How many times salary?

[lazysundays]

Hiya- super noobie to this forum. I just ran the numbers last night. I can pay off my SLs then my mortgage and at age 47, use that freed up snowball $ to throw at retirement. I should have a starting balance of 334k at age 47, and should have 16x salary by age 62-65 based on different calculators. I'm assuming no ss will exist, or will be drastically depleted by then.

How much should I be saving for retirement on 30 years? Current calculators say 8x-10x salary, but I heard 16x will cover most health issues, travel etc.

What goal are you guys reaching for?

 

[REWahoo]

A % of salary isn't meaningful since you are hopefully not spending every penny you take home.

What you need to base your measurement on is your expected annual expenses in retirement. The rule of thumb is to have 25X your annual expenses stashed away. That amount that can be reduced by pensions, SS or other expected income sources and increased by whatever fudge factor you need to sleep at night.

 

[Major Tom]

Welcome to the forum lazysundays. As REW said, it is more useful to think of it in terms of a multiple of your annual expenses in retirement. If you spend some time reading the various threads here, there are a lot of discussions on how much many of us have saved up, expressed in terms of a multiple of expenses, or as a percentage withdrawal rate (25 times expenses = a WR of 4%, for example). Some even talk about actual dollar amounts too, though it's not strictly necessary.

Disregarding other sources of income, such as pensions and SS, while the 25X multiple is a good rule of thumb, the very conservative among us have as much as 50X annual expenses stashed away (a few very conservative souls, even more), though figures of 30 - 40X seem fairly common.

If you'll be getting SS and/or a pension, that can give you some latitude to withdraw a bit more from your stash.

We're a weird lot, as we like to talk about money. Welcome to the club

 

[lazysundays]

I hail from the exiled YM forums, so I'll be content here. Figuring out 50x expenses (definitely aiming for conservative) requires a lot of daydreaming between now and then. What will inflation do to a trip to Europe or how much spoiling $ do I need for helping grandkids with college etc?
Thanks. Lots of reading to do.

 

[Options]

It's almost a competition among those who have either ER'd or plan to ER to see who can be more conservative. I would personally never plan for 50x expenses, but then I'm almost 60. Michael Kitces writes some good stuff on his blog regarding common errors in oversestimating longetivity, underestimating decreased spending throughout retirement retirement, the long-term viability of SS, and flexible spending based on market conditions.

I should add that I'm also not comfortable with anything less than 35x expenses, however.

 

[MichaelB]

Thanks. Lots of reading to do.

Here's a great place to start. http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[lazysundays]

I saved kitces, so will read through. I am using ynab, so I KNOW my expenses now. I don't know what they will be in 30 years.

 

[Major Tom]

It's almost a competition among those who have either ER'd or plan to ER to see who can be more conservative.

A contest to see who is more conservative? I can almost see this as a Monty Python sketch!

 

[lazysundays]

Umm 16x salary = 2.4 mill,
40x expected expenses is more like 3.5 million

Assuming no debt

12000escrow
20000 vacations
7200 food
2400 electricity
3600 oil/propane
6000 gasoline- traveling to family
20,000 health (no concept of how much it will be per year per person)
Cell 2400
Spending $1 2400
Spending $2 2400
Entertainment = movies, theatre 2400
Car maint 1200
Home maint 2000
Life ins 2400
Dog 600
Charity ? 3000
Car insurance 2400
Gifts 2000

Interesting

 

[pb4uski]

I think 40x is probably a bit conservative for a 60-65 year old. A 3.5% WR would be reasonably prudent for that age especially since if need be vacations could be dialed back and are a high % of the total expenses. That would equate to ~$2.5m in today's $.

If you haven't already done so you may want to get a copy of Quicken Deluxe or higher and run your situation through the Lifetime Planner.

 

[Travelwanted]

It's not what you make, it's what you save and spend!

I use the 40+x expenses rule personally, but I am younger. I have a very high income so 16x income would be insane given my relatively low spending (as a percentage of my income).

In ER, it won't matter what you used to make, it matters what you have saved relative to what you spend.

 

[lazysundays]

What we spend now is more than we expect to spend, so I allowed room in my equation for actual vacation/entertainment and good health insurance. I guess the lesson here is that we can do ER when have at least 40x expected expenses, or >3.5mill saved. For on-time retirement, 16x salary should do.

 

[Fishingmn]

Hi lazy,

Looking at your budget here are a few others I plan for that I don't see listed -

Water, garbage, internet, home improvement (furniture/flooring/updates/yard stuff)

Now I'm off to read the kitces blog which sounds interesting.

 

[longranger]

If you have a very high income, live well below your means and save generously it is very easy to feel like you will need way more padding than you actually will in retirement. During the Mortgage, kids, heavy savings years we allocate our highest % of income in taxes and fixed expenses. It is hard to imagine living on less than half or a third of our maximum incomes.

A well planned retirement that includes downsizing ones home, lower fixed expenses, (healthcare and LTC excluded), and structuring your retirement income to minimize tax burden makes your money go way further. Don't get me wrong padding your budget is wise but you may not have to pad as thickly as you think. Everyone has their own comfort thresholds. Pencil it out. You might be pleasently surprised.

 

[lazysundays]

Good points

Fishing- I would probably need much less for health insurance for two based on what I'm seeing in these posts. And being realistic, we can probably save another 10k/yr on travel and do major trips every 2 years. Dh is a homebody and I'm not going without him. I had not considered big items like major home repairs and renovations. I guess we can cut 20k and add it back up to unexpected repairs so same goal.

Ranger- you are right, we would probably downgrade from hcola area.

More to think about.

 

[imoldernu]

How many times salary?

Of course the forum is Early Retirement... but there are those of us who did retire early...

Does anyone have a suggestion for estimating savings needs for someone who is age 80?

Lets say current expenses @ $40K for starters.

Takers?

 

[haha]

How many times salary?

Of course the forum is Early Retirement... but there are those of us who did retire early...

Does anyone have a suggestion for estimating savings needs for someone who is age 80?

Lets say current expenses @ $40K for starters.

Takers?

Assuming this includes income tax take these expenses and subtract all transfer payments and pensions and annuities. Multiply this by 15. This gives a very conservative needed amount, assuming 0% real return on a portfolio assets and no planned liquidation.

To give a much more generous but likely adequate allowance, take the net amount of your invested assets, and deplete annually by the IRS factor for RMDs, for the younger member of your pair.

Somewhere between these two amounts will be what you are looking for.

Since it has likely been quite a while since you added any money from earned income, this exercise is more or les meaningless for you. What you need to decide is how much can you safely draw, not how much do you need. That ship has sailed.

Ha

 

[lazysundays]

400k but what if they live past 90.... I say 1 million and give the rest to great great grandchildren.

 

[RetireAge50]

Forget all the rules of thumb and common guidelines, make a custom plan. This applies to all ages not just age 80.

 

[imoldernu]

Assuming this includes income tax take these expenses and subtract all transfer payments and pensions and annuities. Multiply this by 15. This gives a very conservative needed amount, assuming 0% real return on a portfolio assets and no planned liquidation.

To give a much more generous but likely adequate allowance, take the net amount of your invested assets, and deplete annually by the IRS factor for RMDs, for the younger member of your pair.

Somewhere between these two amounts will be what you are looking for.

Since it has likely been quite a while since you added any money from earned income, this exercise is more or les meaningless for you. What you need to decide is how much can you safely draw, not how much do you need. That ship has sailed.

Ha

Thanks, Ha... a gutsy reply... and very much appreciated...

First... $25K/yr SS, leaving $15K/yr from other sources.

So now, to add some details, and a little different viewpoint...
No plans to leave a legacy.
No taxes
Ultra conservative investments Ibonds, 1% CD's.
Small annuity, to liqudate
Home equity planned for liquidation.
Life expectancy 10.2 years.

In other words, a cash amount... what I would call net worth, though that's not the way it's done here on ER.

Another way of looking at later retirement. BTW... not 80 yet.

So, yeah... a custom plan...

It's pretty interesting when it comes to that time in life, when income and outgo is more or less fixed. Assuming zero interest... and no inflation, that supplemental $15K/year would only require an actual net worth of $150K.

BTW... this is strictly theoretical, but I think makes a point about the concept of a phase II in retirement, instead of a one time long term estimate based on current expenses. Our experience is that after age 70, expenses dropped off quite rapidly, and leveled out between 15K and 20K below the more active spending years.

By comparison, a liquidation value net worth of $1Million would allow an annual budget of $125K... We went into the "comfort zone" at age 75, when planning became less a matter of formulas that were necessarily general, and more of an actual dollars and cents proposition.

 

[walkinwood]

To the OP - You're all over the map! First it was 16 time salary, then when someone suggested 25x expenses, you came back with 50 times expenses.. and now you're down to 40 times expenses.

You need to read the literature and understand what the assumptions behind the 4% rule are (or 25x expenses), and what the drawdown plan is. Bengen's original paper is a good start. Also read Guyton's paper on flexible spending. Kitces, who has been mentioned, also has great information.

There used to be a site that had all the information on withdrawal plans with links to the original doc. I can't find it today - maybe someone else can post it.

Take a deep breath & start the slow education process. We've all gone through it. Knowing the ins & outs will help you stay on track when times are rough.

All the best.

 

[lazysundays]

Thanks Walk. I'm so lacking in info that I thought the answer would be straightforward.

 

[RunningBum]

It is tough to estimate future expenses, but if you start trying now, you've got a number of years to refine it. Meantime, try to keep your current expenses reasonable so you can sock away as much as you can, and invest wisely. While it's nice to know exactly what your goal is, not knowing for sure doesn't prevent you from saving as much as you can in the meantime.

Focusing on a multiplier on expenses rather than salary is not only going to be the correct metric for retirement, but it will also give you more incentive to keep your expenses down, which is a good habit that will help you all the way through.

 

[scrabbler1]

The "times salary" metric never meant anything to me because I twice reduced my salary in the 7 years before I ERed. Which salary should I have used? Should it have been my full-time salary, my first part-time salary, or my final (smaller) part-time salary?

Only expenses matter. Using the "times expnses" metric, I began my ER at about 37 x expenses in my investments although that was in late 2008 when the markets were crashing. In the last 5+ years, that multiple has grown to about 57 x expenses. If I were to use only the non-IRA part of my investments (which is what is readily accessible for the next 9 years), it is up to 37 x expenses.

 

[jollystomper]

I agree with those who say focus more on your expenses. My annual salary can range 35% due to the pay structure, but we manage our expenses fairly consistently

While have only saved about 16x our planned expenses, having a pension means we only need to draw less than a third of those expenses from our savings, so it is like having saved 48x of our expenses. When SS kicks in we can draw less from our savings, if we so desire.