How to much to save for retirement?

[darly2004]

I am relatively new here, so not sure if this has been posted before. How much do most (or how much should I) aim to save before retiring. I know it depends on your expenses, age of retirement, etc, but what is average? Here is our situation... I want to retire by 45-50 and estimated monthly expenses would be 5-6k (including health insurance for family). Not sure if I am using FIRECalc correctly, but it is telling me $2.5-$3 million. If you feel comfortable and have retired at 45-50, would appreciate your input on how much you saved by that point.

 

[pb4uski]

That amount seems about right or perhaps a bit high if you don't have any pension or social security. There is a page on firecalc to enter pension and SS and I woudl think that should significantly reduce the amount needed.

 

[darly2004]

That amount seems about right or perhaps a bit high if you don't have any pension or social security. There is a page on firecalc to enter pension and SS and I woudl think that should significantly reduce the amount needed.

Thanks for the quick reply. We won't have any pension by retirement. I also did not put any social security amount down. We won't be 65 until 2043, so not sure how much we'll get by then.

 

[Independent]

Welcome to the board. And, note that you're unlikely to get any two people who post here to agree on this question. Here's one view:

I expect that you aren't 44 yet. There are so many unknowns over such a long future that the simplest calculation seems informative. It at least gives you one reference point outside FireCalc.

If you spend $60k/year for a 45 year retirement, you'll spend $2.7 million.
If you spend $72k/year for a 50 year retirement, you'll spend $3.6 million.

If you assume that real returns on your investments will be zero (i.e. yield = inflation), then those numbers are reasonable goals.
Any nominal investment return allows you to adjust your payments for inflation.
Note that they mean you spend all your money if you actually live all those years.
However, any real investment returns above zero would give you a cushion and/or an estate.

FireCalc observes that even in very poor past years, when the stock market dove immediately after people retired, there was eventually enough of a recovery the people didn't need to be quite this conservative.

 

[donheff]

I wouldn't use flat payments for x years to get a ballpark on savings. That won't bear much comparison to reality. If in fact your return was zero and you spent a flat $x/yr for 40 or 50 years inflation would devour your real spending and you would starve. Better to run Firecalc as it is intended with some conservative assumptions. Evaluate a straight 3% inflation adjusted withdrawal, a Guyton approach. See what various scenarios would have played out historically. Also, toss in a moderately reduced (e.g. 75%) Social Security payment? If the future is so dystopian that no SS exists what makes you think your portfolio will survive? In all worst case scenarios we all go bankrupt and/or die horribly.

 

[obgyn65]

I don't like giving absolute numbers about myself, but your figure sounds about right. My situation is slightly different because I worked abroad many years, therefore i will have lower SS and pension in the US.

but it is telling me $2.5-$3 million. If you feel comfortable and have retired at 45-50, would appreciate your input on how much you saved by that point.

 

[nun]

4% x $1.8M = $72k

This is the roughest of rough calculations, but you need to have around $2M to even consider retiring at 50. You'll probably want more if you think you'll live a long life.

How much thought have you put into that $5k or $6k monthly budget. Getting that right is key to your planning.

 

[Midpack]

4% x $1.8M = $72k.

Few would suggest 4% for someone planning to retire at age 45-50. The 4% SWR models a 65 yo retiree with a 30 year retirement and a 95% success rate based on past market returns. Many have said the SWR for such an early retiree is closer to 3%. Here's a recent table showing years in retirement vs success rate using FIRECALC, though the OP is shooting for something longer than this shows.

http://www.early-retirement.org/for...tes-age-and-probability-of-success-64401.html

If I was the OP, I'd shoot for $6Kx12/3% or $2.4M at a minimum. YMMV

 

[nun]

Few would suggest 4% for someone planning to retire at age 45-50. The 4% SWR models a 65 yo retiree with a 30 year retirement and a 95% success rate based on past market returns. Many have said the SWR for such an early retiree is closer to 3%. Here's a recent table showing years in retirement vs success rate using FIRECALC, though the OP is shooting for something longer than this shows.

http://www.early-retirement.org/for...tes-age-and-probability-of-success-64401.html

If I was the OP, I'd shoot for $6Kx12/3% or $2.4M at a minimum. YMMV

That's why I go on to say

This is the roughest of rough calculations, but you need to have around $2M to even consider retiring at 50. You'll probably want more if you think you'll live a long life.

If the OP is a 50 year old average female they'll live for another 33 years, an average a 50 year old male will live for another 29 years. Of course no one is average and whether you plan for a 30 year retirement and use a 4% SWR or a 40 year retirement and use closer to 3% depends whether you are a pessimist or optimist. So if you are planning for a 30 year retirement at age 65 you are either very conservative or a big optimist because the likely hood is that you'll only survive 17 years.

 

[Independent]

I wouldn't use flat payments for x years to get a ballpark on savings. That won't bear much comparison to reality. If in fact your return was zero and you spent a flat $x/yr for 40 or 50 years inflation would devour your real spending and you would starve. ...

Apparently I wasn't clear enough. I tried using italics for "real" and "nominal" to avoid this confusion.

If you have $2.7 million, and inflation is zero, and you spend a flat $60k per year, and your investments earn a nominal zero percent, your money will last 45 years.
If you have $2.7 million, and inflation is 3% per year, and you spend $60k in the first year, followed by annual increases of 3%, and your investments earn a nominal 3%, your money will run out in 45 years.
If you have $2.7 million, and inflation is 5% per year,.....and your investments earn a nominal 5%, your money will run out in 45 years.
etc.

If the nominal investment return = the inflation rate = the rate that your spending goes up, then your $2.7 million will last 45 years.

I think the first line above is so easy to calculate, that it's a good, very simple, gut check on numbers that come from complex systems like FireCalc.

 

[Mulligan]

Few would suggest 4% for someone planning to retire at age 45-50. The 4% SWR models a 65 yo retiree with a 30 year retirement and a 95% success rate based on past market returns. Many have said the SWR for such an early retiree is closer to 3%. Here's a recent table showing years in retirement vs success rate using FIRECALC, though the OP is shooting for something longer than this shows.

http://www.early-retirement.org/forums/f28/withdrawal-rates-age-and-probability-of-success-64401.html

If I was the OP, I'd shoot for $6Kx12/3% or $2.4M at a minimum. YMMV

My pension is around that monthly figure with a 2% cola, and I am in that age bracket. I plugged my numbers into an annuity calculator with cola a couple years ago and the figure it came up with was about that number.

 

[LeavingOhio]

I am relatively new here, so not sure if this has been posted before. How much do most (or how much should I) aim to save before retiring. I know it depends on your expenses, age of retirement, etc, but what is average? Here is our situation... I want to retire by 45-50 and estimated monthly expenses would be 5-6k (including health insurance for family). Not sure if I am using FIRECalc correctly, but it is telling me $2.5-$3 million. If you feel comfortable and have retired at 45-50, would appreciate your input on how much you saved by that point.

When estimating expenses, are you planning to pay off debt as part of that? If so, one way to help your situation is to make sure you have NO debt including a paid for house when you retire.

I'm 46 and not yet retired, but for me to retire by age 50, I would want/need $1.5 million and be debt free including owning my home (with the SS beginning at age 62 for me wife and me, this gives me 100% success rate for 40 years in FIRECalc; actually FireCalc allows me to take 4% and still have 100% success rate, but I would be more comfortable with 3.5% initially). At age 50, I would only take 3.5%, giving me $52,500 a year. This would be bare minimum for me, but I could do it. I would likely very much welcome the Social Security I would get at age 62 or whenever I decided to take it.

 

[enjoyinglife102]

Just wanted to add that the life expectancy for somebody who has already reached 50 increases to 85 from the overall number of 79. I think most of us in the age group will welcome data that supports a 20% increase in the average time we can expect to live that is referenced in this thread. For others, I apologize for pointing out you now have to worry about funding an additional 6 years!

 

[nun]

Just wanted to add that the life expectancy for somebody who has already reached 50 increases to 85 from the overall number of 79. I think most of us in the age group will welcome data that supports a 20% increase in the average time we can expect to live that is referenced in this thread. For others, I apologize for pointing out you now have to worry about funding an additional 6 years!

What actuarial tables are you using. They way I read them at 50 a male can expect to live another 29 years. At 65 they can expect another 17 years. These numbers will vary a bit according to the date of the data, but most 50 year olds only live to 79.

 

[LeavingOhio]

What actuarial tables are you using. They way I read them at 50 a male can expect to live another 29 years. At 65 they can expect another 17 years. These numbers will vary a bit according to the date of the data, but most 50 year olds only live to 79.

I'm interested in some data on this. A quick Google search says that for baby girls born in the US in 2007 (I realize we're all older than that!), their life expectancy is 81.7 years. For baby boys born the same year, it is 77.

Wikipedia says girls born in 2010 in the US will live to 80.5 and boys 75.35.

Obviously these averages go up based on age milestones reached, but in a quick search of the internet, I didn't find out those breakdowns.

 

[enjoyinglife102]

I was using the IRS tables I used for an inherited IRA calculation but just checked and saw the actuarial tables you reference saying 79. I think I'll keep the additional 6 years no matter what.

 

[LeavingOhio]

I was using the IRS tables I used for an inherited IRA calculation but just checked and saw the actuarial tables you reference saying 79. I think I'll keep the additional 6 years no matter what.

Here's a life expectancy calculator for what it's worth - How Long Will I Live? - Life Expectancy Calculator

 

[prof12]

I just took the Life Expectancy test. Man, is that a depressing thing to do. I figured I'd be like most relatives and kick off at 83. Looks like I'm out of here between 65 and 78!!!!!!!!!!! Guess my SWR can go up a bit.
Prof12

 

[Midpack]

What actuarial tables are you using. They way I read them at 50 a male can expect to live another 29 years. At 65 they can expect another 17 years. These numbers will vary a bit according to the date of the data, but most 50 year olds only live to 79.

I'm interested in some data on this. A quick Google search says that for baby girls born in the US in 2007 (I realize we're all older than that!), their life expectancy is 81.7 years. For baby boys born the same year, it is 77.

Wikipedia says girls born in 2010 in the US will live to 80.5 and boys 75.35.

Obviously these averages go up based on age milestones reached, but in a quick search of the internet, I didn't find out those breakdowns.

It's an individual choice, but most people don't use expected lifespans for retirement planning as they're averages. Unless you have a family history of below average lifespan and/or a significant known illness, averages by definition mean there's a significant number of people who will live well beyond the "average", as well as less than. It's not uncommon for retirement articles & calculators to use 95 for planning, to substantially reduce the odds of running out of money while still alive.

The Society of Actuaries estimates that for a married 65-year-old couple, there is a 45 percent chance of one person reaching age 90 and a 20 percent chance of one person reaching age 95. So it is prudent to plan on living a long time.

http://www.nytimes.com/2012/10/03/booming/03expert-booming.html?pagewanted=all&_r=0

 

[Mulligan]

I just took the Life Expectancy test. Man, is that a depressing thing to do. I figured I'd be like most relatives and kick off at 83. Looks like I'm out of here between 65 and 78!!!!!!!!!!! Guess my SWR can go up a bit.
Prof12

You know a survey of averages mean little to an individual, prof. Be an optimist and bet big on the 78 over! . Mine was a range of 75-92. Based on the few relatives in my family that went over 90, I want no part of that.

 

[midlifeguy]

You know you're asking a tough question, but I understand wanting to get a sense of comparison. So, here's my info. I am 42 and finally FIRE'd this year, although I will be teaching college part-time for the forseeable future, earning around 10-20k per year. My current taxable portfolio is around $2,050,000 and I live off that with 5k per month, which is a bit over 3% WR. This has been more than enough (seriously, MORE than enough) but keep in mind the following:
- I have a partner still working whose take-home pay is about equal to my monthly minvestment return
- We have no debt
- We have no kids
- Partner will have full pension and health insurance for life when he retires end of 2014 (I will use Obamacare when my COBRA runs out in early 2014)
- We own a house worth $1,000,000+ which has no mortgage, and at some point we will likely sell it and downsize; currently pay property taxes of about $15,000 per year - ouch
- We live just outside New York City, so very expensive

So, now you have my information as a point of comparison, but as you can see the variables are huge. I am extremely fortunate and have a lot of cushions in various forms. But given my experience, and assuming you don't live in New York, I would say that $2 million would be MORE than enough for you too.

 

[Midpack]

You know you're asking a tough question, but I understand wanting to get a sense of comparison. So, here's my info. I am 42 and finally FIRE'd this year, although I will be teaching college part-time for the forseeable future, earning around 10-20k per year. My current taxable portfolio is around $2,050,000 and I live off that with 5k per month, which is a bit over 3% WR. This has been more than enough (seriously, MORE than enough) but keep in mind the following:
- I have a partner still working whose take-home pay is about equal to my monthly minvestment return
- We have no debt
- We have no kids
- Partner will have full pension and health insurance for life when he retires end of 2014 (I will use Obamacare when my COBRA runs out in early 2014)
- We own a house worth $1,000,000+ which has no mortgage, and at some point we will likely sell it and downsize; currently pay property taxes of about $15,000 per year - ouch
- We live just outside New York City, so very expensive

So, now you have my information as a point of comparison, but as you can see the variables are huge. I am extremely fortunate and have a lot of cushions in various forms. But given my experience, and assuming you don't live in New York, I would say that $2 million would be MORE than enough for you too.

May very well be with your specific bullets above, but how do you project your early (first year?) success to continue for the next 40-50 years, and your last sentence as it applies to the OP?

 

[midlifeguy]

Midpack -- I'm not 100% sure what you're asking, but I've run Firecalc on my plan if that's what you mean, and haven't even factored in SS or my 250k 401k, so I'm extremely confident. And after a while, you have to go with your gut anyway. There will always be a million reasons NOT to retire early, but I try not to let fear steer my decisions. On my last sentence, I'm just throwing out my gut response to the OP, having admitted that I know next to nothing about his situation. I don't believe that younger retirees should delay exiting the corporate grind on the off chance that they might live until 90 or 95, especially men, so I tend to err on the side of encouraging people like the OP to go for it.

 

[imoldernu]

I was interested in the discussion between DonHeff and Independent.

I began retirement planning in 1986, before computers and easy to use retirement calculators. My plan was the deal maker for ER.
The plan was based on an item by item basis... mortgage, cars, household budget, and yearly plans for new vehicles, homes, expenses for our children, college, etc. it took into consideration estimates of wages, investment gains, Social Security, etc, etc, very complex and extending onto dozens of those large green spreadsheets. Days and days of calculations... revisions and re-thinking.

At the time (and sadly, still) I was not money savvy. In effect, my plans were straight line, and based on circumstances of the time. Bank accounts and Money Markets were paying off in double digits, home values were rising fast, and mortgage rates ran as high as 14%. Inflation was up and down.

Almost nothing went according to the plan, but strangely enough, between 1986, and today (2013)... we are exactly on plan, within $10,000. In FireCalc, we're 100% for age 84, and 94% for age 90, and that's on our Optimal budget. (Three budgets... Optimal, Nominal and Austerity).

The most interesting part of this untechnical planning is that we measure our progress by tracking our annual net worth. Despite small yearly variances, annual calculations track our original plan almost exactly.

So... great validation for FireCalc... and great luck for this unsophisticated retiree.

BTW... when I was born, life expectancy was 59.9 years... and family history not too good... Dad died at 52, brother died at 59.

In truth, life expectancy is a roll of the dice.

 

[pb4uski]

I just took the Life Expectancy test. Man, is that a depressing thing to do. I figured I'd be like most relatives and kick off at 83. Looks like I'm out of here between 65 and 78!!!!!!!!!!! Guess my SWR can go up a bit.
Prof12

I'll never forget what DW's uncle, who was one of these larger than life personalities and enjoyed rich food and lots of wine once said to me - "If I knew I was going to live this long, I would have taken better care of myself".