Hello!I've been a Fool for many years, but this is my first post.I feel I'm on target for retirement, but get different answers based on different retirement calculators I use. Basically, here's my situation:Age: 40Salary: $105,000, figuring 3% annual increasesAnnual 401K contribution: max (currently $15,000)Annual IRA contribution: max (currently $4,000)Current 401k + IRA balance: $185,000Investing risk level: currently aggressiveIn retirement, I may work, but I want to calculate as if I don't have toSocial Security: Assume noneCurrent bad debt: 0.00 in credit cards, $13,000 car loanHome Owner (Mortgage - Yes)Real Estate investments: in 15 years, conservatively can sell or refinance to cash out approximately $300,000Savings: $62,000Probably need about 75% of my current income for retirementSo, I have 2 questions:1) When can I retire?2) What can I do with the $62,000 - anyone have a good real estate deal?Thanks!JB
JB: good work. I didn't do any math, but I'm guessing that with the real estate investments you'll be sitting on significant assets in retirement. You might have to work at 60 or might not, depending on which way the wind blows. I think you're doing everything right. I can't suggest a thing. By that time you'll probably have nailed the mortgage to the wall like a scalp, your savings are vast (perhaps a little too vast, but if they give you a comfort zone, I'm the last one to tell you to put them into riskier stuff).You might consider landbanking: buying a lot in an area near a growth region, waiting for it to appreciate. Perhaps buy it somewhere you might like living someday part of the year, so that you have a couple of options for it.
First question -- are you sure you only need 75% of current income rather than 75% of income in your last year of employment? I will assume, for my calculations, that it is based on current income.1) When can I retire?You would need a total of $1,968,750 at retirement. That amount will allow you to pull out 4% which would equal %78,750 (75% of current income) each year. You already have an investment that you estimate at $300k, so your retirement fund will need to be $1,668,750 in other retirement accounts or investments.In order to get to that number by 60 years old you would need to invest $50,866 per year assuming a 10% rate of return (it goes up to $52,884 if you earn 9%). To retire at 65 you would need to invest $37,349 per year assuming 10%.Note that the above calculations do account for your current balances, but ignore the 62,000 in savings.2) What can I do with the $62,000 - anyone have a good real estate deal?Do you have an emergency fund in addition to this amount? If no, then at least $30k of this should be in a dedicated emergency fund that could be invested in either a high-yield money-market account or a CD ladder of some sort.If you do have an emergency fund in addition to this amount, then I would suggest putting into a tax efficient mutual fund within a taxable brokerage account.
In order to get to that number by 60 years old you would need to invest $50,866 per year assuming a 10% rate of return (it goes up to $52,884 if you earn 9%). To retire at 65 you would need to invest $37,349 per year assuming 10%.Note that the above calculations do account for your current balances, but ignore the 62,000 in savings. Really- where did you account for the 185K sitting in his existing retirement account?Quick calculation I do at 10% return till age 65 shows that 185K becomes a nest-egg of $2+ Million.To the OP: I think you are doing very well, but I think you continue to contribute to your retirement vehicles. Why? For a number of reasons, but mostly because I wouldn't count on staying 100% in equity investments through age 65, which thus reduces the possibility of the above $2M based on existing balance.Other factors to think about-- Number of years in retirement- Your health and health care costs- Inflation- Tax rate (when you retire)Hohum
Really- where did you account for the 185K sitting in his existing retirement account?Quick calculation I do at 10% return till age 65 shows that 185K becomes a nest-egg of $2+ Million.Oh wow, you're right. Perhaps I should stop posting at 5:30am :-)Here's how I got my initial answer in Excel:=PMT(rate, years, pres val, fut val)=PMT(0.1, 25, 185000, 1668750)Obviously there's a problem there since it came out to $37,349 as the necessary annual payment(contribution).Still using that $1,668,750 amount as a goal, the OP could actually retire in 18 years at age 58 by putting in $15,000/year. Here's the formula:=FV(rate, years, payment, pres val)=FV(0.1, 18, 15000, 185000) = $1,712,572Sorry about the mis-information in my earlier post.As Hohum points out, if you are willing to put off retirement until 65, you could actually stop contributions now and get to $2Million+ with what you have now. Of course this is quite risky to do given you cannot guarantee 10% returns.
...Real Estate investments: in 15 years, conservatively can sell or refinance to cash out approximately $300,000...So what is that worth today and does it generated any income or cost you anything now?If that is your home, then I normally wouldn't count as a retirement investment but instead as a non-retirement asset...2) What can I do with the $62,000... Pay off the car loan(unless it is a low interest loan) and plan on paying cash for your next car. At your age and income level, car loans are a red flag that something isn’t right. Even the low interest car loans are usually instead of a cash rebate or a better price. In addition to saving on the interest, when you pay cash for a car you will tend to spend less and enjoy making your old car last a bit longer. Greg
You didn't mention any family; this would make a difference depending on wife, children - for health costs, college costs, etc. I'll assume you are single.You are probably living on about $60K net today (gross minus taxes and 401K & IRA contributions). When I got within a few years of retirement, I began doing net calculations in addition to gross. As hohum mentioned, your current $185K will be fairly hefty in 20 years and should give you a good base to draw from. Adding in your contributions along the way should put you well over $2M. I'm not going to do all the math, but you should take the $60K net you now need (or some percentage of that), determine what that will be in 20 years based on x% inflation.Then take that total savings number and most people use a 4% draw in their calculations. Remember, if you take 4% of $2M, that's $80K gross. You need to pay tax on that depending on your bracket at the time.I also would not totally dismiss SS. I don't know of any politician who wants to be the one to say, it's finished. My guess is that they will raise the tax, raise the max, cut benefits, etc. before putting SS out of business. If you're making $100K or better, you're paying the max into SSA. I wouldn't be surprised if you don't draw $15-$20K by the time you retire.Lastly, I wouldn't use the $62K cash for anything other than emergencies or something you really need. Put it into a MMA (currently earning 4-5%. That will get you another $2-3K per year.
Hello all!Thanks to everyone who replied and for all of the great information. Like I said, I thought I was in good shape, but the differences in the various calculators got me thinking.As for some of your comments:1) Yes, I'm single.2) The $300K future refinance $$ will be from an investment property (not my home).3)...and lastly, a couple of you have referred to me as a "he", but I'm female... very interesting.Thanks again for all of your time and thoughts!JB
3)...and lastly, a couple of you have referred to me as a "he", but I'm female... very interesting. Guilty of said offense- My apologiesHohum
JB,Unlike most other regulars on this board (ok, I'm mostly a regular reader, not poster), I'm comfortable with much of my emergency fund in equities. However, I wouldn't suddenly pour $40k into the market, but dollar cost average it in. I would also not do this at all unless you have nice chunks of credit available at relatively low interest.My point is that I can borrow about $25k at any time from my credit cards at under 8%. If I have laddered into investments (and, of course, done well), I can sell some off when needed to pay off this debt in a reasonable time. This allows me to earn more than the 5% or so my money market gives me. (Again, assuming my investments do better than this! If you doubt your's will do so, don't even consider this advice!)Notice that I mentioned $40k above. I personally would feel uncomfortable with less than about $20k in liquid assets. For me, this equals about 6 months living expenses (not easy in the SF Bay area!), & I would adjust it up if my expenses were higher.Byron
BTW, the max for 401k in 2007 is 15,500, and I believe it is going to be 16K in 2008.Otherwise, looks good! Keep saving and you'll be doing fine. I keep about $40K in cash, so your $60K looks OK to me, although I might invest some more of it. But comfort level is very important and if it helps you sleep at night, no reason to change it. Just make sure you are earning at least 5% on it.Karen
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