How to compute my retirement amount, and am I saving enough?

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NeutrinoPerson
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How to compute my retirement amount, and am I saving enough?

Post by NeutrinoPerson » Tue Feb 24, 2015 10:02 am

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red5
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Re: How to compute my retirement amount, and am I saving eno

Post by red5 » Tue Feb 24, 2015 10:17 am

1. Don't compare yourself to others, especially Bogleheads!

2. With about 40k you are not way behind.

3. You are not eternally screwed. You make good money and you are (or want to?) saving 21%

4. I personally don't factor in inflation. I use real rates in projections.

5. A quick back of the envelope calculation (okay, actually in Excel, but still quick and simple).

If you have $40,000 in retirement savings now and you are going to save 21% of $70,000 every year and with a 4% real return per year then at age 65 you would have something like 1.4 million dollars. A 4% withdrawal would yield $56,000 per year.

This is not even taking into consideration future pay raises (and thus more savings) and social security.

Is that enough? Only you can answer that. For me, it is a bit higher than what my goal is.



Best of luck.
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knowsnothing
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Re: How to compute my retirement amount, and am I saving eno

Post by knowsnothing » Tue Feb 24, 2015 10:24 am

You are young with a pretty good salary. That's half the battle.

You are saving a good amount of your salary. There's another nice chunk.

If you are worried about having enough money at retirement you are well on your way - I didn't even 'wake up' and realize a lot of this stuff until I was your age or older. You can make huge strides in only a few years if you up your savings rate and/or reduce your consumption. You may or may not choose to partner up with someone for life as well, odds are they will really add to your income and savings.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 10:25 am

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Wellfleet
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Re: How to compute my retirement amount, and am I saving eno

Post by Wellfleet » Tue Feb 24, 2015 10:27 am

I'm with you sister or brother and at about the same place:happy Sometimes I have to take a breather from the forum.

Vanguard had a good piece recently on repaying debt or saving for retirement. They said either is good but most importantly you are getting used to GOOD HABITS that will serve you well as you plan for the future.

knowsnothing
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Re: How to compute my retirement amount, and am I saving eno

Post by knowsnothing » Tue Feb 24, 2015 10:28 am

NeutrinoPerson wrote:
I'm already splitting expenses with my SO.
Do the 2 of you make 70k combined?

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MikeWillRetire
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Re: How to compute my retirement amount, and am I saving eno

Post by MikeWillRetire » Tue Feb 24, 2015 10:28 am

Read this to feel better. Also order the free e-book.
http://www.caniretireyet.com/good-news-retirement/

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 10:29 am

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 10:31 am

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acejacksingh
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Re: How to compute my retirement amount, and am I saving eno

Post by acejacksingh » Tue Feb 24, 2015 10:40 am

You're doing great! I think you'll be fine by the time you retire, just stay the course and stick to your investment plan. I'm 26 and have ~$40k in retirement accounts, but my salary is nowhere near yours :P

Don't stress too much the older people on this forum are very hard to compare to...

AceJ

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 10:42 am

You seem to realize the importance of contributing as much as possible to your retirement accounts. That's the biggest factor to success. You're here which means you'll learn the importance of minimizing taxes and fees which is the second biggest factor. You still have 30+ years until retirement. You'll be fine.

Don't forget to factor in social security.

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carorun
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Re: How to compute my retirement amount, and am I saving eno

Post by carorun » Tue Feb 24, 2015 10:46 am

I just ran that same simulation with your numbers, including SS, and you're fine. I do use a 7% rate of return though, as a midpoint between the 6 and 8 percent average return rates quoted. You're well on track to save 1x your income by 30.

FWIW, I'm also 28 and don't think you're behind at all. Considering you don't have SL or CC debt, you're probably ahead of the curve. I make a higher salary, but it took awhile for me to get here (I made $33k at my first job). I have about 1x salary saved and feel way ahead of the game compared to peers.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 10:48 am

vachica wrote:I just ran that same simulation with your numbers, including SS, and you're fine. I do use a 7% rate of return though, as a midpoint between the 6 and 8 percent average return rates quoted. You're well on track to save 1x your income by 30.

FWIW, I'm also 28 and don't think you're behind at all. Considering you don't have SL or CC debt, you're probably ahead of the curve. I make a higher salary, but it took awhile for me to get here (I made $33k at my first job). I have about 1x salary saved and feel way ahead of the game compared to peers.
I do have student loan debt (about $18k) but I didn't include it because the interest rates are under 3%, so I don't even pay attention to them. I contribute the minimum.

red5
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Re: How to compute my retirement amount, and am I saving eno

Post by red5 » Tue Feb 24, 2015 10:49 am

NeutrinoPerson wrote:
red5 wrote:1. Don't compare yourself to others, especially Bogleheads!

2. With about 40k you are not way behind.

3. You are not eternally screwed. You make good money and you are (or want to?) saving 21%
Given the way the math has worked out in the calculators, I'm not sure how these are compatible statements?
I think 40k at the age of 28 with a salary of 70k is quite good. Perhaps by Boglehead standards it is a bit low (?). I think by average US standards it is ahead of the game. I have not looked into actual averages though.

And I am not sure how Vanguards calculator works. I am a bit skeptical. It spit out a monthly income that I believe is quite a low ball estimate.
NeutrinoPerson wrote:
red5 wrote: 4. I personally don't factor in inflation. I use real rates in projections.
What do you mean by this exactly?
Well real rates are basically the market rate (nominal) minus inflation. So if you are projecting 37 years into the future with inflation then the number that you will calculate will be in 2052 dollars and not in 2015 dollars. However if you use real rates then the number that you will calculate 37 years in the future will still be in 2015 dollars.

So basically if you project inflation to be 2% per year then the real rate of the market could be, say, 4% and the nominal rate would be 6%.

I do it simply because it is hard to visualize how much $3,000,000 is in 2052 dollars but it is easy to visualize what $1,400,000 is in 2015 dollars.
NeutrinoPerson wrote:
red5 wrote: 5. A quick back of the envelope calculation (okay, actually in Excel, but still quick and simple).

If you have $40,000 in retirement savings now and you are going to save 21% of $70,000 every year and with a 4% real return per year then at age 65 you would have something like 1.4 million dollars. A 4% withdrawal would yield $56,000 per year.

This is not even taking into consideration future pay raises (and thus more savings) and social security.

Is that enough? Only you can answer that. For me, it is a bit higher than what my goal is.
I tried computing it in Excel and got 1419787 using back-of-the-envelope Excel calculations. Is this what you get?
Yes, that is exactly what I got. And for me I assumed that 4% was a real rate, not a nominal rate, and thus inflation was not included in the calculations.

But no one knows what the real and nominal long term returns will be.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 10:53 am

Thanks for the explanation, makes sense.

How does withdrawal work? I figure you just did 4% of 1.4mil, but does the retirement account continue to grow during retirement, or is it fully "cashed out of the market"? And why 4%?

red5
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Re: How to compute my retirement amount, and am I saving eno

Post by red5 » Tue Feb 24, 2015 11:01 am

NeutrinoPerson wrote:Thanks for the explanation, makes sense.

How does withdrawal work? I figure you just did 4% of 1.4mil, but does the retirement account continue to grow during retirement, or is it fully "cashed out of the market"? And why 4%?
Well 4% is just a rule of thumb and probably not something I will personally follow when I do retire. The rule of thumb states something like one can withdraw 4% of their portfolio per year (with a 60/40 allocation) and adjust for inflation each year (but if take out inflation then this would remain static) and their portfolio should last 30 years.

Okay, I think it is something like that. I have not read the study on it. I only use 4% as a very rough guide as to how much money will be available to me when I retire.

This is how one could do it. It is simple and assumes contributions/withdrawals are made at beginning of year:

For accumulation years:
(previous year ending balance + new contributions for the current year) * (1 + market return) = ending balance of current year

For withdrawal years:
(previous year ending balance - withdrawals for the current year) * (1 + market return) = ending balance of current year



So yes, the retirement balance would continue to "grow". Perhaps fluctuate is a better way to describe it. And please note that the above is very simplistic.

NightFall
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Re: How to compute my retirement amount, and am I saving eno

Post by NightFall » Tue Feb 24, 2015 11:08 am

If it makes you feel better, I had no retirement accounts at your age and a lower salary (even in inflation adjusted dollars). My wife was in the same situation. Of course we didn't have any debt.

This board tends to be filled with overachievers. Most people save far less for retirement and still make it work. According to
http://www.statisticbrain.com/retirement-statistics/
the average amount saved by a 50 year old is $43K. Looks like you got there much faster.

Topic Author
NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 11:11 am

Another thing I didn't consider: Isn't the 401k taxed upon withdrawal? Wouldn't I need to treat the 401k and Roth IRA separately?

cusetownusa
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Re: How to compute my retirement amount, and am I saving eno

Post by cusetownusa » Tue Feb 24, 2015 11:17 am

red5 wrote:1. Don't compare yourself to others, especially Bogleheads!

2. With about 40k you are not way behind.

3. You are not eternally screwed. You make good money and you are (or want to?) saving 21%

4. I personally don't factor in inflation. I use real rates in projections.

5. A quick back of the envelope calculation (okay, actually in Excel, but still quick and simple).

If you have $40,000 in retirement savings now and you are going to save 21% of $70,000 every year and with a 4% real return per year then at age 65 you would have something like 1.4 million dollars. A 4% withdrawal would yield $56,000 per year.

This is not even taking into consideration future pay raises (and thus more savings) and social security.

Is that enough? Only you can answer that. For me, it is a bit higher than what my goal is.



Best of luck.
This...and just to reiterate...you are far from screwed. You are 28 with a good job...even if you had $0 saved up you would still be far from screwed.

Topic Author
NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 11:23 am

If I am to compute these values by-month (to be precise), would I simply divide the expected annual return by 12?

For example if I assume a real return of 4% per year from the market, do I use the rate .04/12 when I grow my accounts month-to-month?

Would I compute the 401k and Roth IRA separately? They both grow tax-free (as far as I'm aware) but the Roth IRA is funded with post-tax dollars, whereas the 401k is pre-tax. How would I know how the 401k is taxed, mathematically, when withdrawing funds?

Also how do I factor in expense ratios? How are these costs deducted from the investments? Are they applied just to the contribution? To the withdrawal? Over time? To the whole balance? What?
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nimo956
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Re: How to compute my retirement amount, and am I saving eno

Post by nimo956 » Tue Feb 24, 2015 11:26 am

I think you'd feel better if you start maxing out your 401k and IRA ($18k + $5.5k = $23.5k per year). I don't know what your budget or COL is like, but I think that this should be an attainable goal on your salary.

Start by committing to save that amount and then re-work your budget to see what you have left. If you are losing money each month, start with what bills cost you the most and see if you can reduce them. I'm guessing that rent is probably your biggest expense, so that would mean that you should consider moving to a cheaper place. Are you willing to do that?

The important point to realize is that you are able to save more, but are choosing not to because you want to live in a nicer apt, eat out more, take more vacations, etc. There's nothing inherently wrong with that, but just recognize that that means you'll have to work longer. You have to decide if that's a sacrifice you're willing to make.
50% VTI / 50% VXUS

Topic Author
NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 11:33 am

nimo956 wrote: Start by committing to save that amount and then re-work your budget to see what you have left. If you are losing money each month, start with what bills cost you the most and see if you can reduce them. I'm guessing that rent is probably your biggest expense, so that would mean that you should consider moving to a cheaper place. Are you willing to do that?
Personally, yes, but it also depends on my SO. Right now the apartment is our primary "splurge" (we have a decent place but it does eat up an entire paycheck or so). I understand that's not efficient at all, but this is my thinking:

1. I want to enjoy life when I'm young.
2. If I can get the math to work out even with current conditions (savings rate, expenses, same salary, etc), then things can only get easier in the future once I reduce my expenses, move to a cheaper place, get a bigger salary, eliminate debt, etc.
nimo956 wrote: The important point to realize is that you are able to save more, but are choosing not to because you want to live in a nicer apt, eat out more, take more vacations, etc. There's nothing inherently wrong with that, but just recognize that that means you'll have to work longer. You have to decide if that's a sacrifice you're willing to make.
I think to some extent, yes -- but this is why I'd like to understand the math so I can determine my ideal tradeoff point.

LateStarter1975
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Re: How to compute my retirement amount, and am I saving eno

Post by LateStarter1975 » Tue Feb 24, 2015 11:41 am

I think you're doing GREAT! So take a chill pill and relax a little. At 36, I was broke with a negative net worth and absolutely nothing in retirement. 4 years later, b/w DW and I, we have about 75K in retirement accounts, debt free and trudging on, but guess what? I'm not worried one bit. I know I'm a late starter, but I've got this firgured out finally and will continue to max out savings, live well below our means and invest consistently. And I intend to retire in less than 20 years from now. So you already started very early by US standards with 40K in your retirement at age 28. The power of compounding will surprise you. By this forum's standard, I am doing terribly, but I know I will catch up and still do well especially as I've picked up all the right principles. That cannot be said about you. You already have an early start...so just keep it up and stay the course. Your retirement and your future is quite bright!
Debt is dangerous...simple is beautiful

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 12:21 pm

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Chadnudj
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Re: How to compute my retirement amount, and am I saving eno

Post by Chadnudj » Tue Feb 24, 2015 12:36 pm

using a basic 4% real return
I think this might be an error on your part. The long-term (i.e. since 1871) REAL return (i.e. factoring in inflation) of the S&P 500 is around 6.5% annually, I believe (using this source: http://www.pragcap.com/u-s-equities-lon ... al-returns which I have not fully vetted so feel free to correct me everyone).

If you give yourself an extra 2.5% real return annually, your numbers look a heck of a lot better.

Also, you mention you're paying minimums right now on student loans -- at some point, they will be paid off (as will your SO's debts), which means both (a) more money to invest, and (b) lower expenses going forward in retirement (meaning you'll need less money to reach your goals because you'll be spending less there in retirement than you are spending now).

Throw in the fact that your wages are likely to rise (thanks to promotions, etc.), which will allow you to save even more (assuming you do the smart thing and save/invest a significant portion of future raises), and I think you're in really good shape with your retirement savings. It's always good to keep track and make sure you're doing what you can reasonably do, but don't get caught in the "keeping up with the Bogleheads" trap of making yourself feel bad for having a good-to-great start on retirement just because some on this board are in the top 0.001% of all retirement savers.

red5
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Re: How to compute my retirement amount, and am I saving eno

Post by red5 » Tue Feb 24, 2015 12:37 pm

NeutrinoPerson wrote:If I am to compute these values by-month (to be precise), would I simply divide the expected annual return by 12?

For example if I assume a real return of 4% per year from the market, do I use the rate .04/12 when I grow my accounts month-to-month?

Would I compute the 401k and Roth IRA separately? They both grow tax-free (as far as I'm aware) but the Roth IRA is funded with post-tax dollars, whereas the 401k is pre-tax. How would I know how the 401k is taxed, mathematically, when withdrawing funds?

Also how do I factor in expense ratios? How are these costs deducted from the investments? Are they applied just to the contribution? To the withdrawal? Over time? To the whole balance? What?
These long term projections are already iffy at best when considering all the noise and unknowns that will happen. Using monthly data will not be any more informative than using yearly data in the grand scheme of things.

But to answer your question, no, you would not use .04/12. Technically, if you really wanted to project using monthly information with a 4% return per year you would want to find the nominal rate, which would be something like .039/12.. Alternately, you could use .04/12 but this would give you a yearly return of something like 4.1%. But this is getting very specific and precise. As mentioned, noise and unknowns are going to completely dwarf the minor differences between .04/12 and .039/12.

I don't compute 401k and Roth separately, but I keep things fairly simple. You could just chalk up 401k taxes as part of your expenses you will endure in retirement. How much your 401k withdrawals are taxed depends on your tax bracket, much like how your current income is taxed. But the tax brackets three decades from now may not look similar to how they look now. I'm not sure how others go about this.

Expense ratios are taken from the whole balance pretty much everyday, I think. So something like .05%/200 each trading day for a fund with a .05% ER. But again if you think about that 4% as actual fund returns then you do not need to concern yourself with the ER when working with this projection. Just keep your fund costs low if you can.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 1:02 pm

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Grt2bOutdoors
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Re: How to compute my retirement amount, and am I saving eno

Post by Grt2bOutdoors » Tue Feb 24, 2015 1:37 pm

You a fellow who likes baseball? (spring training is upon us) Let me put it you this way: It's the first inning, you're at the plate, it's 2 outs, the count is 3 and 0. In other words, you are in the very early stages of a LONG ballgame where the outcome can be very good for you providing you don't make an excessive number of errors and you don't swing for the fences by taking uncompensated risks. Getting walks, and singles with the occasional double, triple and home-run will let you cross home-plate in due course. Stop comparing yourself to other teams - some will always have more, but some will always have a lot less (the old Expos team comes to mind :P ). Good Luck and keep chugging along. :)

You need 25x expenses less social security and any pension income, if you will have a 25 year retirement. The key is to live beneath your means which it appears you are doing today (difficult I'm sure as NJ doesn't make it easy to do that given HCOL) and to save the difference. That is in your control, what is not in your control - the market returns, so use index funds to take what the market gives less a nominal cost. If you use actively managed funds you'll likely be giving up some of your returns to the investment manager.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

CoAndy
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Re: How to compute my retirement amount, and am I saving eno

Post by CoAndy » Tue Feb 24, 2015 1:48 pm

OP, I think you are doing great!

Homer (among others)sometimes posts about increasing savings rates and your lifestyle with each raise. If you do that here on out, I think you will be very pleasantly surprised at what your retirement accounts look like in the future.

For example, if you get a 2% raise this year, increase your savings by 1% (bringing your savings rate to 22%) and increase your lifestyle by 1%. Also, when you pay your student loans off, if you were sending in, say, $150 a month to this, you, upon paying this off, would then increase your savings by $75 a month and your lifestyle by $75 a month.
This way, your standard of living rises slowly and your savings rate rises slowly. Do the same with any bonuses, tax refunds, unexpected windfalls, etc. Save half, use the other half for fun.

red5
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Re: How to compute my retirement amount, and am I saving eno

Post by red5 » Tue Feb 24, 2015 1:51 pm

NeutrinoPerson wrote:So if I use 6% instead, and ignore stuff like expense ratios, would these figures make sense?

Roth IRA: $845,606
401k: $1,452,166

Roth withdrawal/year: $33,824
401k withdrawal/year: $58,086 (before tax)

Is this right?
Well sort of. I quickly did an Excel calculation. Starting out with 40k, saving 14,700, with 6% returns and I got about 2.3 or 2.4 million combined. Your numbers make sense.

Earlier I used 4% as a long term market rate guess. It's just a conservative guess. It could give us 6%. That would be a less conservative guess. I guess I'd rather expect a lower return and be wrong by getting better returns than expect a higher return and be wrong by getting lower returns.

Or you could just use a range, like assuming the market produces 4% to 6% returns then you can expect to roughly have 1.4 million to 2.4 million. Would you be happy with any dollar amount in that range at retirement?

Also, your expected returns could get less and less as you shift more heavily into bonds...

The previous poster had a good analogy with the baseball game. It goes along with what I was saying about unknowns and noise. A lot is going to happen that will shift your projection.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 2:12 pm

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 3:21 pm

I know I am asking a lot of questions in here but does anyone have any comment on viewtopic.php?f=1&t=159284#p2390641 ?

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 3:29 pm

Yes, withdrawals from your tax deferred accounts are taxed as income. You'll pay income taxes to both the feds and the state (if you continue to live in a state that has income tax). Both use marginal tax brackets. Yes, you are correct with the rates given that amount for your state income tax bill. I didn't actually look up NJ's income tax brackets, but I assume you did.

Yes, withdrawals from your Roth accounts are not taxed at all since they are funded with dollars that have already been taxed. The growth is tax free. That's the advantage of these accounts over a taxable account.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 3:34 pm

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Beantown85
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Re: How to compute my retirement amount, and am I saving eno

Post by Beantown85 » Tue Feb 24, 2015 3:35 pm

NeutrinoPerson wrote:So if I focus on just the 401k component, I start out with $26k and it grows to ~$884,200 at age 65 using a basic 4% real return. Then with 4% withdrawal rate, that's a little over $35k/year.

Now, how would this get taxed if I stayed in NJ?

If I were using http://swz.salary.com/salarywizard/layo ... te_NJ.html would this get taxed like so:

Code: Select all

If your income range is between $0 and $20,000, your tax rate on every dollar of income earned is 1.4%.
If your income range is between $20,001 and $35,000, your tax rate on every dollar of income earned is 1.75%.
If your income range is between $35,001 and $40,000, your tax rate on every dollar of income earned is 3.5%.
The first $20k are taxed at 1.4%, the next $15k taxed at 1.75%, etc? Or does the whole thing get taxed at something like 3.5%?


Now if I model the Roth IRA, starting with an account worth $12k, and contribute $5.5k/year, I get $518553 at age 65, or a bit over $20k at a 4% withdrawal rate. I imagine this does not get taxed since it was funded with post-tax dollars, so this full amount is open for grabs.

Am I understanding this right?

Honestly.....you are WAY over thinking this. If you can afford to save more, do so. After that, your time and energy is WAY better spent focusing on your career, and ways to potentially increase your performance and earnings potential. Reviewing in detail what the NJ tax rates are in 2015 is not value add in regards to a potential retirement date in the year ~2050. The amount of variables in this equation are staggering. Focus on what you can control.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 3:41 pm

I understand all that, but I would still like to know how the numbers are computed so I can get a sense for what's left over after-tax. (is viewtopic.php?f=1&t=159284&p=2391000#p2390989 correct?)

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 3:53 pm

NeutrinoPerson wrote:State (assuming rates here http://www.bankrate.com/finance/taxes/s ... ersey.aspx ):
$20000 * (.014) + $15000 * (.0175) + $1000 * (.035) = $577.5 / year to state taxes
I don't know where the $1k came from. Other than that, it looks right to me. Don't forget about tax deductions and exemptions.

Edit: Oh, you up'ed it to $36k.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 3:56 pm

investor1 wrote: I don't know where the $1k came from. Other than that, it looks right to me. Don't forget about tax deductions and exemptions.

Edit: Oh, you up'ed it to $36k.
Sorry, yes, I upped it to $36k for the sake of the example (to span three brackets). Thanks for checking my work.

What do you mean by the tax deductions and exemptions? What do those typically look like? This? http://www.cbpp.org/cms/?fa=view&id=3763

For example does this mean the personal exemption (if we were doing this in 2013) means I'd subtract $3,900 from $36,000 first before doing the computations for tax?
Last edited by NeutrinoPerson on Tue Feb 24, 2015 3:58 pm, edited 1 time in total.

lifebeckonss
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Re: How to compute my retirement amount, and am I saving eno

Post by lifebeckonss » Tue Feb 24, 2015 3:58 pm

NeutrinoPerson,

I will admit that I have not read every single reply on this thread as well as the other thread you posted about how much people had saved at age 30.
My feeling is you are being way too obsessive about this. (Believe me I know because I have the same personality traits).
  • You are only 28. You already have $40K stashed for retirement. You contribute to your 401k as well as to your Roth IRA. To me you are doing very well!
  • In the other thread where you asked how much people had saved up by age 30. Did you really read all the replies? Well guess what, some people had saved more than you and some people less than you. In fact some very senior and wise members on this forum wrote back that they hadn't saved anything at age 30 or had barely saved a few thousand. To me it seems you only focused on the replies where people had saved more. Again I think you are doing just fine.
  • I saved my first penny for retirement the year I turned 29, even though I had access to a great 401k plan and a decent salary since age 24. I was too dumb to take advantage of even the company match. So at age 30, I probably had like $5k saved. I'm close to 40 now and have about $700K invested for retirement. I think I am doing okay, and you are well ahead of me.
  • You are 28 and you are spending way too much energy and effort into running all these calculations trying to figure out how much you will have 40 years from now. Nobody on this planet can tell you what investment returns will be next year, let alone 40 years from now. Keep saving, keep investing, and you will do just fine.
  • You are way, way, way over thinking this. Do you realize all the variables you are trying to predict in attempting to do a calculation like this? Portfolio returns over the next 40 years, tax rates, inflation, your salary increases, how much you contribute, how many kids you will have, how much your spouse will make/contribute, what direction your career will go, which country or state will you be living in, yada, yada, yada. Way too many unknowns.
  • You are 28 and you are posting on a great forum like this. That alone tells me that you are far ahead of your peers.
  • If there is one area that is worth focusing your energy on at this point is your career. How can you increase your salary? You already have good saving habits at a young age. If you can earn more, you will save more and the rest will be easy.
  • Finally, relax. Go out, have some fun.
  • Repeat after me: "I am 28 and I am doing great!" :)
Last edited by lifebeckonss on Tue Feb 24, 2015 4:06 pm, edited 1 time in total.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 4:05 pm

lifebeckonss wrote:In the other thread where you asked how much people had saved up by age 30. Did you really read all the replies? Well guess what, some people had saved more than you and some people less than you. In fact some very senior and wise members on this forum wrote back that they hadn't saved anything at age 30 or had barely saved a few thousand. To me it seems you only focused on the replies where people had saved more. Again I think you are doing just fine.
Thanks.

However I do not think I am necessarily honing in on confirmation bias. A fair number of the users who had nothing saved also had a lot of debt (or retired quite early), which implies that they also had huge incomes (likely well over $70k) that eventually offset all these things. To me this discounts those results some. I'd have to go back and tabulate the results to see for sure but that was my initial impression.
lifebeckonss wrote: [*]I saved my first penny for retirement the year I turned 29, even though I had access to a great 401k plan and a decent salary since age 24. I was too dumb to take advantage of even the company match. So at age 30, I probably had like $5k saved. I'm close to 40 now and have about $700K invested for retirement. I think I am doing okay, and you are well ahead of me.
I disagree (that I am well ahead). Based on my Excel sheet, with my current trajectory, I would have something like $337k invested by age 40 (assuming a 6% rate of return) assuming 13% 401k and $5500 Roth IRA. I also suspect you have a very high salary or very high savings rate?
lifebeckonss wrote: [*]You are 28 and you are spending way too much energy and effort into running all these calculations trying to figure out how much you will have 40 years from now. Nobody on this planet can tell you what investment returns will be next year, let alone 40 years from now. Keep saving, keep investing, and you will do just fine/
That is indeed the plan but I worry that I will need to make some serious changes if my current trajectory is insufficient.

The reason I am getting into the math is that everyone says I am fine when the math seems to disagree.
lifebeckonss wrote: [*]You are 28 and you are posting on a great forum like this. That alone tells me that you are far ahead of your peers.
Most of my peers here in NJ/NYC make a boatload more than I do, so I'm not really sure. I know I am being pessimistic here but this stuff frustrates me. I feel like everyone makes more, saves more, etc.
lifebeckonss wrote: [*]If there is one area that is worth focusing your energy on at this point is your career. How can you increase your salary? You already have good saving habits at a young age. If you can earn more, you will save more and the rest will be easy.
[*]Finally, relax. Go out, have some fun.
[*]Repeat after me: "I am 28 and I am doing great!" :)
I am 28 and ghbuabuauaurrggghhhhhhhh.

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 4:12 pm

Have you ever done your own taxes? Everyone gets to choose between the standard deduction or itemized deductions. Everyone is also eligible for exemptions if they meet the requirements for those exemptions. Yes, these are all deducted from your taxable income. The standard deduction and one exemption is currently a little more than $10k IIRC. In your $36k annual income example, you would owe taxes on around $26k.

Play around with the free version on Turbo Tax or something similar.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 4:15 pm

investor1 wrote:Have you ever done your own taxes? Everyone gets to choose between the standard deduction or itemized deductions. Everyone is also eligible for exemptions if they meet the requirements for those exemptions. Yes, these are all deducted from your taxable income. The standard deduction and one exemption is currently a little more than $10k IIRC. In your $36k annual income example, you would owe taxes on around $26k.

Play around with the free version on Turbo Tax or something similar.
I use TurboTax (I don't do the taxes myself), and at one point I did play around with it, but didn't see how it was computing everything. I'm one of those guys who has to look at the math involved or I go batshit. I don't like not understanding where stuff comes from.

lifebeckonss
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Re: How to compute my retirement amount, and am I saving eno

Post by lifebeckonss » Tue Feb 24, 2015 4:20 pm

NeutrinoPerson wrote: That is indeed the plan but I worry that I will need to make some serious changes if my current trajectory is insufficient.
The reason I am getting into the math is that everyone says I am fine when the math seems to disagree.
The math is not agreeing because you simply do not have enough information to do the math. How many of the following variables, that you need for this math, do you think you can predict over a 40 year period:
  • Stock market returns
  • Bond market returns
  • Inflation
  • Tax law changes
  • Your own career trajectory
  • Your future salary changes
  • Your spouse's career trajectory
  • Your spouse's salary changes
  • All sorts of unforeseen life events
  • What state will you retire in? Heck, what country will you retire in?
Instead of obsessing over the math, please focus on the things you can control:
  • Spend time enjoying your youth. Trust me it goes away fast.
  • Keep saving and investing like you are doing. When you get a raise, save even more.
  • Focus on how to improve your career.
  • Spend time and energy on the people you love.
Last edited by lifebeckonss on Tue Feb 24, 2015 4:23 pm, edited 1 time in total.

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 4:23 pm

NeutrinoPerson wrote:
investor1 wrote:Have you ever done your own taxes? Everyone gets to choose between the standard deduction or itemized deductions. Everyone is also eligible for exemptions if they meet the requirements for those exemptions. Yes, these are all deducted from your taxable income. The standard deduction and one exemption is currently a little more than $10k IIRC. In your $36k annual income example, you would owe taxes on around $26k.

Play around with the free version on Turbo Tax or something similar.
I use TurboTax (I don't do the taxes myself), and at one point I did play around with it, but didn't see how it was computing everything. I'm one of those guys who has to look at the math involved or I go batshit. I don't like not understanding where stuff comes from.
TT allows you to view the actual tax forms as PDFs when you are done. Take a look at those and you should be able glean how the numbers are computed (minus all of the worksheet and lookup tables the IRS loves so much).

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 4:24 pm

lifebeckonss wrote:
  • Stock market returns
  • Bond market returns
  • Inflation
  • Tax law changes
I was using a 4-6% real return estimate over the long term, which takes into account those uncertainties and makes a reasonable assumption that isn't too aggressive.
lifebeckonss wrote: [*]Your own career trajectory
[*]Your future salary changes
[*]Your spouse's career trajectory
[*]Your spouse's salary changes
[*]All sorts of unforeseen life events
[*]What state will you retire in? Heck, what country will you retire in?[/list]
I am quite certain I will stay in the US long term. Future salary changes, hopefully good but I am being conservative / going by expectation. Spouse's figures I ignore because I don't factor them into my own retirement numbers. Unforeseen life events for me would only be negative and detract from the numbers.
lifebeckonss wrote: Instead of obsessing over the math, please focus on the things you can control:
  • Spend time enjoying your youth. Trust me it goes away fast.
  • Keep saving and investing like you are doing. When you get a raise, save even more.
  • Focus on how to improve your career.
  • Spend time and energy on the people you love.
I would love to do this but I can't until I know I am saving enough at the same time. Otherwise I am simply having fun now at the expense of my future self.
Last edited by NeutrinoPerson on Tue Feb 24, 2015 4:30 pm, edited 3 times in total.

investor1
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Re: How to compute my retirement amount, and am I saving eno

Post by investor1 » Tue Feb 24, 2015 4:27 pm

I'll add that others are making a very good point about this not being something you can predict so far in advance. Come up with a sound investment plan, contribute as much as you can while living happily, and stick to the plan. That's retirement saving for ya.

That being said, I think it is a good idea to understand how to get the money out before you decide to put it in even if those rules change over time.

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Re: How to compute my retirement amount, and am I saving eno

Post by cherijoh » Tue Feb 24, 2015 4:28 pm

vachica wrote:I just ran that same simulation with your numbers, including SS, and you're fine. I do use a 7% rate of return though, as a midpoint between the 6 and 8 percent average return rates quoted. You're well on track to save 1x your income by 30.

FWIW, I'm also 28 and don't think you're behind at all. Considering you don't have SL or CC debt, you're probably ahead of the curve. I make a higher salary, but it took awhile for me to get here (I made $33k at my first job). I have about 1x salary saved and feel way ahead of the game compared to peers.
A 7% rate of return is doable if you are using nominal dollars (that is the dollars are not indexed to a specific year to account for inflation). But IMO that is too much for a "real" return (i.e., adjusted to remove inflation). Quite often you will see a 4 - 5% real return quoted here.

The problem with using nominal rates of return is that you lose the perspective of how much stuff is going to cost in the future. If you use a real rate of return, then you can look at your expenses today and say "at retirement I will have my house paid off and I will no longer have payroll taxes or 401k contributions, so I think I could live on $x REAL based on adjusting my current budget". I also allows you to use your current nest egg and calculate the projected return on it, plus any new contributions as a % of your current salary.

The problem with all the retirement calculators is they all have different underlying assumptions. I would only look at the more sophisticated ones that allow you to adjust the assumptions.

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NeutrinoPerson
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Re: How to compute my retirement amount, and am I saving eno

Post by NeutrinoPerson » Tue Feb 24, 2015 4:30 pm

investor1 wrote: That being said, I think it is a good idea to understand how to get the money out before you decide to put it in even if those rules change over time.
What do you mean by this exactly?

Right now my understanding is that if you withdraw too early, you pay a 10% penalty or something like that. But at age 65 you can withdraw from it without penalty.

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Re: How to compute my retirement amount, and am I saving eno

Post by Jack FFR1846 » Tue Feb 24, 2015 4:41 pm

When I was 28, I had just graduated with my bachelors and had minus 28 dollars to my name (bounced the final gas check). Plus student loans to pay. At 58, I'm well into 2 commas and could retire today if I wanted. Your calculations are wrong.
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nimo956
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Re: How to compute my retirement amount, and am I saving eno

Post by nimo956 » Tue Feb 24, 2015 4:46 pm

Do you use budgeting software like Mint to track your current expenses? This is about as complicated as I make it:

I spend $25k per year now. I want to have a slightly nicer retirement with a few trips, hobbies, etc, so let's say I want to target $40k per year. Using the rough 4% rule, I'd need $40k / 0.04 = $1m (in today's dollars) to sustain that level of expenditure for 30 years.

How much do I need to save per year (in today's dollars) to get $1m by the time I'm X? Work it out in a spreadsheet assuming your real returns are 0%, 3%, 6%, etc. This gives you a rough range.

Pick a number in the low end of the range and make sure you are hitting it. Feel free to spend any excess.

Edit:

Ok I just ran the numbers, and you need to save the following amounts each year for 30 years, with the following real returns, to end up with $1m:

$33k - 0%
$20k - 3%
$15k - 5%
$10k - 7%

This doesn't even factor in things like contributions from a spouse, social security, inheritances, etc. As long as you consistently save a good % of your income for retirement (like 20%+), your standard of living should be no worse off than it is now. There's a pretty good chance that it will be much better.
Last edited by nimo956 on Tue Feb 24, 2015 5:00 pm, edited 6 times in total.
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