Posted: 7/11/2005 11:09:05 AM EDT
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I am thirty years old and I have a pretty good nest egg going but I was wandering how much I should plan on having when I retire. I would like to retire by the time I am 55-60. I will not be depending on Social Security for any type of income because I am not eligible for it until I am 72. My rough guess is that if I want to retire by 55 I will need $1,250,000 saved to provide for an annual withdraw of $50,000 per year for 25 years not depending on interest for income. |
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There are a whole bunch of variables to consider. The big two are "rate of return" and "inflation"... $50000/year is okay money today, but its worth half that when you will be 55. And worth far less than that when you'll be 75 or 85... You do not want to be 80 and trying to decide whether or not to but food OR drugs (but not both) on your measly little $50K in 2050 (which could be equivalent to something truly insignificant like $10 or 12,000/year in todays dollars) If you had $1.25M in 25 years (when you are 55), that 1.25M would generate a modest $75,000 per year in dividends and interest (assuming a modest 6% return). Assume you take only the gains and do not touch the nest egg itself. That $75,000 in 2025 or 2030 would only buy about $30,000 worth of 'stuff' in todays dollars. And this assumes inflation was only 3.5%. It gets worse. That same $75,000 would be worth a measly little $15,000 , or less some 15 years later when you were 70 or 75.... Scary huh... The message? Your nest egg has to be sufficiently large so that it grows as inflation grows, even as you withdraw cash. Scary huh? My own calculations, admittedly half assed, indicate I need about $2M to provide a remotely 'secure' retirement in twenty years. It's based on a modest return (6 or 7%), a modest withdrawal (about $60,000 a year, roughly $30,000 of todays dollars), and modest inflation of about 3.5%... In other words, my $2M would generate 120,000-140,000 per year in gains. I could take half to live on ($60 to 70 thousand, worth about $30-35K in 2005 dollars), and reinvest the remaining $60-70 in the nest egg. The following year the nest egg would be $2,060,000. The 6 to 7% return would be correspondingly higher. Each you you could live on a PORTION of your returns. Conventional wisdom, if there is such a thing, seems to imply you can safely withdraw about 3 perhaps 4 % of your earning on the nest egg. If you withdraw more than that amount, you run a very significant risk of living longer than your money. My own projects are modest. As are my goals. I'm not planning on being "rich". I just want to ensure I can afford the basics. Unless my math is REALLY wrong, it looks like I need about TWO MILLION twenty years from now. It takes a lot of saving, and very good rates of return, to generate that kind of nest egg in 20 years. For what it is worth, there are entire legions of people who do not see the writing on the wall. THey are concerned with cars, and mortagages, and new furniture and boats and student loans, and are borrowing up to their eyeballs. Hey! Retirement is 30 years away... They'll plug along merrily until they hit 40 or 45, and start thinking seriously about retirement. Unlike Dad and uncle Louie, there is no company pension. There is only the 401K they've neglected and the IRA they put $2,000 into every third year. Bad news... Their financial planner is going to inform them they have two choices. Start squirreling away HALF their annual income (which is not possible due to the mortage, the student loans, the car load, and the home equity line used to buy the boat), or put off retirement until they are 78.......... I'm 38. I have a decent start on my nest egg, and I'm still plugging 23% of the family income into retirement savings. Despite this good start, and despite the hefty contributions, it's unlikely I can make the 55 retirement on my savings alone. In all likelihood I'll have to work through to early 60's... It takes a LOT of money, decent rates of return and the will power to limit withdrawals to modest amounts to ensure a nest egg can survive 30 or more years of retirement. |
I found a decent calculator here. In theory I could retire a little early.
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Fal: Please do not be decieved by that overyly simplistict calculator. Plug a few numbers in.. Wow. Look at that, I'll get $100,000 a year.......... Bullshit. It COMPLETELY ignores the effects of inflation. Yup. You'll get $50, or $75, or $100K a year when you retire at 55. However, it does NOT tell you that those $75,000 in 2030 will be worth HALF what they are today, and it surely does not tell you that $75,000 in 2055, when you are 85, will probably just about cover the Seniors Citizen's Alpo Diet... If you want $50,000 per year, in actual purcahsing power, you'll need to be drawing roughly twice that when you retire in 25 years. And you'll need three times that amount when your 70 or 75. I ran some quick numbers. Assume 3.5% inflation. Assume you want $25,000 per year in todays dollars. In 20 years you need $49,725 to equal todays $25K in 25 years you need $59,000 in 30 you need $70250 in 35 you need $83250 in 40 you need $98750. in 50 you need $117,432(You are now 80, and you need nearly $120,000 per year to live like you did on $25,000 in 2005) $1.25 million does NOT last long when you are withdrawing $100,000 or $120,000 per year. |
Are you assuming 3.5% per year or per 5 years? I am putting the max. I can in my 401k and I have some other investments that are doing well so far but I am trying to figure out if I am ahead or behind the curve. Oh, and thanks for pee'n in my Wheaties  , just when I could feel the warmth of retirement.
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How about a real estate retirement? Real estate typically grows in value faster than inflation rises. I would like to have 1.5M in equity by the time I'm 60. Cash out all but one, pay off the one I'm living in and die with a beer in my hand and a Blonde in my lap. 
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Cool |
I don't think that's going to work for us baby boomers. Home prices are high now in large part because we're all buying at the same time. When we start to retire/die en mass, we'll all be trying to sell at the same time. |
| You can control the other side of your balance sheet. Pay off your house, own your cars and other personal property and the inflation calculator becomes more of a brokerage hype. If your largest expenses arn't going to increase by 3 or 4% adjust your planning accordingly. Buy quality, own it, insure a good income stream and enjoy your life. |
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Okay, you inspired me to take a look at my assets and liabilities. I'm 48, and on track to pay off my mortgage by age 61. I have $210,000 in my 401K. I have $465,000 in my airline pension. The bad news is that it's underfunded, the airlines are a mess, and the industry is lobbying congress for "pension reform" (a polite euphemism for reneging on our retirement benefits). I'll also have to give the ex about 25% of that whenever I start collecting it. I spent 7 years on active duty and 13 in the reserves, so I'll get a modest military pension starting at age 60. My ex will get half of that (how many times did she strap her ass to an F-4?!) What sayest the smart guys? Will I be able to spend my golden years playing polo with the jetset? My biggest concern is that the government will inflate our currency a la Germany in the '30's and Argentina in the '70's and now, making savings worthless. I also believe that social security taxes will go up, and pay-outs will be means tested. i.e., I won't get out anywhere near what I put in. |
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NoHarm: I've run numbers using some pretty conservative estimates. The easiest thing to do is set up an excel spreadsheet, and plug the numbers in. Once set up, you can experiment and play the "what happens if" game. What happens if I am 30, retire in 25 years with $1,250,000 dollars and want the equivalent of $25,000 per year in retirement income. Lets assume inflation is 3.5% per year (which is probably a LOW estimate), and assume I make 6% per year on my nest egg (You'll make 12% this year, 3% the year after, and actually loose money some years. use an average) Step one: What amount of $ do I need in 2030 to equal $25,000 today? If inflation is 3.5 %, multiply 25,000 by 1.035 to determine what you need in 2006 ($25,875). Multiply that by 1.035 again to get the sum need in 2007 ((26,780.63). Simply keep on chuggin' 25 times... You'll get something like $57,083. So here we go: Each year start with the nest egg, reduce it by the amount you need to withdraw to eaqual $25,000 (this grows by 3.5% every year), calculate teh bnew balance, add earnings to the new balance, recalculate the whole damned lot for the following year. Age Nest egg withdrawal balance new total with earnings on balance 55 1,250,000 57,083 1,192,917 1,264,492 56 1,264,294 59,081 1,205,411 1,277,735 57 1,277,735 61,148 1,216,586 1,289,582 Doesn't look bad does it??? Lets try sometime down the road, say when you are 75... 74 1,155,219 106,031 1,049,188 1,112,139 75 1,112,139 109,742 1,002,397 1,062,541 76 1,062,541 113,583 948,957 1,005,895 WTF? The nest egg is SHRINKING! How can that be?! Simple... Inflation is KILLING you. That $25,000 was a measly sum way back in 2005, but now, in 2050 you need $113,583 to equal that same $25k. To put it simply, you are withdrawing money faster than your nest egg is growing. You are now 75, have been retired for 20 years, are likley near unemployable, but the writing is on the wall, in big bold clear letters: You are running out of money. It's time to start bagging groceries at the Winn Dixie or Albertsons or clearing tables at McDonalds... Thirty one years after retirement, when you reach the age of 86, you are out of money. Poof! Its all gone.... NoHarm: This was not meant to ran on your parade. I did not want to piss in your cornflakes. However, I'm trying really hard to get the message out, and people are not listening. They are concerned with their new Yukon SUV, or whether or not the new house will have two and a half baths of a full three. Meanwhile, they are forgetting they do NOT have a pension like their gradnfather and father did, and in all likelihood Social Security will be near tits up... No pension. No savings. No social security. Add it all up and it equals no retirement. You are thirty. You are already ahead of 98% of the lemmings out there since you are smart enough to start thinking about retirement at a younger age. You have time to put money to work for you. Time and money work for you. The earlier you contribute, the larger your nest egg will be. The more you contribute, the larger the nest egg will be. And, the longer you wait to retire, the larger the nest egg will be.. (At 6% that 1.25M nest egg will grow to 1.67M if you wait another 5 years and retire at 60... This might be "enough"). Greater rates of return also help that nest egg grow more rapidly. 8% per year return, instead of 6%, generates a vastly larger nest egg twenty years from now... If you get 7% instead of 6% return, that nest egg will keep you going to until you are 92, four moere years of living expenses. And if returns are 8%, you are okay to well past 100.... Time, and inflation work against you. If you start seriously contributing too late in life, there simply is not enough time left for the money to compound in time to retire. Its too late. You simply cannot retire at 55, or for that matter, at 65... And inflation eats a huge whole in everything. If inflation runs 4, 5, 6% instead of only 3.5%, all bets are off. You run out of money MUCH faster. If inflation is 5%, you run out of money at 79 instead of the originally projected 86. Remember, we've seen inflation of 6, 8 and 10% in this country in the 70's and 80's (13% in 1980, and 10.3% in 1981). Remember this: If you want to retire at 55, most people will likely live another 30 years. Many will live into their 90's. That is 35 years of living expenses draw out of a nest egg. Do you want to run out of money? Scared yet? You should be.... These sorts of numbers are the same numbers I run for friends. I'm trying very hard to pull their heads out of their collective asses, and get them to see the light. They just might put off buying the new boat or another varmint rifle and may instead invest that bit of money for tomorrow... I really am not trying to be overwhelmingly negative. I simply want to ensure that people A) wake up and smell the danger and B) quit placing faith in overly simplistic calculations that generate impressive numbers that mean little or are dangerously misleading. Having $500,000 or an even million at 55 looks really good when you are 30, but it means squat. It ain't enough... |
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Rodent: The $210,000 in the 401K is yours. No problem. I am confused. People typically do NOT have money in a pension. A typcial defined benefit pension plan does not have a balance. It has a company obligation. Based on age, years of service, etc, you get a percentage (50,60, 65%???) of some sort of base salary (average of your final three years, or your best three or whatever). That calculation generates an annual payment to you, from the company. I have no idea what that number ($465,000) means... Is it "yours", is it transferable, is it untouchable... You are in the airline industry. That ain't good. The company has an obligation to pay you, and it is an obligation you have counted on. And there is a far chance the company is going to weasel out of it.. Just ask the crew of retirees over at Bethlehem Steel what its like... If the company defaults, the pension benefit guarantee corp takes over. Long story short: You get 1/3 or 1/5 of what you thought you'd get, and the PBGC itself is serioulsy underfunded. I'd be making some serious adjustments to my retirement plan... 1/2 of a small military pension, a very modest 401K and a fraction of your pension from a shaky institution like PBGC does not equal polo with teh jet set crowd... |
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I have always thought the idea of retirement was a bit odd. You know, the idea of heaven on earth in your golden years. Dont get me wrong. Plan for the day you can't work, but don't worship the idea of retirement. You may be disappointed. Google the history of retirement in the US. Interesting stuff. |
This man understands the "secret".  It's not about "How much money do I want to have". Instead it's, "How much do I really need to spend in retirement?" You should not need as much money during retirement as most people think. How do I know? Because, unlike you guys, I am retired. I spend much less than I did when I worked and I am living a great lifestyle. And, as we get older, we will need even less, excluding large medical expenses. I have medical insurance to cover that. Save as much as you can. But don't think that if you make $50K a year now, that you will need $50K a year to retire. That's not how it works. Get out of debt. Stay out of debt. Save lots. Read a book: "The Total Money Makeover" by Dave Ramsey. It will change your life. |
Wow,frozenny! You really put some time and effort into this thread.  . I truly thank you for the information you are putting out here ( I almost feel like I owe you a 3% commission or something). I was just joking about the Wheaties thing too . I am well aware of how bad things could be when it comes time for me to retire. My parents really screwed up their retirement bad. My dad did not invest anything into a retirement outside of factory pension and his factory closed. He got a new job and had plenty of time to start over but he is scared of losing his money and would not invest in anything that would earn more than 2 or 3% with his 401k. My mother worked for 25 years at a company that did not have anything in the way of a retirement benefit. My parents parents had beat into their head that Social Security was going to take care of them and they didn't need save for their retirements because FDR had everything set up to take care of the working man. About two months ago my parents had a major wake up call when they found out that they really didn't have much money at all to live on when they retire in 1-2 years from now.I will not be getting Social Security until I'm 72 IF it still exists, which I don't think it will. My major concern is that the markets are not going to be earning 8%, 7% or even 5% due to oil costs and the global economy taking a major dump in the near future. I am trying to get as much saved up and out of debt as possible because I do not see America doing as well in the next 30 years as we have done in the past 30. If your estimate of 3.5% inflation is conservative, what a crap storm would be stirred up if it were 7% or even 10%. Old folks would be broke and the markets would be in shambles and there would be no bailouts because the .GOV is more over extended than the sheeple that pay the taxes. Consumer debt will eventually have to be dealt with and all those that spend money on credit like it is free money and can just barely make payments will be in a world of hurt that has never before been seen in this country. The outlook is not all great for my generation and there are too few frozenny's out there screaming from the roof top saying wake up you are living like a king to but tomorrow you will be a pauper. |
In that case, I better start saving now so I can buy all of that cheap property from your dead asses. |
We have both a defined contribution plan and a defined benefit plan. The $465,000 is the sum of both, and it's the amount I have vested. But it's underfunded, so a large chunk of that is a big IOU. ETA: OP is right, it's a lot easier to save a dollar than to make a dollar. |
Joking or not, that's a good plan. |
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I paid off my 30 year mortgage 11 years early. I plan on staying put unless someone comes up with a very high price for my home. A price that I can by another house, cash. My two vehicles are paid for. Truck's 5 year loan was paid off 1 year early and motorcycle was paid for when I rode it home. My truck is only 4 years old and should last well into my retirement. I've owned my motorcycle for 16 years and still running great. Plan on keeping both for a long time. Got a small nest egg but working toward a retirement. In my first year of retirement, I’ll collect my entire contribution. After that, It’s free money. I've also got a 401A sitting around until I retire along with some stocks. SS will be in my future and plan on taking it early. Everything I've read indicates, if you take SS early it's better in the long run. If you wait till actual retirement age, it'll take 11 years to make up the difference in money you would receive from early retirement to actual retirement age. With the extra money from the first 11 years, I plan on banking some to supplement the years after the first 11. I will continue to put extra money away when I can. I’m not going to be a rich old guy but I should be able to live the same as I do now. I spend a lot on extras now. If needed, I can cut out some extras and still be happy. I don’t plan on living forever so my plan should work for me. If it doesn’t work out, someone else can take care of me. By then, I’ll be too “F’ed up” to know anyway. Colt_SBR |
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NoHarm: Thanks for teh acknowledgement........ Yup . I did put a little time into the replies. But then again, I really am trying to make a difference. Another poster (or two) hit on ONE of the secrets: Modest spending. That cannot be overstated. I'd argue, forcefully if need be, that modest spending (living BELOW your means) is the key. It allows you to save while you work, and it streches your savings when you retire. My Dad has been retired for 9 years now. He gets 1/2 of a very modest pension. He's living on about $20,000 a year, and he's golden. He lives in Canada (fre socialized health care), lives in a very nice, but small apartment that has all utilities included. He owns his car, and has no debts. The $20K is more than enough to live. He isn't flying to Paris for the weekend, but there is money for modest travel. The secret for him is this: His pension is secure and its inflation indexed. He always has $20K in purchasing power......... Grandfather retired at 36. That was 1958. No pension. He did have a nice little nest egg, but was not wealthy. he managed his money, put it to work for him, and invested wisely. His biggest advantage was he spent wisely (he's cheap!). If your spending is out of control now, you cannot save for tomorrow. And likewise, you'll spend too much through your retirement. |
| I'm just saving like a madman. Have a modest pension that gets added to each year, putting 5% of salary in to company 401K and they match it 50%, started doing Roths again, $4,000 a year, paying extra on mortgage principle so I wont have a house payment when I retire, and putting extra cash into savings account. Buying all the guns I want now, when I retire I can sell them or trade them for future guns I want. I dont envison being 85 and shooting AR15's all day so they'll be sold one day I guess. |
Die young, no retirement necessary. I watch as friends and family keep refinancing their property. If you are 70 and take out a 30 yr re-fi, you got issues. If you are in your 60's and re-fi for 30, you got issues. Your retirement fund will NOT cover it, I have seen it, thus forcing the choice between meds and food. Get out of debt, set a goal and pay for your house, and then keep it. Then dump half your salary into your retirement investments, the other half split between guns and food. Buy a lottery ticket once in a great while. 
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Trouble with that plan is you might actually die old and if you squandered all your savings or had no savings to begin with you'll be living out of a homeless shelter, if you're lucky. The meat in your diet will be canned by Alpo. You're the the poster boy for the Democraps to raise taxes again on the "rich". I'll just laugh at you. |