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Author: Percuniary Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75821  
Subject: How much for retirement? Date: 2/7/2011 2:55 PM
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Any thoughts as to what percentage of income a 30/40 year old should be putting aside for retirement and why?
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Author: w2j2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68423 of 75821
Subject: Re: How much for retirement? Date: 2/7/2011 3:48 PM
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1) By the time you retire, social security will not be available to anyone who has worked and saved his money.

2) You will be able to take 4% off your savings without cutting into principle.
i.e. If you want $80,000 / year, you will need $2 million invested.

Start saving and investing, as much as you can.
Buy dividend-paying high quality stocks, and keep reinvesting.
Avoid fund management fees.

imho

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68424 of 75821
Subject: Re: How much for retirement? Date: 2/7/2011 4:41 PM
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It is difficult since there are a lot of variables some of which you can control and others which you cannot.
Factors to consider:
Are you expecting social security benefits?
Will you have a defined benefit pension?
What do you expect your expenses to be in retirement?
What will inflation between now and then be?
What gain can be expected on investments?
What salary growth do you expect?
etc. etc. etc.
The figures I have seen most often are a minimum of 10% with a desired savings/investing rate of 15%. This might include an employer matching amount in a retirement account.

Bob ... who has never heard anyone complain that they saved too much during their wage earning years.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68425 of 75821
Subject: Re: How much for retirement? Date: 2/7/2011 5:08 PM
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I agree with Bob's reply to your question.

Of the variables affecting your %-of-income savings rate, probably the most important is what you've saved so far and what your current age is.

As an example of two extremes of these variables....

- A young mid 20-something couple both with inflation-adjusted pensions from their government employer (who's pension fund is fully funded...I know...a bit of stretch...) who already have $50,000 each saved in their IRAs, started for them by their parents when they were teenagers and who live a frugal life style....may only need to save 3% of their earnings over their working lives to have sufficient retirement savings.

- OTOH, a single 55 year old who has a total of $50,000 in his/her IRA and employer sponsored retirement plan, no pension and a lavish lifestyle, would not have enough saved at retirement age even if he/she saved 100% of their salary from now until retirement.

Most will fall somewhere in between these two extremes.

The general guidance is to save 10% of your gross salary, but, again, based on your situation, this % could vary widely.

There are online calculators that can help you with this.. Or, there are CPA or CFP financial planners who know how to use a financial calculator and know the relevant information needed to make the calculations.

BruceM

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68428 of 75821
Subject: Re: How much for retirement? Date: 2/7/2011 7:13 PM
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Much depends on what return you earn on your savings, but I would suggest aiming for 33% of gross income. If you manage it, you have a decent shot at retiring in 25 years.

If you can't manage it, the closer you get the better, but deficiencies will have to made up by pensions, social security or other sources of income (inheritance, part time job, etc).

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68431 of 75821
Subject: Re: How much for retirement? Date: 2/7/2011 11:51 PM
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.. who has never heard anyone complain that they saved too much during their wage earning years.



because about the only way to save "too much" is to die young.


IMO, one has to try to strike a balance between living today and living tomorrow


...and i have no useful advice (beyond that) ..

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68432 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 9:55 AM
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>>
because about the only way to save "too much" is to die young.

IMO, one has to try to strike a balance between living today and living tomorrow
<<

Agreed, but I also think a variation of Pascal's Wager is in play here. It's better to underspend and die with substantial assets than to overspend and outlive your money. Having said that, yeah, it's "good" to live frugally if it's in your comfort zone but one should guard against it becoming unnecessarily obsessive and miserly, I think.

#29

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68433 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 12:29 PM
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As others mentioned you need to come up with a target income number then work backwards to see what you have to save to get to that number.

How much retirement income you will "need" to save has several levels like these;
1) Core needs (I think of this as my "I'm not going to eat cat food!" money)
2) How much you need to be pretty comfortable but on a tight budget.
3) Your current lifestyle and not very worried about money.
4) Better off in retirement than during your working years.

There will also be different needs at different ages. An active newly retired person may travel a lot and spend a lot more than someone who is in their mid 70's or older and has slowed down. I have had older relatives that after they slowed down and while their health remained relatively good, didn't even spend their entire social security check most months since they were living in a paid off house and their only significant expenses were things like food, utilities, property taxes, and some supplemental health insurance.

In your planning, if your retirement age target is 65, then do your financial plans as if you will retire at 62 or so. This way you have a three year margin of safety in case you are running behind financially.

Also keep in mind that many people find that their earning peak by their mid 50's so they may not be to count on saving a massive amount of money in the last few years before they retire.

When you are looking at your yearly saving, you should also calculate your net worth each year as of January 1st. This will pick up things like paying down the mortgage and reducing any other debt.

Greg

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68434 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 1:28 PM
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For a rule of thumb, I'd shoot for 10% of gross income. If you can't manage that, you might need to check your spending habits.

Outside of that there are so many variables that without knowledge of them any further discussion is useless.

JLC

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68437 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 3:16 PM
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Having said that, yeah, it's "good" to live frugally if it's in your comfort zone but one should guard against it becoming unnecessarily obsessive and miserly, I think


yes.

though i'd draw the line a bit closer .. frugal, but still enjoy Life.


=b

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Author: MurrayS Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68438 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 6:23 PM
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though i'd draw the line a bit closer .. frugal, but still enjoy Life.

While I do enjoy my toys, the thrill of a major purchase is usually short lived. I could buy a new car every year and I would probably "enjoy life" a bit more, but not nearly as much as not working for several years.

-murray

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68439 of 75821
Subject: Re: How much for retirement? Date: 2/8/2011 10:56 PM
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Work it backwards. In dollars, not in percentage of your current income!

Figure out (estimate) what your investments have to pay you at retirement age. Then, using 4% withdrawal rate, figure out how big your investment portfolio needs to be. Simply, that is 25 times your annual withdrawal.

If you think you'll need to withdraw $60K per years, that is $1,500,000.
IMHO, attainable over a 20-30 year period before retirement.

Now, use one of the online "savings account" calculators, plug in your estimates for average investment growth rate and number of years.
Using http://www.dinkytown.net/java/Savings.html I plugged in 30 years at growth rate of 7% and it says I need to save $1275/month.
In a 401K, that $1275 would be the total of your savings and your employer's match.

Obviously you are not gonna earn 7% in a bond fund or money market fund, so you'll need to be in stocks.

FWIW, the long term average growth of the S&P500 is 10.5%.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68443 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 8:37 AM
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1) By the time you retire, social security will not be available to anyone who has worked and saved his money.

Oh horsefeathers. About half of social security recipients would be destitute without that monthly check. That means that the other half have "saved." If you think Congress is going to simply chop out the benefits for half of senior citizens - and get away with it - you're smoking something.

At the very most they will means test on a sliding scale, and people who have paid in will get something. Worst case, as I have read, is that if nothing at all were done, Social Security would still pay out 80% of current benefits to everyone. That seems far more likely that "will not be available to anyone who has worked and saved.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68445 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 9:17 AM
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>> 1) By the time you retire, social security will not be available to anyone who has worked and saved his money.

Oh horsefeathers. About half of social security recipients would be destitute without that monthly check. That means that the other half have "saved." If you think Congress is going to simply chop out the benefits for half of senior citizens - and get away with it - you're smoking something.


Don't need to smoke anything. ;-)

1) You really need to take a look to see if there have been any prior occasions where Congress "chopped benefits". One example is the 1986(?) tax code revisions. That's where investment real-estate tax treatment was changed---thereby wiping out the investments for a huge number of middle-class people. And where they decided to tax SS payments. So now you pay tax on the money you put in AND on the money you take out.

2) Unless you feel like emulating Scarlett O'Hara ("I have always depended on the kindness of strangers."), it is financially irresponsible to depend on receiving SS for a significant percentage of your retirement income.

3) Reality will eventually intrude. Just where do you think the Feds are going to get the money to pay out to SS recipients? There is already a huge and ongoing deficit. Not to mention the demographic bulge when the Baby-Boom generation all retires.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68446 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 11:23 AM
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1) You really need to take a look to see if there have been any prior occasions where Congress "chopped benefits". One example is the 1986(?) tax code revisions. That's where investment real-estate tax treatment was changed---thereby wiping out the investments for a huge number of middle-class people. And where they decided to tax SS payments. So now you pay tax on the money you put in AND on the money you take out.

I'll say again. The number of people affected by a change in the "investment real estate tax" was miniscule compared to half of all senior citizens - who vote.

So now you pay tax on the money you put in AND on the money you take out.

How do you pay tax on the money you put in?

2) Unless you feel like emulating Scarlett O'Hara ("I have always depended on the kindness of strangers."), it is financially irresponsible to depend on receiving SS for a significant percentage of your retirement income.

I don't, but clearly half of the population does. (That number hasn't changed since SS was started in the 1930's either.)

3) Reality will eventually intrude. Just where do you think the Feds are going to get the money to pay out to SS recipients?

Well, they could raise the income cap so that billionaires aren't paying 0.001% of their income while middle tax folks are paying 6%. That would pretty much take care of it right there. Or they could means test to some minor degree, with a graduated scale. Going around saying "YOU'RE NOT GOING TO GET ANYTHING" is simply irresponsible, in my view.

There is already a huge and ongoing deficit.

Yeah. Cut the military back significantly from the 600 bases they staff around the world, stop fighting useless wars in the Middle East, and make minor trims around the "discretionary" budget and you're back in high cotton. For some reason that isn't acceptable to a certain political segment. Wait til they find out that your alternative is chopping their Social Security checks, perhaps they will finally wake up?
 


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Author: SirTas Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68447 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 1:00 PM
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Scarlett O'Hara ("I have always depended on the kindness of strangers."

Actually, Blanche DuBois, at the end of "A Streetcar Named Desire."

--SirTas

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68449 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 2:55 PM
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I didn't see one very important question asked - when do you plan on dying ? Or if you prefer the phrasing, how long do you plan on living ?

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68450 of 75821
Subject: Re: How much for retirement? Date: 2/9/2011 5:45 PM
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2) Unless you feel like emulating Scarlett O'Hara ("I have always depended on the kindness of strangers."), it is financially irresponsible to depend on receiving SS for a significant percentage of your retirement income.

Not irresponsible, just ill advised. Even when they so-called Trust Fund goes broke, collections from current workers still would cover up to 80% of payments under the current system. Yes, changes are coming, but it won't be the end of the world.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68451 of 75821
Subject: Re: How much for retirement? Date: 2/10/2011 12:05 AM
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I could buy a new car every year and I would probably "enjoy life" a bit more, but not nearly as much as not working for several years.



yup.

'balance' ... a car every year v not working for several years

... a car every 5 years v not working for (?) years

a car every 25 years and the PITA of it falling apart v not working for many years

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Author: wrjohnston91283 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 68483 of 75821
Subject: Re: How much for retirement? Date: 2/18/2011 3:44 PM
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How do you pay tax on the money you put in?

SS tax isn't tax deductible.

You make $50,000 a year. $3825 goes to payroll taxes (SS and medicare). You still pay income taxes on the full $50,000, even though you only have ~$46,000.

WRJ

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