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I'm thinking about 110k per year in future dollars.

In future dollars? What inflation rate did you use when determining how much you would need in future dollars? At a 3% inflation rate for 17 years, $110k then is the equivalent of $66,551 today, and your $36k/year in pension is only the equivalent of $21,780/year in today's dollars. My guess is, out of your $160k salary, you're spending a LOT more than $66,551 today, since you only seem to be investing/saving $24k/year ($18k in your 401(k) and $6k in your taxable account), even after you adjust for the P&I portion of your mortgage payment and your pension.

In a previous thread, you indicated that your mortgage payment, including insurance (and presumably taxes) was $3400/month. http://boards.fool.com/personal-loan-6k-8-lending-club-5k-10... For a $330k home, if you assume a conservative 2% of the property value for total property taxes and insurance, that would be $550/month. So, your P&I payment might be $2850/month, or $34,200.

$160,000 minus $24,000 (401(k) and taxable account investments) minus $21,780 (pension) minus $34,200 (mortgage P&I) is $80,200 in needed income. In 17 years, again at a 3% inflation rate, that would require $132,260 in future dollars if you want to maintain the same lifestyle, or are able to cut your current lifestyle by another $15k or so today.

That said, even at a $110k lifestyle in future dollars, with a $36k pension in future dollars, your investments would need to provide $74k a year. At a safe withdrawal rate of 4%, that means you would need $1.85MM in investment accounts. At a 6% growth rate and the same amount of investments each year, your accounts will only be worth $1.6MM - so you're $250 short on even the lower standard of living that $66.55k/year would provide.

You probably need to ramp up your savings/investments and/or cut back on your spending if you want to retire at 60 with the same lifestyle that you had before retirement.

AJ
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Oh...our houses current value is about $330k
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Young people often use a percentage of income number as a planning tool for retirement. While you have kids at home or in college, it can be hard to make a good estimate of your retirement costs. However, making such an estimate is very possible if you are willing to make the effort.

Start by going through your current expenses and guessing which will continue in retirement.

Especially if a major portion of your income now goes to savings or investing for retirement, this can be very appropriate.

Most would adjust for additional travel time and leisure time activities. But you can save on ward robe and commuting costs for many occupations.

Also make some allowances for your health care costs. If after age 65, Medicare will be there we hope, but fees and copays may be somewhat higher.

The bottom line is, all the advice you get is not so reliable. And ultimately you are responsible for your retirement. When you think it is adequately funded, you should be fine. If you retire on investments, keep in mind we usually recommend 4% of savings/investments as your maximum burn rate. And don't forget to take a stab at inflation. Rule of 72 suggests that at a modest 3% inflation rate, your cost of living will double at least every 24 years. And 10% inflation gives you 7 year doubling. Ouch!!

Let's hope your investments perform as well as you hope.

I'm not sure about now but TMF's Rule Your Retirement premium service used to have a workbook to work through to put your retirement plan together considering all likely sources of income and all likely expenses. You can do one on your own, or find books in the library, or whatever. The main thing is come up with a plan you are comfortable with.

Good luck!!
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I'm thinking about 110k per year in future dollars.

In future dollars? What inflation rate did you use when determining how much you would need in future dollars? At a 3% inflation rate for 17 years, $110k then is the equivalent of $66,551 today, and your $36k/year in pension is only the equivalent of $21,780/year in today's dollars. My guess is, out of your $160k salary, you're spending a LOT more than $66,551 today, since you only seem to be investing/saving $24k/year ($18k in your 401(k) and $6k in your taxable account), even after you adjust for the P&I portion of your mortgage payment and your pension.

In a previous thread, you indicated that your mortgage payment, including insurance (and presumably taxes) was $3400/month. http://boards.fool.com/personal-loan-6k-8-lending-club-5k-10... For a $330k home, if you assume a conservative 2% of the property value for total property taxes and insurance, that would be $550/month. So, your P&I payment might be $2850/month, or $34,200.

$160,000 minus $24,000 (401(k) and taxable account investments) minus $21,780 (pension) minus $34,200 (mortgage P&I) is $80,200 in needed income. In 17 years, again at a 3% inflation rate, that would require $132,260 in future dollars if you want to maintain the same lifestyle, or are able to cut your current lifestyle by another $15k or so today.

That said, even at a $110k lifestyle in future dollars, with a $36k pension in future dollars, your investments would need to provide $74k a year. At a safe withdrawal rate of 4%, that means you would need $1.85MM in investment accounts. At a 6% growth rate and the same amount of investments each year, your accounts will only be worth $1.6MM - so you're $250 short on even the lower standard of living that $66.55k/year would provide.

You probably need to ramp up your savings/investments and/or cut back on your spending if you want to retire at 60 with the same lifestyle that you had before retirement.

AJ
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Is the needed $110,000 to cover both your and your wife's expenses? If so then it would seem that her savings should be included in your figures.

You also do not include Social Security in your figures. If you are eligible to receive Social Security, that will lower the amount you need to withdraw from your savings considerably. Health insurance will continue to be a large expense for you until you are on Medicare, but you can find ways to minimize that expense. Frequent TMF poster intercst has several pages at his website devoted to that topic. http://www.retireearlyhomepage.com/health_sum.html

For most people their largest expenditure is housing. Will you still be paying off your mortgage when you retire?

Sorry no answers for you, only questions.
PF
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Thank you!!
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I'm covered under my unions medical insurance when I retire, which is very good coverage.
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No house will be paid off.
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I feel like your savings rate is very low for your income.

Any way to increase that 6K per year to 20-30K or more?

You should go through your expenses and see where you can cut back and increase your savings.

This has 2 benefits: Increases the amount you have saved and reduces your income needs later.
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My savings is $6k plus $18k in 401k
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I heard a lot of similar numbers before I retired; that I would need 75-80% of my income after retirement. I found that to be way off, and made some mistakes due to that.

In my case, I had a pension that was roughly 1/3 of my ending salary. We also had our investments and both mine and my wife's social security. Overall, I would say we can live comfortably on about 60-65%. The mistake I made was taking social security too early, but that is one of the factors that led me to retire at 62.

We do not live frugally. We go where we want, buy what we want, and eat out more than at home. I also can usually put a few more dollars away each year and the investments have grown since we have not dipped into them very often.

We all have different circumstances, but unless you have a huge debt or unusual expenses (e.g. mother or father care), I would question the need for 80%.
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mstrlucky74,

You wrote, My savings is $6k plus $18k in 401k

I might have fewer obligations than you, but our income is fairly close. Well, mine isn't too much below yours if you count my typical taxable investment income.

My total annual savings not counting the company match is about $64K/yr. Or $73K/yr if you do.

Of course I started saving fairly late in life, not contributing to my first 401(k) until I was about 30. Even then the contribution was a pittance. I didn't start saving large blocks of my paycheck until after the divorce at the end of 2004. I was just a little younger than you are now and my entire net worth was probably about a year's gross pay.

By then I could see that if I didn't push harder, there was a good chance I would have to work to at least 67. I didn't see how I could do that, nor did I think I could avoid it. I mean I could already tell I was probably past my peak performance and my back and other medical problems were only getting worse and my job aggravates them all. I was not looking forward to another 25 years with both my health and work performance slowly eroding away.

So I've been saving as much as I can. My few hobbies are low or no cost. I have a modest house, buy inexpensive clothing and drive the same car for well over a decade - mind you, I'm frugal to the extreme some LBYMers are. I do watch my expenses and take advantage of the occasional financial opportunity. And I save as much as I can into the market.

And I've done well with that. In the past 13 years I've accumulated enough money (and the market has worked to my advantage) that I could probably retire today. I mean it might be a little tight, but I'm at the low-end of my projections right now. Of course there is the uncertainties over the future costs of taxes and healthcare. And without the safety net of social security and Medicare, I'm reluctant to call it quits just yet. But it's coming ... much sooner than I thought it would 13 years ago.

If you want to retire early too, my suggestion would be to try to put all your pay increases into savings and occasionally examine your behaviors to see if a small change here or there can cut down on an expense or maybe bring in a little extra money. That's basically what I've done these past 13 years. I've attempted to live off of the same amount of money I made way back then, but I put everything extra into the market. Over time it really builds up...

Think snowball. The investments eventually work kind of like credit card debt, but in reverse. Sort of.

- Joel
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Wow joel..im depressed but happy for you at the same time. In have to get my sh$% together and start saving much more. Thank you so much for the motivation.
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My savings is $6k plus $18k in 401k

I think I realized that. I still think 20-30K outside the 401K should be doable depending on your lifestyle of course.

But I know lots of people who save over 50% of their income, so 20-30 is not really that much but it will make a big difference later.
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We all have different circumstances, but unless you have a huge debt or unusual expenses (e.g. mother or father care), I would question the need for 80%.

I would say that is a correct assessment of most people's needs. The only caveat (and perhaps the reason 80% is often used) is the medical expense situation: many people find that these go up a lot in retirement and may influence the 80% meme.

Pete
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Think snowball. The investments eventually work kind of like credit card debt, but in reverse. Sort of.

Vouch. I spent a lot of years thinking there was no way I could save enough, so I just saved however much I could. Then I was surprised when I was able to retire early, though not as early as some on this board.
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Personally I think the % method is a poor estimation of what you need in retirement.

I'd look at estimated expenses and base it on that. Then see if all of those expenses are really necessary.

In my case I know I don't take home (i.e., goes into my bank account) anything close to 80% of my income. By the time you take out money for retirement savings, FICA, taxes, etc. it is more like 60% and I'll likely not have a mortgage, so it is even less than that, so that is what I'm shooting for.

Rich
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