Join Early Retirement Today
Reply
 
Thread Tools Display Modes
What percent of my income should I be saving in order to FIRE?
Old 06-29-2011, 01:34 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2010
Posts: 429
What percent of my income should I be saving in order to FIRE?

What percent of my income should I be saving in order to FIRE?

I was reading some T. Rowe Price literature that addresses the amount of annual income that needs to be saved to achieve a sound retirement income plan:

"Our research shows that you can build a sound retirement income plan if you follow some standard guidelines," Fahlund says. The rule of thumb is to plan on replacing 75% of your preretirement income. As much as 50% of that income may come from investments, 20% from Social Security benefits, and the rest from other sources such as a pension or part-time work. Most people need to save 15% of their annual income, including any employer contributions, to achieve those percentages. On the other hand, your savings percentage may ned to be higher if you're getting a late start.

I assume that this article assumes that person's retirement age would be 65. I want to retire before that age. But, I am trying to figure out if the 15% of annual income savings recommendation, based on their advice, is meant to include my employer's match on the 401k plan (4% in my case) or the defined contribution pension plan (5% in my case)? What percent of your annual income are you currently saving? Is there a recommended percent for someone who is trying to retire early? I suspect that the recommendation depends, in part, on one's current annual income, timeline to retirement and estimated retirement budget. But I am just looking for some ballpark estimated annual saving percentage recommendations. Thanks.
nico08 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-29-2011, 02:27 PM   #2
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,337
I suggest you go to FireCalc and put in what your desired income would need to be to achieve a "safe" retirement. Input when you plan to retire. Trial and error a savings amount into FireCalc until you achieve a match with a reasonable success rate.

Nothing's perfect but that will give you an idea of where you should be and what is practical.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 06-29-2011, 03:00 PM   #3
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,391
Well what kind of income in retirement do you want ? And at what age do you want to retire ?

Here's the bottom line.

For a modest retirement at age ~65 save 10 %

For income around what you make now retirement at age ~65 save 15 %

To live well in retirement, or to escape early save more than 15%

Some on this forum save more than half their income. They will have the option to escape early or to live very very well.
MasterBlaster is offline   Reply With Quote
The MasterBlaster Official Retirement Calculator Description
Old 06-29-2011, 03:08 PM   #4
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,391
The MasterBlaster Official Retirement Calculator Description

To continue...Here are the steps to predict how much to save.

1) Decide what your lifestyle/expenses will be when you stop working and what age you will be. Add tax payments to the expenses proportional to income and or housing. Add medical expenses.

2) From those expenses subtract off any pensions or Social Security income you may receive.

3) Assume you'll need a nestegg of 25 times your (remaining) expenses to fund yourself until your demise. So calculate your needed nestegg.

4) Use one of the many online calculators to ballpark what you'll need to save every year to reach your nestegg. Divide that amount by your current income to get the percent to save.

5) If you wish add a little extra for a safety margin - Just in case.
MasterBlaster is offline   Reply With Quote
Old 06-29-2011, 03:15 PM   #5
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 3,499
If
a) you assume a rate of return from your portfolio - and keep that rate conservative.
b) you assume an SWR.
c) you assume a saving rate

you can build a spreadsheet to work it out.

It boils down to how much do you need to save to amass a portfolio in the time you have left (to ER age) that will support your expenses at a SWR. But, your annual expense is dictated by how much you save, so it is a recursive problem.

Here's my simple take. Once you take increases in salary, taxes etc., it becomes much more complex. I suggest going to ESPlanner.com to work it out.

See out Jacob's site at earlyretirementextreme where he explains the above in one of his early posts.
Attached Files
File Type: xls SaveForER.xls (11.5 KB, 20 views)
walkinwood is offline   Reply With Quote
Old 06-29-2011, 04:06 PM   #6
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Our research shows that you can build a sound retirement income plan if you follow some standard guidelines," Fahlund says. The rule of thumb is to plan on replacing 75% of your preretirement income
This is BS and has been beaten to death here numerous times. As others have posted above it about your expected expenses, NOT your current income.

As an example we plan to live quite comfortably on ~20% of my current salary, and we save > 50% of my gross earnings. YMMV

DD
__________________
At 54% of FIRE target
DblDoc is offline   Reply With Quote
Old 06-29-2011, 04:06 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,733
Quote:
Originally Posted by midnighter777 View Post
What percent of my income should I be saving in order to FIRE?

.

FWIW, when I was doing some calculation to as to the true cost of pension,I made a simple spreadsheet. My rule of thumb is that if you want to retire at say age ~55 with an income between 60-75% of your gross income, your combined savings needs to be between 25-35% of your salary. This includes matching contributions to your 401K and the true value of employer contributions to a pension.

This seems to be inline with saving that most members have self reported. 15% is fine for regular retirement not enough for early retirement, due to higher medical expenses (in most cases), longer life span, and shorter time to benefit from compound interest.
clifp is offline   Reply With Quote
Old 06-29-2011, 05:04 PM   #8
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 47,468
Save as much as you can. If you save too much, all that will mean is that you can retire a few years earlier than you had expected. (Oh, darn! )

I don't really have a numerical answer for you, but to me 15% doesn't sound like enough to retire early.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.

Happily retired since 2009, at age 61. Best years of my life by far!
W2R is offline   Reply With Quote
Old 06-29-2011, 05:40 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,714
Quote:
Originally Posted by DblDoc View Post
This is BS and has been beaten to death here numerous times. As others have posted above it about your expected expenses, NOT your current income.

As an example we plan to live quite comfortably on ~20% of my current salary, and we save > 50% of my gross earnings. YMMV

DD
I have to second DblDoc's assertion. You have to START with what YOUR expected expenses will be and then work backwards. The 75% rule is simply an average. DblDoc needs 20% and we need more than 100% right now - even though we typically saved 20% to 50% of after-tax income (retired at 58). So, the difference between our available living funds prior to retirement and funds needed after retirement are dramatically different. Each case is different. You simply MUST do it based on your own expectations. Oh, and once you decide to use a calculator from the net, be sure to use relatively conservative assumptions (I wouldn't count on 10% returns for ANYTHING).
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is online now   Reply With Quote
Old 06-29-2011, 06:29 PM   #10
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,657
You can make all kinds of assumptions and test scenarios as much as you like using FIRECalc and other tools, but everything you plan will be dependent on the many assumptions you had to make to do your calculations. And many of those assumptions will turn out to change or be different in real life. This cannot be reasonably fine-tuned, so just pick an approximate answer and go with it.

I think W2R has it right:
Quote:
Save as much as you can. If you save too much, all that will mean is that you can retire a few years earlier than you had expected. (Oh, darn! )
growing_older is offline   Reply With Quote
Old 06-29-2011, 06:45 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Location: North TX
Posts: 1,788
We are taking a couple years off (maybe for good if we like it). We put the nose to the grindstone the last 5 years and socked away 50-60% of our earnings. We currently live in an expensive part of the country and spend $6k monthly.

Now we will be moving to a budget of $2,500 monthly and should be bringing in $3-4k monthly from our savings assuming a 4% return. I'll leave the principle alone until 62-65 and then try to live primarily on a pension & SS (assuming reduced bene's)...

If you live simple, you can get by on much less; we hope for the best & expect the worst.
Surewhitey is offline   Reply With Quote
Old 06-29-2011, 07:39 PM   #12
Full time employment: Posting here.
flyfishnevada's Avatar
 
Join Date: Jan 2010
Location: Smith
Posts: 743
Quote:
Originally Posted by Surewhitey View Post
We are taking a couple years off (maybe for good if we like it).
If?
__________________
Retired July 4th, 2010 at age 43
Trout Bum, Writer, Full-Time Dad and Husband


flyfishnevada is offline   Reply With Quote
Old 06-29-2011, 07:40 PM   #13
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I agree with Dbldoc, expected expenses are key. You may wish to enter your numbers in this free online tool :
Merrill Edge| See Where You Stand
Quote:
Originally Posted by DblDoc View Post
This is BS and has been beaten to death here numerous times. As others have posted above it about your expected expenses, NOT your current income.


DD
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 06-29-2011, 08:28 PM   #14
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 22,923
Quote:
Originally Posted by W2R View Post
. . .all that will mean is that you can retire a few years earlier than you had expected.
I hate it when that happens.
__________________
Living an analog life in the Digital Age.
Gumby is online now   Reply With Quote
Old 06-29-2011, 09:12 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
How much to save to retire early? This is very easy to answer no matter what your income and expenses are.

You need to save 50% of your gross income. This means that you will be paying taxes and other expenses from the other 50% of your gross income. This also means you will be living well below your means.

This works if you make $10K a year or $50K a year or $500K a year or even $5 million a year.

It's also easy to do. If you are a two-income family, just invest the entire salary of the higher paid spouse.
LOL! is offline   Reply With Quote
Old 06-29-2011, 09:46 PM   #16
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
Quote:
Originally Posted by midnighter777 View Post
What percent of my income should I be saving in order to FIRE?
I assume that this article assumes that person's retirement age would be 65. I want to retire before that age.
But, I am trying to figure out if the 15% of annual income savings recommendation, based on their advice, is meant to include my employer's match on the 401k plan (4% in my case) or the defined contribution pension plan (5% in my case)? What percent of your annual income are you currently saving? Is there a recommended percent for someone who is trying to retire early? I suspect that the recommendation depends, in part, on one's current annual income, timeline to retirement and estimated retirement budget. But I am just looking for some ballpark estimated annual saving percentage recommendations. Thanks.
Here's a post with the math and a couple tables developed from the math. It was written for military readers but the math works for civilian paychecks too.
How many years does it take to become financially independent? | Military Retirement & Financial Independence

The number you're saving is a percentage of is your gross income, which includes your employer's match and your contribution.

You'll also need to estimate your projected spending in ER, because you'll be trying to save a portfolio that's 25x your expenses.
__________________
*

Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."

I don't spend much time here— please send a PM.
Nords is offline   Reply With Quote
Old 06-29-2011, 11:16 PM   #17
Full time employment: Posting here.
arebelspy's Avatar
 
Join Date: Apr 2011
Posts: 625
Quote:
Originally Posted by Nords
Here's a post with the math and a couple tables developed from the math. It was written for military readers but the math works for civilian paychecks too.
How many years does it take to become financially independent? | Military Retirement & Financial Independence

The number you're saving is a percentage of is your gross income, which includes your employer's match and your contribution.

You'll also need to estimate your projected spending in ER, because you'll be trying to save a portfolio that's 25x your expenses.
I love that post of yours, btw. I've read it multiple times, and this time it inspired me to make a spreadsheet based on it so I can plug in different rates of return, savings/expense rates, and SWRs to see how the time changes.

Thanks for sharing that.
arebelspy is offline   Reply With Quote
Why not save 80% of income?
Old 06-30-2011, 07:34 AM   #18
Confused about dryer sheets
 
Join Date: Apr 2011
Posts: 2
Why not save 80% of income?

I have been fighting (myself to save above the normal. As much as i can, so that i may be FIRE by age 32. I am currently 24 years old and saving 80% of my income.

Making 65k a year, my monthly take home after taxes and 3% in my 401k for now, is $3468.

Currently I am paying off my remaining $3500 in student loans, and a 2010 Corolla on a 2.9% lease (about $9000 left). And then saving as much as I can to secure a shelter (preferably Less then $100k house), then to secure my investments(preferably over $100k).

I have $5000 in investments that makes a few hundred dollars every quarter on MREIT and stocks.

I always have $1734+ on hand as an emergency fund. My work currently gives me health insurance at $80 a month. I get no matching from my workplace. (this might change if i move to a bigger company)

What allows me to save 80% a month of my take home income is mostly contributed to a home rental at only $400, that I split the cost with my Fiancée.

Second, I live below my means, and have only bought a few high quality items that i knew i would use all the time and they will always make me happy where ever i may live. (55" LED at $1300 + FS + NT, a slick deal, a custom built computer at about $1000, Given two nice sofas and a used queen bed, a dining room table, and most kitchen appliances. My books and bookshelf are from College, as well as my gaming console with more then enough books and video games to last me for a great while, until i buy them used.

I have no children right now, however I plan on cooking more to lower grocery bills, and giving my time to my children instead of working 40 hours a week when F.I.R.E. A part time stay at home dad I guess.

After I secure a house which will take about 4 more years of work if i want a bigger house, I plan on saving about $140k which would take another 4 years of work at 80%. Along the way i would be investing and gaining compounded interest to make these goals work years shorter if i can. Though with Capital Gains Tax of about 25% for short term investing this will not help. Obama may lower this to increase US investing in the future.

So since i spend usually less then $9000 a year, a 10% yearly return on $140k is about $14k without working a single hour. Not to bad with a spare $5k, and some tax benefits now that US Government thinks I am poor making only $14k a year. When i have a house paid off, a nice car paid off (might last 10 years), and a big screen, a nice computer,(most electronics will out live a decade easily), nice sofas from the 80's, a nice almost new queen bed, and plenty of clothes for work and non work.

Now yes i will be Early Retired, but I may want to learn some new things and take a few part time jobs here and there. Any extra money i earn up to $16,500 will probably go into the 401k for when i turn 65. 33 years away from when i first start early retirement.

I could always down grade my house for extreme emergencies, but i can't see ever doing that as long as i live below my means. Which in may perspective is a very high standard of living. Netflix, no cable, movies out here and there with rentals rented for free at BBX with coupons. Plenty of free things to do (tennis, jogging, libraries, chatting/hanging out with friends at their houses), let alone learning new things, and building DIY projects with spare cash here and there which i then sell off anyways. I usually set aside about a 100$/month for travel to either friends/family and for vacations.

I have planted some tomatos, potatoes, and spices. Small for now. A bigger garden for when i am FIRE, like my grandfather who is now 70, and has only 3 years of retirement under him.

This all would be easier without a car, but this is budgeted with a new car, currently i spend $160 a month on Fuel alone driving to work everyday, and going out and about near home, and making a few trips to see family about 1.5 hours away. Another $30 a month for repairs, oil changes, tires, etc..

Either way I went to College and chose the a great major called Engineering that landed me a high paying job that will only increase in salary up to a decade unless i wish to become a Manager and make a lot more money but work a lot more stressful and longer hours job. (Probably not at all, especially if i have new borns before 32, and if i am earning any extra from investments, like I am doing now.)

Wish more people would live below their means, sacrifice, and learn some new things to free their Chains from money/working for others/ having to work everyday of their lives.







ViciousTide is offline   Reply With Quote
Old 06-30-2011, 07:44 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Location: North TX
Posts: 1,788
Quote:
Originally Posted by flyfishnevada View Post
If?
Never not w*rked...got to get used to it before saying we're done...for good.
Surewhitey is offline   Reply With Quote
Old 06-30-2011, 08:21 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,629
I'll join the chorus. It's not what you earn, it's what you spend. If you currently spend 50% of your gross income, you don't need a plan to replace 75%. Some spending will change. Two very big items are mortgage and children. IF they are both gone when you retire, you can maintain your standard of living with much less spending than you have today.

The best approach is a simple spreadsheet. It doesn't have to be fancy with lots of tax complexities and Monte Carlo simulations. Just the basics.

Column headings would be Year, Age, Current Income, Taxes, Savings, and spending (probably a few categories, for example list mortgage payments separately so you can stop them at the appropriate time). Then retirement income sources (pension, Social Security) and desired retirement spending. Finally three columns for Annual Contributions to (Withdrawals from) savings, Savings Balance, and investment income.

Play with the spreadsheet, varying spending till you get the picture you want.

The most important element is to modify it at least once a year. As you get closer to retirement you'll get more accurate. Starting out, you can only make very approximate estimates, you'll get better with time.
Independent is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


» Quick Links

 
All times are GMT -6. The time now is 03:59 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.