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How much I need to save for retirement?

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  • How much I need to save for retirement?

    I know this was discussed many times here but I can't figure out the number I need to put aside for retirement.

    I'm 40 y/o, just out of training, salary 250,000 and planning to retire at 65-67

    My wife is 32, salary 170,000 and planning to retire at 60

    with employee matching, we save for retirement about 25% of our salary: 60K/yr for me and 40K/yr for her

    we save for college for 3 kids, debts paid off and we own a house that will be paid off in 28 years (few years into retirement for me).

     

    I appreciate the help to determine our number for retirement and most importantly if we need to save more (or less) right now

     

  • #2
    25x what you spend, is the typical answer.

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    • #3
      Seriously - this is a situation in which financial planning would answer those questions and many more with a lot more specificity (albeit, still estimating goals for the future). In the absence of that, 25 x annual spending as @G already said.

      For DIY planning, get a copy of The One Page Financial Plan.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Now is a good time to track your spending.  Automate it into a spreadsheet, quicken, personal capital.  The 25 times gives you a good ballpark.  You can even mentally figure out what spending will cease with retirement.  Such as disability insurance, life insurance, work clothes.  Some will increase health care, travel, entertainment.  Figuring out my spending and 25X number helped me decide it was ok to retire.

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        • #5
          thank you for all the answers. We track our spending

          So if 25 x annual spending for us is = 3.5 millions

          How do I know if we are saving enough?

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          • #6
            More detail would provide more useful and specific answers.  Spending is important.  Current assets and debt are important.  Asset allocation and risk tolerance related to how you are investing is important.

             

            I would err on the cautious side if you are planning to work until your mid 60s.  Unfortunately not everyone is able to do so even if they want to.

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            • #7
              See, for example:

              https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

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              • #8
                If you'd like the equivalent of $3.5 million in about 25 years, and you're setting aside about $100,000 a year, a compound interest calculator will tell you whether or not you'r on track. Use real (inflation adjusted) returns by subtracting 3% from nominal returns to account for inflation.

                Looks like you'll need real returns of 3% to 4% (~6% to 7% nominal returns assuming 3% inflation) to reach your goals, depending on investment fees, tax drag, etc...

                You may want to up that savings rate a bit to account for unforeseen changes. A lot can change in a quarter century.

                See also: How Much Money Does a Doctor Need to Retire?

                 

                 

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                • #9
                  Does that spend include the mortgage?

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                  • #10
                    You asked “How Much”. The simple 25x’s is a reasonable answer but leaves a ton of unknowns. A ton of retirement planning tools are available or as Johanna mentioned an FA can help.

                    Your starting point is slightly late (40) and you have the mortgage running to 68. Those headwinds suggest that you probably would benefit tremendously by intentional
                    NOT following a straight line retirement savings strategy. The more you sprint on retirement savings, the greater the time value you will benefit. You have some catching up (10 yrs) to do on the retirement side. Pay yourself first is the suggestion then target the mortgage by 65. The spouse at her age and rate seems fine. The next 5-10 years should get you in pretty good shape on retirement and still leave you room to attack the mortgage tail. The goal would be to get you both secure with the plan by 55. The bad news, less available to spend in the next ten years. The good news, neither you nor the spouse feels money pressure to work longer than planned. That is the goal isn’t it?

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                    • #11




                      Does that spend include the mortgage?
                      Click to expand...


                      yes it does include $4,000 in mortgage so that gives us an extra sum of money once paid off

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                      • #12
                        How much? 25x annual expenses if you retire oldish, (4% rule, Trinity study), I would rather quit early and spend 3% per year.

                        As the others said: Sounds like you need a plan. Either a good FA (fee only, I prefer hourly fee) or take the WCI course for 500 or read this stuff like crazy and a few good books, but regardless make an investment policy statement. Good on you for asking the question!

                        No down side to saving like crazy early. The WCI himself says 4 very important words: "live like a resident". Do that for 5-10 years. Save at least 50% for fist 10 years.

                        You never know. When I first finished training I expected to do it for 30+ years. Now I am looking at stopping at age 50.

                        FI  = freedom = options and ability to work on your terms.

                        NO downside to saving.

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                        • #13




                          If you’d like the equivalent of $3.5 million in about 25 years, and you’re setting aside about $100,000 a year, a compound interest calculator will tell you whether or not you’r on track. Use real (inflation adjusted) returns by subtracting 3% from nominal returns to account for inflation.

                          Looks like you’ll need real returns of 3% to 4% (~6% to 7% nominal returns assuming 3% inflation) to reach your goals, depending on investment fees, tax drag, etc…

                          You may want to up that savings rate a bit to account for unforeseen changes. A lot can change in a quarter century.

                          See also: How Much Money Does a Doctor Need to Retire?

                           

                           
                          Click to expand...


                          This calculator is super helpful... thank you

                          Do you have a calculator for withdrawals to know how long the money will last during retirement?

                          Comment


                          • #14
                            That's actually a much more complicated calculation because it depends on what you are invested in and your withdrawal rate.  That's why they have the 4% rule because in theory, if you are invested in stocks and bonds, in most historical scenarios, withdrawing 4% of your total portfolio will allow you live indefinitely off your portfolio.  The 25 times your annual expenses is derived from the 4% rule (25X4=100% of how much you need to have accumulated).   If I were you, I would look at refinancing your mortgage into a 15 year mortgage as well.    You can likely afford it based upon your savings rate and will likely save a lot of interest making the conversion.    Think of paying off your mortgage as investing in a bond with no risk.

                            https://www.investopedia.com/terms/f/four-percent-rule.asp

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                            • #15
                              https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsf

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