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Fidelity Magic Number
Old 12-07-2012, 09:31 AM   #1
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Fidelity Magic Number

Getting Going: What's Your Magic Number? - WSJ.com

Need 8 times your final pay by the time you retire. Assuming a 3.2% real rate of return and 5% withdraws from savings.

Probably not for early retirees though.
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Old 12-07-2012, 09:50 AM   #2
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Article opens with
Quote:
You are working hard to save for a decent retirement. So wouldn't it be nice to have a simple rule of thumb to measure whether you are saving enough?

Last month, Fidelity Investments, the nation's largest provider of 401(k) plans, tried to do just that, offering up "eight" as the magic number: Typical wage earners, it said, should aim to save at least eight times their final annual pay to be sure they can afford basic living expenses in retirement.
Closes with
Quote:
There are too many variables to accurately project the exact number. The best you can hope for is a high probability that you won't outlive your money.
Helpful?
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Old 12-07-2012, 09:53 AM   #3
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Is this the same study as this And Fidelity says....
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Old 12-07-2012, 10:50 AM   #4
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Yeah I heard it on the WSJ podcast this morning so I figured it was recent.

But the story itself is two months old and Fidelity came out with this thing a month before that!
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Old 12-07-2012, 12:13 PM   #5
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Originally Posted by Midpack View Post
Every article giving financial advice ends with a CYA paragraph, it seems
Would it be reasonable to expect anything different?
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Old 12-07-2012, 12:21 PM   #6
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Would it be reasonable to expect anything different?
Well that's interesting, I'm pretty sure that wasn't in the message I submitted (though indeed it appeared, since deleted), not sure where it came from?
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Old 12-07-2012, 12:35 PM   #7
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Well that's interesting, I'm pretty sure that wasn't in the message I submitted (though indeed it appeared, since deleted), not sure where it came from?
Weird. That is my post in response to a Midpack post. Stupid "smart" phone did something (it cannot have been me ). My apologies.
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Old 12-07-2012, 12:47 PM   #8
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Weird. That is my post in response to a Midpack post. Stupid "smart" phone did something (it cannot have been me ). My apologies.
No biggie. Thanks for the clarification. I get myself in enough trouble.

Ain't technology grand...
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Old 12-07-2012, 01:04 PM   #9
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Getting Going: What's Your Magic Number? - WSJ.com

Need 8 times your final pay by the time you retire. Assuming a 3.2% real rate of return and 5% withdraws from savings.

Probably not for early retirees though.
If at 65 you have 8 times salary I can see it working for most people. SS is available if you need it and you don't have to make your money last through the extra years of ER. If you ER at say 55, 8x salary will only be sufficient for the frugally minded.....so it's probably the number at which many on this board start thinking seriously about retiring.
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Old 12-07-2012, 01:23 PM   #10
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The Center for Retirement Research at Boston College took a crack at the problem in 2010. It estimated that people making $150,000 to $200,000 needed to save three times their salary at age 45 and 10.3 times their final pay at age 65.
These metrics seem way too low to me. My metric at 65 is 20-25X + Max SS
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Old 12-07-2012, 01:34 PM   #11
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What's final salary have to do with anything? What if I'm making 250K and saving half of it. I guess this is just a way to put a number out there for people that don't want to go through the trouble of actually tying to figure out what they will SPEND in retirement. The old rule of 85% of pre-retirement expenses makes more sense to me and even that would need to be modified based on a number of things.
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Old 12-07-2012, 01:40 PM   #12
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Since you've gotten this far in the thread I know you will find the book I am recommending fascinating.

It was written in early 2006 before the crash but holds true today. The author was a successful exec in Manhattan and then took a high C level position in rural Wisconsin at which time a mega corp bought them out and he became a multi-millionaire over night, so he quit, having made his "number".

So he decides he wants to write a book about The Number because he had been slaving for it all his life and suddenly he gets it. He interviews folks from all stratas of society and age groups and (spoiler alert) realizes there's no such thing as a "number" but rather a choice of what lifestyle one wants when one is finished with w**k. Basically the premise is one will never reach a solid numerical number because we all think we won't have quite enough with the spectre of taxes, healthcare and inflation rising, disaster around the bend, boomerang kids, etc. And the wealthy will never feel that they have enough.

Lee Eisenberg, The Number

Lee Eisenberg - The Number - A Completely Different Way to Think About the Rest of Your Life

The Number: What Do You Need for the Rest of Your Life and What Will It Cost?: Lee Eisenberg: Amazon.com: Books

He did come up on page 234 with a summary because he felt he would come under criticism if he didn't have Some Number in a book by that title, so he averaged out what everyone told him:

COMFORTABLE: Lives in one place, eats/travels modestly, though better than most, then you annually need $50-$100K, which means your Number is $1-2 mil.

COMFORTABLE+: likes occasional upgrade, mid-priced country club, maybe small second home, then you annually need $175-250K, which means your Number is $2-5 mil.

KIND OF RICH: likes finer things, eats/drinks/travels well, gives $ away, picks up checks, couple of nice houses, then you annually need $350-500K, which means your Number is $7-10 mil.

RICH: spends weeks/months abroad, exclusive gated golf communities, place for every season, fractional jets, sits on boards, then you annually need $1 mil, which means your Number is around $20 mil.

He obviously also interviewed a lot of rich people...One take away was that most people don't even start thinking about it until it's too late and another point is that unless you've hit a home run career wise and are great savers you probably will have to reduce you're life style in retirement. He eviscerates the financial services industry (although is kind to Vanguard) and warns against brokers and financial planners.
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Old 12-07-2012, 01:45 PM   #13
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What's final salary have to do with anything? What if I'm making 250K and saving half of it. I guess this is just a way to put a number out there for people that don't want to go through the trouble of actually tying to figure out what they will SPEND in retirement. The old rule of 85% of pre-retirement expenses makes more sense to me and even that would need to be modified based on a number of things.
That is what I have been doing the last 11 years. Saving over half the net income. So when I do calculations I base it on what I actually spend or at least a very close realistic estimate...not what I make. Most of us probably do the same.
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Old 12-07-2012, 03:00 PM   #14
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It baffles me that many conversations about "the number" begin with a final salary number instead of a person's spending requirements. Or whenever my friends ask me how I retired so young, they assume I have some humongous nest egg, and I have to really push them to think about the math from bottom up monthly or annual spending numbers. It's amazing how few people have any sense at all about what they spend month to month.
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Old 12-07-2012, 03:05 PM   #15
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These metrics seem way too low to me. My metric at 65 is 20-25X + Max SS
If you use the average salary of $54k, retire at 65 on average SS ie $1230/month, have 8x$54k in capital and want to have 80% of final salary you can do that for 19 years assuming 5% annual return and 3% inflation.
Your money runs out when you are 83, so 8 time salary looks good if you have average life expectancy.

If you retire at 55 you'd need 15 times salary to reach 85 with money in the bank. The big difference is caused by the extra 10 years you have to fund without SS. If you can reduce your income needs from 80% salary to 50% of salary you go back to be able to fund retirement form 55 to 83 with 8 x salary.......so for the frugal LBYMers on here 8x salary might still be a good number.
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Old 12-07-2012, 03:23 PM   #16
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If you use the average salary of $54k, retire at 65 on average SS ie $1230/month, have 8x$54k in capital and want to have 80% of final salary you can do that for 19 years assuming 5% annual return and 3% inflation.
Your money runs out when you are 83, so 8 time salary looks good if you have average life expectancy.

If you retire at 55 you'd need 15 times salary to reach 85 with money in the bank. The big difference is caused by the extra 10 years you have to fund without SS. If you can reduce your income needs from 80% salary to 50% of salary you go back to be able to fund retirement form 55 to 83 with 8 x salary.......so for the frugal LBYMers on here 8x salary might still be a good number.
I was just stating my magic number for living comfortably without worry. One other factor on these guidelines would also be whether your nest egg is in before or after tax $s. But as others have said, its really what do you need/want to live on vs some increment of your working salary.
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Old 12-07-2012, 04:23 PM   #17
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That is what I have been doing the last 11 years. Saving over half the net income. So when I do calculations I base it on what I actually spend or at least a very close realistic estimate...not what I make. Most of us probably do the same.
+1 used our living expenses for retirement income projections. Using net income for projections would have substantially overestimated, given our LBYMs philosophy.
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Old 12-08-2012, 06:45 AM   #18
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RICH: spends weeks/months abroad, exclusive gated golf communities, place for every season, fractional jets, sits on boards, then you annually need $1 mil, which means your Number is around $20 mil.
Wouldn't it be nice to be rich? I guess I will have to make do with what I've got.
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Old 12-08-2012, 08:44 AM   #19
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Since you've gotten this far in the thread I know you will find the book I am recommending fascinating.

It was written in early 2006 before the crash but holds true today. The author was a successful exec in Manhattan and then took a high C level position in rural Wisconsin at which time a mega corp bought them out and he became a multi-millionaire over night, so he quit, having made his "number".

So he decides he wants to write a book about The Number because he had been slaving for it all his life and suddenly he gets it. He interviews folks from all stratas of society and age groups and (spoiler alert) realizes there's no such thing as a "number" but rather a choice of what lifestyle one wants when one is finished with w**k. Basically the premise is one will never reach a solid numerical number because we all think we won't have quite enough with the spectre of taxes, healthcare and inflation rising, disaster around the bend, boomerang kids, etc. And the wealthy will never feel that they have enough.

Lee Eisenberg, The Number

Lee Eisenberg - The Number - A Completely Different Way to Think About the Rest of Your Life

The Number: What Do You Need for the Rest of Your Life and What Will It Cost?: Lee Eisenberg: Amazon.com: Books

He did come up on page 234 with a summary because he felt he would come under criticism if he didn't have Some Number in a book by that title, so he averaged out what everyone told him:

COMFORTABLE: Lives in one place, eats/travels modestly, though better than most, then you annually need $50-$100K, which means your Number is $1-2 mil.

COMFORTABLE+: likes occasional upgrade, mid-priced country club, maybe small second home, then you annually need $175-250K, which means your Number is $2-5 mil.

KIND OF RICH: likes finer things, eats/drinks/travels well, gives $ away, picks up checks, couple of nice houses, then you annually need $350-500K, which means your Number is $7-10 mil.

RICH: spends weeks/months abroad, exclusive gated golf communities, place for every season, fractional jets, sits on boards, then you annually need $1 mil, which means your Number is around $20 mil.

He obviously also interviewed a lot of rich people...One take away was that most people don't even start thinking about it until it's too late and another point is that unless you've hit a home run career wise and are great savers you probably will have to reduce you're life style in retirement. He eviscerates the financial services industry (although is kind to Vanguard) and warns against brokers and financial planners.
Great book!

Not so much for the practical tools (although there are some) but, for the philosophy. An easy read. It's also well written; obvious that Eisenberg writes vs crunching numbers for a living.

Some of my favorite things in the book are:
- Mr Deep Pockets
- Eisenberg's description of a large portfolio as, "...a man with a zaftig number by anyone's standard."
- Eisenberg's definition of a meager (actually devastated) portfolio as, "...nest is devoid of all things ovoid."
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Old 12-08-2012, 11:59 AM   #20
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COMFORTABLE: Lives in one place, eats/travels modestly, though better than most, then you annually need $50-$100K, which means your Number is $1-2 mil.
The book sounds interesting but from this I get the idea he is one of those who doesn't think anyone should ever consider SS in deciding whether to retired. He seems to think that the only income one has is from portfolio.

This also doesn't seem to consider what if there are two of you.

For example, DH's SS is a little over $22k a year and mine will probably be a little more - for sake of argument, say $25k a year. That's $47k. So why would someone with that SS need $1 million in order to have an income of $50k a year?
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