Am I as far behind as I feel?

[Machine99]

Long time lurker, first time posting.

Ever since I started working, I've always contributed to my retirement account but never aggressively. Its always been 6-10%. I'll be 47 in a few months and just this year I realized how close I am to retiring. Years are now flying by...

I'm currently at $435k in my retirement accounts ( $385k in IRA, $4k in a Roth IRA(which i just started this year), $43k in a NQDC plan, and $3,500 in savings).

I've been working hard this year towards becoming debt free (except for the house). Paid off two credit cards and one car this year and should have my truck paid off in another year or so.

I just started hardcore saving this year. Once I cap out my Roth and have about $10k for an emergency fund, I plan to open a taxable investment account and put all I can in a low expense index fund.

Between my NQDC plan (which I hate because it pays out in full when I leave the company) and the money I put in Roth and the taxable investment account, I should be able to save around $40k per year.

I hope to retire at 60, but that may depend on the markets of course.

Am i really as far behind as I feel. I worry about it frequently and kick myself every day for not focusing on retirement goals earlier in life.

 

[samclem]

Am i really as far behind as I feel. I worry about it frequently and kick myself every day for not focusing on retirement goals earlier in life.

To know if you are behind, you need to know where you are trying to go. How much will you need to spend each year in retirement? Do you need to leave money to others when you die? How much will you receive in Social Security? Any other sources of income in retirement? Answer those and it will be easy to give a ballpark idea of where you are.

 

[bobandsherry]

What worked for me was estimating how much I'd need and then create a plan of how to get there. Simple spreadsheet really that showed by year how much I'd set aside, how much investment growth would be and and how much I'd have by my target retirement age. This showed me what i needed to accomplish and then i measuered against that every year. Over the 25 year plan I saw huge deficits due to economic circumstances/downturns. But stuck with the plan knowing I'd see ebbs and flows. I actually retired one year ealier than my plan and with more than planned (conservative estimates).

So my suggestion is create a target you need for retirement and then a plan to see what it takes to get you there. Keep chugging away...

 

[Kelor]

I like bobandsherry's post. I jumped up my DC every year, and was as high as 60% of my income before I left the company that offered it. We had a goal and stuck to it!

BTW. I don't think I would recommend that to anyone. My company almost went belly up, and the DC was completely unfunded. It was a scary time.

 

[Gumby]

The best time to get serious about retirement planning was 20 years ago. The second best time is right now. You understand the issue and are working toward the solution. Take heart; you are well on your way.

As others have said, here's the key:

How much will you actually spend per year in retirement?

How much of that will be covered by social security or some sort of pension?

What is the delta? (spending minus SS minus pension)

Multiply that delta by 25.

That's how much you'll need to have saved by the time you retire.

What is your plan to get to that number?

 

[Machine99]

As others have said, here's the key:

How much will you actually spend per year in retirement?

This is something I've been trying to figure out. So many variables. I know this is not the home we will retire in. I've been reading about paying cash vs mortgage and keeping money invested.

Then I wonder is social security will even exist in 13 years....

I'm probably over worrying. I'll just stick with trying to save as much as possible for now...

 

[skipro33]

Your $435K could be around $950K with a 6% growth rate. Aggressive, to be sure, but meh, it's not my money. What ever you can save for the next 13 years will bump that up to maybe another $200K, again if you are aggressive. That could get you around $45K a year income based on a 4% withdrawal rate. Add in SS of what, maybe $2,000 a month at FRA and you have almost $70K a year gross. Now, it's to be determined if $70K annual is gonna be enough for you in 13 years depending on inflation and other factors, but that's my estimate of what you can expect to be pulling down at 65 and later FRA.

 

[Ed B]

For the reasons mentioned earlier I don't know if you are behind or not. But based in my experience, if your target is ER at 60, you have plenty of time to meet your goals.

I was worse off than you at age 47. You can do it.

 

[REWahoo]

Made me look.

At 47 I had only 60% of what you have in your retirement accounts and I retired at 58. I don't see that as being behind at all.

 

[Gumby]

This is something I've been trying to figure out. So many variables. I know this is not the home we will retire in. I've been reading about paying cash vs mortgage and keeping money invested.

Then I wonder is social security will even exist in 13 years....

I'm probably over worrying. I'll just stick with trying to save as much as possible for now...

A really good place to start is to know how much you spend today. You can adjust as necessary for things that will change once you retire.

For example, I know what I spend today, because I have tracked it over ten years. We no longer have a mortgage and intend to stay in the same house. Therefore, my housing expenses are the same as they are right now - real property tax, utilities, etc. That is the number I plug into my spreadsheet. By contrast, I will no longer need to keep up all my professional certifications and will not have commuting expenses, dry cleaning, etc.

These are the types of adjustments that you'll need to make to your expense spreadsheet, but it assumes you are tracking your expenses currently. If you are not, I suggest that you start there as a first step.

 

[Sunset]

OP - You are probably saving better than 50% of folks, so you are not too bad off, its the spending and resultant debt that is a killer, as you have noticed.

Consider what you are invested in, inside your savings vehicles.
Costs count a lot, the lower the cost, the more you are keeping for yourself vs the salesman of plans will always try to get you to pay lots of fees.
As well, the mix you are invested is important, and you have many years still for it to grow.

 

[Cayman]

Keep your focus on maximizing your retirement savings and follow the advice in this thread and on this board. You're on the right path. Congrats on accumulating what you have to date.

 

[brucethebroker]

Then I wonder is social security will even exist in 13 years....

I'm probably over worrying. I'll just stick with trying to save as much as possible for now...

Personally, I got started at age 38 (first IRA). 401-k's came around much later. Late start, sure, but because we live in a low COL area, we are just fine. (Recently read an article about the high number of retirees that started getting serious about saving around age 40...just sayin'!)

Back in the late 70's, as a newbie life insurance salesman, I was trained in Social Security retirement benefits. As a 30 something back then, I had no doubt it would not be around when I retired. Surprise-another check each month! IMHO, you can begin counting on SS-it may be tweaked, but it will be there.

Find a way to keep doing what you are doing, and add to it. Just get to age 62, or 66 or whenever you want to claim SS and you will be fine.

 

[njhowie]

If you are still contributing 6% to 10% to 401k, if that is not maxing it out, consider maxing it out before savings to other places. The IRS limit for 2018 is $18,500. Any extra placed there above current contribution will have a bigger impact as it is coming out of your paycheck tax free today.

Also, attack the debt with a vengeance. Once that is eliminated, saving becomes even easier.

You're not "really far behind" at all. However, it's important not to begin playing numbers games becoming overly confident, but to stick to your plan. Many folks today are feeling extremely "wealthy" because of the effects the stock market has had. It's at this point where many will begin becoming too complacent, upping their contribution amounts going to places that are market-based, and happy to see the balance on their monthly statements continually move higher. Furthest from their minds is that there will be a decline at some point, and you should be prepared to see it happen. If you've got a good portion of this $435k retirement account in the market, there's a fair chance that at some point it will fall by 20% or more. The higher the balance is when the decline comes, the bigger the decline in raw dollars will be.

I'm not trying to rain on your parade - you are doing a great job. However, I've seen it a few times before, when the economy has been at a similar point, and best laid plans get ruined.

While you are turbocharging the savings, remember to stay diversified and not keep all of your eggs in the market and index funds. 401k plans usually have stable value funds which generally pay about 2% above money market rates and are guaranteed - you might consider that for some portion of the 401k account if you don't already have that as part of your allocation.

 

[DrRoy]

The best time to get serious about retirement planning was 20 years ago. The second best time is right now. You understand the issue and are working toward the solution. Take heart; you are well on your way.

+1. Doing your best from here to maximize saving and return will help you a great deal at 60. You have plenty of good advice here. You will figure it out. Good Luck.

 

[Dtail]

Great comments so far.
My 2 cents is keep track of every current expense and try to estimate changes from there.
Retirement readiness fell into my lap, but I did reduce my expenses by 60% over a 3 year period before retirement; some of it knowing I had to and some of it circumstantial.
Expense management and savings are the keys.

 

[Bryan Barnfellow]

I agree with the suggestions above; invest to achieve a number that will support the life you want in retirement. I think you have motivation to stay on track and that counts for a lot!

One thing my wife and I did to keep our motivation going was to calculate the value of a dollar today in future dollars on our retirement date. We would then use that sometimes (not always of course) in cases where we could spend some of our eating out or entertainment funds, to motivate us to decide to save instead of spend.

One example would be if we were out and both wanted to stop for a coffee (this was when we were in the US), which we knew would cost $7.00 total. If instead we were to forgo the coffees and invest the $7 for twenty years, with a 6% projected growth rate, we would actually be saving $22 for our future selves! Movie night out at $25, would be $80 more in the future nest egg. We would literally put the money we saved in an envelope at home and invest it with our regularly saved funds every month, which were mainly being handled behind the scenes with payroll deductions, etc., thus making the saving decision more visceral.

It felt great to "feel" the multiplier and to actually be adding more than we had planned, even if it was a small amount at any particular moment. It helped us to hone our LBYM lifestyle to an even lower level. And, we really never missed those small niceties that we chose to give up here and there.


-BB

 

[RunningBum]

I'm probably over worrying. I'll just stick with trying to save as much as possible for now...

There you go. You can't change the past, you can only learn from it.

Many people have trouble saving in their early lower-earning years, perhaps raising a family. Later, especially if you can keep expenses in line and perhaps even lower them as kids move out, and you have more income, many people find they can save more and make a lot more progress on retirement savings.

It's especially helpful that you don't have to climb out of debt first.

As others have said, start thinking about your retirement budget so you have a real idea what your retirement savings target should be.

 

[COcheesehead]

Take 30 minutes and plug your data into Fidelity’s RPM calculator. It will give you a score stated as a percentage of the assets and income needed to cover expenses in retirement. If your score is 100 or better, you are on track. Lower, and you’ll need to change your savings or your retirement spending. It is one of the better planner / calculators out there because it will also help you create a budget for retirement and show you confidence levels (50%, 75%, 90%) with different market performance outcomes. It is well worth the time and will give you a good indication of where you stand.

 

[Dtail]

Take 30 minutes and plug your data into Fidelity’s RPM calculator. It will give you a score stated as a percentage of the assets and income needed to cover expenses in retirement. If your score is 100 or better, you are on track. Lower, and you’ll need to change your savings or your retirement spending. It is one of the better planner / calculators out there because it will also help you create a budget for retirement and show you confidence levels (50%, 75%, 90%) with different market performance outcomes. It is well worth the time and will give you a good indication of where you stand.

COcheesehead - indirectly related to this thread, for Fidelity's RPM calculator I have been given 2 different responses on the results of the calculator regarding taxes.
Example - if one has an input of expenses of 100k (not including taxes as that is not a category) and a score of 105 and taxes are 10k/10%, then is one's maximum spending 105 or 115?
I realize there is input for an effective tax rate, but it is not one of the expense category inputs.

 

[COcheesehead]

COcheesehead - indirectly related to this thread, for Fidelity's RPM calculator I have been given 2 different responses on the results of the calculator regarding taxes.
Example - if one has an input of expenses of 100k (not including taxes as that is not a category) and a score of 105 and taxes are 10k/10%, then is one's maximum spending 105 or 115?
I realize there is input for an effective tax rate, but it is not one of the expense category inputs.

I think it accounts for it by increasing your draw. Look at the data in the table, not just your raw score. It should show a higher amount taken out each year to account for taxes. So a 105 is 105 including taxes. That is how I interpret my results.

 

[Dtail]

I think it accounts for it by increasing your draw. Look at the data in the table, not just your raw score. It should show a higher amount taken out each year to account for taxes. So a 105 is 105 including taxes. That is how I interpret my results.

Yes that makes sense. Thank you.

 

[aaronc879]

Then I wonder is social security will even exist in 13 years....

If the US still exists in 13 years then so will SS. I would not worry about that at all. Maybe, MAYBE, plan on a reduced amount just to be conservative but it WILL be there in 13 years. 30+ years, not quite so sure.

 

[Machine99]

All, thanks for the great replies. Very useful info!

For the past 6 months ,we've been living off what would equate to $20k per year in expenses, plus $21k per year for mortgage payments. If we had to, we could easily live of $45k-$50k per year. But I don't want to simply exist. I'd like to do some traveling and take up a few hobbies. We've even talked about full time RV'ing for a few years before settling on a permanent retirement location.

I currently make $130k per year. Wife does not work, so we only have the one income.

I had been putting 15% in my NQDC plan, but I'm thinking i should drop that to 6% just to get the match. When I leave the company it pays out in one lump sum. Assuming I am still with this company, taking that large lump sum in 13 years will for sure put me in a much higher tax bracket. I wish I could still participate in a 401k...

I'll take that money that was going into the NQDC plan and start putting that in taxable account.

So the plan is $8k/yr into the NQDC (down from the current $20k/yr), $5,500 into the Roth(bumping up to $6,500 in 3 yrs), and another $20k-$25k going into a taxable account. Thought about opening another Roth IRA under my wife's name and maxing that out as well.

Seem like there is a lot to learn on tax avoidance, most tax efficient with drawl methods, learning to move money around, etc.

 

[aaronc879]

I currently make $130k per year. Wife does not work, so we only have the one income.

If you are only going to have one income for a couple then it helps that that one income is equal to more than 2 average incomes. You should be just fine if you keep your expenses down and savings up.