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Where do you stand in retirement savings?
Old 12-30-2009, 07:07 PM   #1
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Where do you stand in retirement savings?

http://spwfe.fpanet.org:10005/public...ncial%20He.pdf

Interesting article concerning determining your Personal Finance Ratio - and calculating whether you're financially on track for retirement.

Realistic?

Author just published a new book that was just released this week with more information on the subject.
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Old 12-30-2009, 09:31 PM   #2
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Not for me.

I stopped reading when I got to "The primary objective of the ratio is to help the person reach age 65 with no debt and savings worth 12 times their salary."

Personally I'm aiming for savings of 25 x expenses at age 45.

2Cor521
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Old 12-30-2009, 09:48 PM   #3
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I seriously didn't like this article or concept. It is a dress up of the whole need 80% of pre-retirement income stuff.

While I agree about not having debt there are plenty of people who argue in favor of a mortgage during retirement which this concept doesn't allow for. I'm not enthused with the idea myself but I understand the point of view.

It does account for employer matching 401k contributions but I didn't see anything to account for someone like my DH who has a choice of either a generous pension or a large lump sum. This doesn't seem to say whether we can count the lump sum the same as savings.

Regardless the 12 times earnings is a ridiculous amount of money for many people particularly if you had a high income.

He does use a 5% withdrawal rate although he does at least explain why he does that. He seems to feel that planning for a 4% rate is too hard, but he doesn't seem to really question his assumptions as to the huge amount of savings that he advocates.
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Old 12-30-2009, 10:39 PM   #4
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Personally I'm aiming for savings of 25 x expenses at age 45.
Same here although I may w*rk until age 49 even if I reach the goal at 45.
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Old 12-30-2009, 11:06 PM   #5
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I think the author lives in an alternate universe. There are so many things wrong with his plan (from my point of view) that I won't even start on a critique.

Maybe he feels that giving his clients this sort of plan justifies the high fees that he probably charges them.

If the plan works for somebody, then great!! But if your progress in life doesn't fit within his idea of where you should be, I wouldn't sweat it.
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Old 12-30-2009, 11:46 PM   #6
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Not for me.

I stopped reading when I got to "The primary objective of the ratio is to help the person reach age 65 with no debt and savings worth 12 times their salary."

Personally I'm aiming for savings of 25 x expenses at age 45.

2Cor521
Ratios relative to (wage) income don't mean much to me. I w*rked full-time until 2001 when I switched to part-time (about 53% of previous gross pay). Then, in 2007, I switched to even fewer hours, about 32% of my original gross pay in terms of hours per week w*rked. So, what income level do I compare to?

When I retired last year at age 45, my total savings (before taxes were paid on a lump-sum payout, but also before the stock and bond markets had recovered) were about 30 times expenses but have since risen to 45 times expenses.

And I am still adding to my savings even in retirement, as my invesment income (excluding my IRA) exceeds my expenses.
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Old 12-30-2009, 11:47 PM   #7
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Maybe he feels that giving his clients this sort of plan justifies the high fees that he probably charges them.
That's a good one!
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Old 12-31-2009, 12:23 AM   #8
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I stopped reading believing anything in the article when I saw the fifth line. it was:

Executive Summary

Why would I, as an "executive" give a rat's petuti about his summary? Or was I to believe his tale was great because he was an "executive"?
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Old 12-31-2009, 08:14 AM   #9
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Originally Posted by SecondCor521 View Post
Not for me.

I stopped reading when I got to "The primary objective of the ratio is to help the person reach age 65 with no debt and savings worth 12 times their salary."

Personally I'm aiming for savings of 25 x expenses at age 45.

2Cor521
His book discusses modifications for those retiring early and those who are fortunate enough to retire with a pension.
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Old 12-31-2009, 09:39 AM   #10
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Seems like it is a sensible approach to have quantitative metrics for the typical saver/retiree. From talking to my FP friends, the new client coming in off the street (or an established client, for that matter) doesn't really spend much time thinking about wealth accumulation, savings, etc. Hence the reason they are paying a FP to think about this stuff for them.

So now an FP can point to the chart and say "this is where you are, this is where you should be based on these assumptions". Assuming the assumptions are close enough to what the client wants to achieve, then it is a valid rule of thumb. Assumptions are different? Rejigger the benchmarks.

My savings to income and savings rate to income ratios are way higher than the article says I would need at my age to be able to retire at 65. My debt is actually a bit higher than their 1.7 debt to income ratio, but that's ok since I don't mind the leverage. In my situation, it makes sense that I'm way ahead of the curve since I don't plan on sticking it out to any where near age 65.
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Old 12-31-2009, 09:59 AM   #11
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I don't have a problem with the benchmarks.

The concept(s) of age-based benchmarks are helpful for anyone.

For those of you that have chosen lower income replacement ratio rates than the author - you can make your own benchmarks adjusted downward to reflect your ultimate spending income goal.

Keep in mind that many family incomes are significantly less than many (perhaps most) posters on this forum. For many families with modest incomes an income replacement rate at 80 percent (as the author suggests) would suit them well. The 12X salary goal would only produce ~48 percent of the pre-retirement income. Social Security would make up the balance. Lower income replacement rates (than 80 percent) for lower income families would be more of a hardship than for many on this forum. In the absense of other information the goal, and the benchmarks are worthy.

Also for what it's worth, These exact benchmarks have been discussed before.
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Old 12-31-2009, 10:12 AM   #12
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Just for fun here is another thread on this topic...

Net Worth Benchmarks
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Old 12-31-2009, 04:10 PM   #13
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I wish there were more books based on the lifestyle of the Millionaire Next Door. Like a retirement book for people already saving much more than average, paying cash for reliable cars, etc.

I guess there wouldn't be much of a market and the minority of people who would benefit from it would just check it out at the library anyway.
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Old 12-31-2009, 04:33 PM   #14
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I have had some very good reads from FPA Journal, this was not one of them...
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Old 12-31-2009, 05:06 PM   #15
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I guess there wouldn't be much of a market and the minority of people who would benefit from it would just check it out at the library anyway.
Yes. It would be like bringing out a line of make-up for nuns.

Ha
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Old 12-31-2009, 06:36 PM   #16
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Originally Posted by kumquat View Post
I stopped reading believing anything in the article when I saw the fifth line. it was:

Executive Summary

Why would I, as an "executive" give a rat's petuti about his summary? Or was I to believe his tale was great because he was an "executive"?
That's just MBA-speak for "key points", "summary", "introduction", etc. The reason for the terminology, I think, is that they're for the "busy executive" who probably doesn't have time to read all the gory details and may just want the key points.

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Old 01-01-2010, 11:29 AM   #17
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Don't be so hard on the guy. First, consider where he is posting this article. He is writing for other professionals in his line of work.

He is trying to get his clients to look at their lives as a business and to take their situation seriously. I wish I had had the presence of mind to do so much earlier in my life.
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Old 01-01-2010, 04:52 PM   #18
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That's just MBA-speak for "key points", "summary", "introduction", etc. The reason for the terminology, I think, is that they're for the "busy executive" who probably doesn't have time to read all the gory details and may just want the key points.

2Cor521
Very true. When I was working for a trade group representing small and meduim-sized P/C insurance companies, the large documents we filed with state insurance departments on behalf of our members companies always contained a small, introductory "Executive Summary" which included the bottom line of what we were filing along with other vital information. It was about 10 pages and was followed the supporting material of 100-120 pages. I don't know who made up the term, as those who read the document were not usually executives by any stretch.
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