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AliFool,

Saving "some" for your retirement sounds good, but it won't get you the money that you want or need.

Lets take this backwards.

In the past, the Wise said that you would need 70% of your pretax income after you retired since you would not have work-related expenses. This would include clothing, commuting, food, Social Security tax, etc. This figure did not apparently include retirement-related expenses such as Medicare and recreational expenses.

One of the biggest expenses that the Wise also assumed you would not have is housing. That is, you would own a home with no mortgage. This can eat up 25-30% pretax income.

If you intend on renting for the rest of your life, you will have to consider this as part of your expenses.

As to what is the proper percentage to save for retirement? 10% pre-tax has been used consistently, assuming that you would save for 30-40 years before retiring, and achieve an 8% return (I'm doing this from memory, so don't quote me).

Anyway, the correct way to determine what income you would need at retirement is:
1. Decide what pre-tax income you need now, and decide if your preferred lifestyle will support that. Make what ever adjustments you need.
2. Calculate its future value at retirement, assuming a 3-5% yearly inflation rate.
3. Multiply that future value by 15-20 to calculate what your future nest egg value should be so that you can withdraw 5-7%/year to live on, without drawing on the principal, while maintaining your standard-of-living.
4. Estimate what your long-term return rate will be. Remember that inflation will affect your nest egg, too. If you assume a 5% inflation rate and want to withdraw 5%/year to live on, then you will need at least a 10% yearly return. Notice that taxes are not included. You will probably need a return that is closer to 12 or 15%.
5. Using the nest egg value as your future value, and using the long-term return rate, calculate your present contribution, for the number of years until you want to retire. That should tell you how much you need to invest yearly, at the long-term return rate, for so many years, to accumulate your nest egg value.

This is the simple way to calculate it since it doesn't assume rising incomes and overstates the yearly contribution because of that.

Or, you can just continue as you have done, but cut back on the pretax amount, so that you can Foolishly maintain and invest your Roth IRA.

Zev
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