seen some reduce that to 3-3.5% because people are living longer, & interesting enough here recently I’ve seen a new study saying you should be okay going as high as 4.5%
I guess it depends on how much supplemental fixed income you have at retirement might dictate this

Withdrawal rate is another "it depends" deal. The younger you are, the less you should withdraw. Inflation and longevity risk is greater when you are younger. If you're 80 and still invested in a good solid balanced portfolio of bonds and stocks, you can withdraw a little higher percentage of your assets each year, because your life expectancy isn't as long as it used to be. But, regardless of your age, the bond portion of your portfolio is not likely to pay a lot over the next few years with this historic low interest rate environment we're experiencing. So you should reduce your withdrawal rate accordingly to account for that. If high quality bonds were paying 6%, it would be safer to withdraw more than when they're only paying 2%.

[Shane]

All that said..... I have a lot of clients who are retired. Some VERY comfortably....some not so comfortably....and everywhere in between. I don't know anyone who is retired and upset that they saved too much. I know some people who wish they'd saved more.

Be disciplined in your saving. Start as soon as you start getting a paycheck - or TODAY if you're already getting paid and you haven't started investing yet. Set it up to happen automatically every pay day. Increase the percentage that you save/invest at every opportunity. Go ahead and enjoy life, but not at the expense of paying yourself first. And be generous when you pay your future retired self today. Your future retired self with kiss your younger employed self on the mouth if your younger employed self pays your future retired self well.

If you choose to live well within your means, living like most people WON'T (investing heavily rather than spending heavily), especially during the first 20-30 years of your working life, then you will be able to live like most people CAN'T for the rest of your life after that.