At what age do you hope to retire/Personal Finance and Investing Thread

[PlayerHader]

My dad just retired and his retirement account is quite underwhelming, IMO. He isn't a financial schmuck, though, and he doesn't seem to worry about it. When I think about it, though, he has a nice home that is paid off. My mother is still working and has quality insurance. She is an educator and will have a pension upon retirement in a year or two. He has SS income that probably allows him to dip into his very modest retirement savings very little. If/when they choose to downsize, that's another $160k or more in their pockets (they'd have a rent payment each month, obviously).

 

I often read that you should have $500k or $1million dollars put away for retirement and that seems like it'd be great, but depending on how you want to live, you can probably get by on a fraction of that (again, assuming SS and other income is still available).

[MrTPlush]

Right, depends on how you want to retire. $1mil is a pretty solid benchmark for the typical American who wants a solid retirement. If you want that vacation condo and many trips you will need more. On the flip side if you are just going to stay locally all the time and not spend much money on activities you should need a lot less.

[homer]

To me, living off $1 million in retirement is very doable. It's the unforeseen stuff that would cause issues. So if you get in an accident or get sick that can drain savings very quickly even if you have insurance.

[PlayerHader]

$1,000,000 in savings seems unreal to me. Maybe I'm underestimating the power of compound interest, but how the hell does an average American making ~$50k a year ever get there?

 

Luckily I will have a pension to rely on. I forget to factor that in, so that allows for my 403(b) total to be a fraction of what I actually need. That is if the WRS can be relied on (so far, it is in GREAT shape).

[nodakfan17]

Much of it is due to timing.

 

Say you had $333,000 in an index fund in 2008. That’s a reasonable amount to have saved by 50, right? You’d probably have $1 million today at age 60 because the S&P has effectively tripled in 10 years. However, if you turned 50 in 1998 and had that same $333,000 in an index fund, you wound up with $300,000 in 2008 when you wanted to retire.

[PlayerHader]

Is $333,000 by age 50 a reasonable amount for most Americans? I don't know.

 

My wife and I are meeting with a financial planner for the first time next Thursday. I am building up all sorts of questions about her 401(K), my 403(B), my pension, SS, kids' 529 accounts, etc... I'll be 34 at the end of the month. Should have started this 10 years ago, but its better late than never, I guess.

[nodakfan17]

Is $333,000 by age 50 a reasonable amount for most Americans?

It sounds less daunting than $1 million, right?

 

And you can see how, under the right circumstances, it’s possible for the average person to be a millionaire. If you’re getting serious about retirement in your mid-30s, you’re still well ahead of the curve.

[OldSchoolSnapper]

Power of compounding. A couple making ~90k together that saves 1/5 of their income yearly is within reason to expect a ~$4 million nest egg at 65.

 

You could go less than 1/5 and still have a lot of money.

 

Time is your best friend. You start early and grow accustomed to setting it aside, but it also has time to grow.

 

$1 million by retirement age is a fairly easy sum to reach for somebody on $50k income. You could do that with very little relative sacrifice.

[PlayerHader]

It sounds much less daunting. My old man has significantly less than that put away. Maybe he is delusional and I should be more worried about his financial well-being.

[OldSchoolSnapper]

The other issue with shutting it down early, which is moot if you have "enough," is that a ton of growth occurs once the balance is large. It's exponential. That stops when you start taking it out. If you stop at 55 rather than 60 you are giving up a ton of growth; it's much more substantial than the period from 30 to 35, for example.

[MrTPlush]

Start early...that’s a pretty big key. Pretty basic scenario:

 

-Start saving at 22

-5,000 a year

-8% return

-Retire at 62

 

$1,300,000mil at retirement. Which should end up at about $1mil if you saved tax free and gotta pay on it at retirement.

 

So the average American should have no problem saving for retirement. IF you are proactive and start early! That is probably why it seems more unbelievable to older generations. There was less focus on starting early 20+ years ago. If you wait till 27 years old that pile of cash is suddenly $850,000. It is that important to start early.

 

Of course all that is very generic estimites. Other things will effect it, but in general if you start early it doesn’t take too much effort to hit $1mil. Especially if you are making $50k at 22 and that slowly grows much higher as you gain experience.

 

The growth at the end can be crazy though. Once I checked the difference of retiring at 62 vs. 64 and I nearly fell out of my chair. Of course you’d be crazy to have your savings all in high return places at that point. A few years can really make a difference.

[PlayerHader]

I'd be interested in going back to the origin of the thread (At what age do you hope to retire) and adding ?How much do you plan on having saved away at that point?"

 

I should go back and look. Maybe many included that already.

[nodakfan17]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

[PlayerHader]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

Where do you live? What does retirement look like in your mind?

[OldSchoolSnapper]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

I doubt it would be that drastic. Your salaries would likely increase along the way assuming you are in professional careers which would help negate some of that inflation and make that $4mm a lot less daunting.

[nodakfan17]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

Where do you live? What does retirement look like in your mind?

I live just outside of Green Bay, but hope to build a modest (but nice) custom cottage in Door County for retirement. I’d like to go out for dinner often, but otherwise, I see us spending most of our time reading, walking, and maintaining a small garden or orchard.

 

If we’re speaking strictly in 2018 dollars, then I hope the $2 million portfolio will generate about $80K (4%) annually in passive income for an indefinite period.

[nodakfan17]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

I doubt it would be that drastic. Your salaries would likely increase along the way assuming you are in professional careers which would help negate some of that inflation and make that $4mm a lot less daunting.

2% inflation over 25 years puts the purchasing power of $2 million in today’s dollars at $3.3 million, but 3% inflation brings it to $4.2 million. Truthfully, I’m a little nervous about our government eventually printing money to get out of our $20 trillion hole, so I’m trying to adjust my expectations just in case.

[PlayerHader]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

Where do you live? What does retirement look like in your mind?

I live just outside of Green Bay, but hope to build a modest (but nice) custom cottage in Door County for retirement. I’d like to go out for dinner often, but otherwise, I see us spending most of our time reading, walking, and maintaining a small garden or orchard.

 

If we’re speaking strictly in 2018 dollars, then I hope the $2 million portfolio will generate about $80K (4%) annually in passive income for an indefinite period.

 

If you don't mind me asking, what does your current income/savings percentage look like?

[OldSchoolSnapper]

Yeah, but if you are like most people, your spending peaks during child rearing/milestones like buying houses and cars, etc. and into the 40s you have more to invest if you so choose, which helps inflate your projections if you choose to do that.

 

The healthcare costs usually rise, but many other things go down. You are hopefully no longer paying a mortgage, commuting far less, do not have dependents, etc.

 

For most people the 20s and 30s are the most important not only because of the time you give your investment, but if you can save mentally during that very taxing time you can most likely do it later on at a higher rate.

[PlayerHader]

$2 million is our magic number, but since my wife and I are both in our 30s, I fear we’ll need to save $4 or $5 million by the time we retire just to have the same purchasing power as $2 million has today.

 

Where do you live? What does retirement look like in your mind?

I live just outside of Green Bay, but hope to build a modest (but nice) custom cottage in Door County for retirement. I’d like to go out for dinner often, but otherwise, I see us spending most of our time reading, walking, and maintaining a small garden or orchard.

 

If we’re speaking strictly in 2018 dollars, then I hope the $2 million portfolio will generate about $80K (4%) annually in passive income for an indefinite period.

 

If you don't mind me asking, what does your current income/savings percentage look like?

[nodakfan17]

I’ve only contributed 5% of my salary to my 401(k) to get the full employer match, but I’ve been doing it since Day 1 and it adds up. My wife has taken a similar approach. Our family is now complete and our expenses have finally leveled off, so our best saving years are hopefully still ahead of us.

[PlayerHader]

But 5% of roughly what?

[OldSchoolSnapper]

Given that his target is $2mm and he does 10% a year it is probably somewhere close to 5% (plus the match so 10%) of 100k household. Give or take a few dollars here and there and that he probably started beneath that and will end higher. It's not like you have a flat salary for 35 years.

[nodakfan17]

Exactly - we both started out earning $30K per year during the recession. Now we each earn an above average wage. We’ve had the same savings rate the entire time (10%, 5% plus match). However, now that our expenses have leveled off and our incomes are still increasing, we plan on paying the mortgage down faster instead of increasing our retirement account contributions (a bird in the hand ... ).

[nate82]

Exactly - we both started out earning $30K per year during the recession. Now we each earn an above average wage. We’ve had the same savings rate the entire time (10%, 5% plus match). However, now that our expenses have leveled off and our incomes are still increasing, we plan on paying the mortgage down faster instead of increasing our retirement account contributions (a bird in the hand ... ).

 

You should count your home as part of your retirement income as you can either sell and consolidate to a smaller home or keep it and only have to pay taxes and utilities. Paying just taxes and utilities depending on your area should be less than paying rent.