Percentage of Salary to Save Based on Age You Start

[19xxdinosaur]

Overestimating the amount needed will needlessly discourage many from starting at all.

I sure hope my charts don't scare people off. Rather, I'm just saying that IF you want 75%, THEN this is what you probably have to do. I plan a later post that discusses some other options; obviously, living on less than 75% is one of those.

Also, we have to balance the risk of scaring people off with the risk of not scaring people enough. Many people that are now struggling in retirement probably wish someone had scared them more. It's really important for people to think through their priorities; that's why I have a whole series on Personal Strategic Planning.

This is the Early Retirement Board after all.

This could be a problem. I assume (hope!) you guys are all aware that the 4% w/d approach assumes, among other things, that you're retiring at age 65. Retiring earlier means you'll have more expected years in retirement than that approach is designed to safely support!

Interesting though, my expenses in retirement are about 75% of my expenses before retirement.

Yeah, mine too. But, only because I'm not saving anymore. Other than that, total expenses are about the same -- just rearranged.

 

[19xxdinosaur]

Bimmerbill,

I assume, though, that somewhere in your calculations you're accounting for the fact that you will still have to pay taxes?

 

[Nords]

However, most 20-45 year-olds have no clue what their retirement expenses are going to be at age 65 -- 20-45 years from now! (remember, the graph is designed for those ages 20-45). For people who can't estimate their expenses, assuming their expenses will be approximately 75% of their current (real) salary gives them the benefit of lots of other peoples' experience, and will typically get them in the right ballpark.

A couple months ago I attended FINCON. Here's a little blogger tough love from the conversations I had in rooms with 400 personal-finance bloggers.

People who "can't" (e.g., "won't") project their expenses 20-45 years in the future won't bother to read your blog.

People who can project their expenses will excoriate you for perpetuating the ol' canard about retiring on a percentage of your income. And then they'll stop reading your blog because they'll assume that you lack credibility.

As for the question "Percentage of Salary to Save Based on Age You Start", here's a post whose concept I borrowed from Jacob Lund Fisker of ExtremeEarlyRetirement.com:
How many years does it take to become financially independent?

It's routinely in the top 10 of over 340 posts, so people seem to be reading it.

 

[kumquat]

Why not just save a couple of hundred bucks a hundred years before your birth. The math works.

 

[19xxdinosaur]

Nords,

Yeah, I agree that quote was a huge overstatement. I tried to change it to "However, many 20-45 year-olds aren't comfortable estimating their..." to better reflect what I really meant. But, the edit window had closed. I apologize if I offended anyone.

So, I agree that was an overstatement. However, I don't agree with the rest of your analysis. Time will tell.

Nice blog post; I can see why it's one of your top posts. Didn't see anything that I would disagree with there. I think we're saying many of the same things -- just in pretty different ways.


In any event, thanks to all for your comments and feedback.

 

[Lazarus]

I was thinking about this some more. I think one of the problems young people have in estimating their future expenses is that they expect to continue to increase their lifestyle. They have not yet realized there is a limit to how high you can go which is set by how much your investments can support and how many years you are willing to work or are able to work.

I am living at about the same level that I was 25 years ago. Same size house, cars about the same costs ect.

So the things that have changed since then are cell phones, but no wireline phone. No cable tv but internet and netflix. No mortgage or car payments.

So if I took what I was spending prior to retirement and subtracted the mortgage, commuting costs, social security tax, and savings to get my retirement expenses. Plus the increase in medical insurance. Costs me more as a retiree than an employee. Did not know that. Some information is hard to come by, but that was my only surprise and I can cover it.

I had a spreadsheet that had my expenses while working and in the column
beside it my anticipated retirement expenses.

So calculating the needed amount of money to support my lifestyle was not too hard.

One change I made from my earlier plans. At my company I had the option to take the pension in cash. I planned to do that for a long time but in the end I took the annuity. The amount of cash they offered would not generate the amount the annuity would pay using the 4% rule. The annuity was closer to 6% till 62 when it drops to about 5%. Unfortunately no cola.

So the amount of the pension can be predicted, so can Social Security. Leaving only the amount you need saved to make up the difference.

 

[GandK]

Try using this:

SmartMoney Retirement Planner - SmartMoney.com

 

[Meadbh]

Try using this:

SmartMoney Retirement Planner - SmartMoney.com

Oh good! I tried this using no social security and it informed me that I could spend double what I am planning to spend and make it to 90. However, this is a simple mathematical calculator.