How do you calculate "enough" for retirement accounts?
How do you calculate "enough" for retirement accounts?
Greetings,
I'm in the process of reassessing things in my career and financial life.
One possibility I have would be to stop adding money to my retirement accounts altogether.
I have put all my IRA / 401K money into Vanguard's 2045 retirement fund.
I am trying to get a range of projections for what I could expect to happen to this investment between now and 2045, and what a withdrawal plan of that money might look like.
There are lots of simple calculators out there that let me say "Wow, in 25 years your nest egg will increase". But of course, they don't help me understand things like inflation, withdrawal rates, and the like.
Any help would be useful.
I'm in the process of reassessing things in my career and financial life.
One possibility I have would be to stop adding money to my retirement accounts altogether.
I have put all my IRA / 401K money into Vanguard's 2045 retirement fund.
I am trying to get a range of projections for what I could expect to happen to this investment between now and 2045, and what a withdrawal plan of that money might look like.
There are lots of simple calculators out there that let me say "Wow, in 25 years your nest egg will increase". But of course, they don't help me understand things like inflation, withdrawal rates, and the like.
Any help would be useful.
Re: How do you calculate "enough" for retirement accounts?
This will help you, countless variables to play around with:
http://www.flexibleretirementplanner.com/
http://www.flexibleretirementplanner.com/
Re: How do you calculate "enough" for retirement accounts?
Have you checked out Firecalc?
Not to be Debbie Downer here, but I'm almost 50. When I first started saving for retirement I went in thinking that all I had to do was invest, and I would see my money double and then triple, etc. (Granted I understood there would be ups and downs). That's the way the books were written back then. From my experience, it didn't happen like that. Crash after crash and bubble after bubble happened. I started to get less and less aggressive with my investments.
I'm still doing pretty well getting to my goal, but only because of working hard in my career (human capital)-- not because my money "worked for me."
It sounds like what you are asking. "How much do I need to save where I can just sit back and watch it grow?" My advice is to do your best to save all that you can and expect the worse. Sounds like an old Russian proverb or something.
Not to be Debbie Downer here, but I'm almost 50. When I first started saving for retirement I went in thinking that all I had to do was invest, and I would see my money double and then triple, etc. (Granted I understood there would be ups and downs). That's the way the books were written back then. From my experience, it didn't happen like that. Crash after crash and bubble after bubble happened. I started to get less and less aggressive with my investments.
I'm still doing pretty well getting to my goal, but only because of working hard in my career (human capital)-- not because my money "worked for me."
It sounds like what you are asking. "How much do I need to save where I can just sit back and watch it grow?" My advice is to do your best to save all that you can and expect the worse. Sounds like an old Russian proverb or something.
Re: How do you calculate "enough" for retirement accounts?
First off, unless you have just won the MegaMillions jackpot, stopping your contributions so early is very likely a big mistake.
But one way of feeling out if "enough is enough" is to imagine if you took all your money you have today and bought a deferred annuity that wouldn't start paying out until 2045.
You can use the calculator at immediate annuities to try this scenario BUT it looks like they only allow a deferral out to 25 years.
EDIT: to add
One should note that these quotes are nominal (not inflation adjusted).
But one way of feeling out if "enough is enough" is to imagine if you took all your money you have today and bought a deferred annuity that wouldn't start paying out until 2045.
You can use the calculator at immediate annuities to try this scenario BUT it looks like they only allow a deferral out to 25 years.
EDIT: to add
One should note that these quotes are nominal (not inflation adjusted).
Last edited by furwut on Sun Jun 25, 2017 6:44 pm, edited 1 time in total.
Re: How do you calculate "enough" for retirement accounts?
Understanding the spending side of the retirement equation is also important. This article from the wiki is a good place to start.
Re: How do you calculate "enough" for retirement accounts?
It depends on whether you are considering a swanky retirement, or instead are calculating the bare minimum to sneak by.
In the first case you can estimate an annual amount after taxes that would allow you to sustain the kind of lifestyle you have in mind, plus capital expenses for houses, cars, etc.
Some friends on BH will object that forecasting the price of caviar 30 years from now is futile, but who cares: if you are off with your calculation it might mean a BMW and not a Ferrari and you might be stuck with NV champagne. Not a big deal. Certainly a deal a lot less unattractive than giving up on life the way you want it for 30 years, only to find yourself with too much money as an elder person.
Different is the case where your target is a barely acceptable life and you have to factor in the cost of cable and "eating out" as many of those retirement calculators do.
Here a mistake may leave you unable to maintain you home, for instance, or forced to skim on medical expenses.
In such a situation my advice would be to continue to save for retirement, even if you think you've got all the expenses covered.
In the first case you can estimate an annual amount after taxes that would allow you to sustain the kind of lifestyle you have in mind, plus capital expenses for houses, cars, etc.
Some friends on BH will object that forecasting the price of caviar 30 years from now is futile, but who cares: if you are off with your calculation it might mean a BMW and not a Ferrari and you might be stuck with NV champagne. Not a big deal. Certainly a deal a lot less unattractive than giving up on life the way you want it for 30 years, only to find yourself with too much money as an elder person.
Different is the case where your target is a barely acceptable life and you have to factor in the cost of cable and "eating out" as many of those retirement calculators do.
Here a mistake may leave you unable to maintain you home, for instance, or forced to skim on medical expenses.
In such a situation my advice would be to continue to save for retirement, even if you think you've got all the expenses covered.
-
- Posts: 25617
- Joined: Thu Apr 05, 2007 8:20 pm
- Location: New York
Re: How do you calculate "enough" for retirement accounts?
Read Unveiling the Retirement Myth - Jim Otar. - all of it! It's quite lengthy.
While you think you may have "enough", my experience thus far is "it isn't enough" unless you have many multiples of your current spending with an added buffer". Keep saving, no one I know ever said "I'm glad I stopped saving and spent it" instead they said "i'm glad that I did save". YMMV.
While you think you may have "enough", my experience thus far is "it isn't enough" unless you have many multiples of your current spending with an added buffer". Keep saving, no one I know ever said "I'm glad I stopped saving and spent it" instead they said "i'm glad that I did save". YMMV.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: How do you calculate "enough" for retirement accounts?
Booper,Booper wrote:Greetings,
I'm in the process of reassessing things in my career and financial life.
One possibility I have would be to stop adding money to my retirement accounts altogether.
I have put all my IRA / 401K money into Vanguard's 2045 retirement fund.
I am trying to get a range of projections for what I could expect to happen to this investment between now and 2045, and what a withdrawal plan of that money might look like.
There are lots of simple calculators out there that let me say "Wow, in 25 years your nest egg will increase". But of course, they don't help me understand things like inflation, withdrawal rates, and the like.
Any help would be useful.
<< One possibility I have would be to stop adding money to my retirement accounts altogether.>>
1) How likely for you to be fully employed for next X years until retirement age?
2) If your investment is 20 to 25 times your current annual expense, then, you have enough. Or else, it is too early to know.
3) They are not "retirement accounts". 401K is a tax-deferred account. You can withdraw the money penalty free before 59 1/2 years old. So, unless you like paying more tax than necessary, it is a good idea to contribute those tax-advantaged accounts even though your retirement is fully funded.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
- Taylor Larimore
- Posts: 32839
- Joined: Tue Feb 27, 2007 7:09 pm
- Location: Miami FL
Re: How do you calculate "enough" for retirement accounts?
Booper:
The Trinity study suggests that a portfolio is large enough when a 4% annual withdrawal is sufficient for your needs. This means that a one-million dollar portfolio should provide a 30-year retirement income of $40,000 without running out of money.
Boglehead wiki Trinity Study Update
Best wishes.
Taylor
The Trinity study suggests that a portfolio is large enough when a 4% annual withdrawal is sufficient for your needs. This means that a one-million dollar portfolio should provide a 30-year retirement income of $40,000 without running out of money.
Boglehead wiki Trinity Study Update
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: How do you calculate "enough" for retirement accounts?
Timing has a lot to do with it. We had a long stretch were the US Stock Market was essentially flat, from 2000 to 2012 or 2013. It was pretty frustrating to be running in place. The good news was that you had two pretty bad bear markets during that time, giving you the opportunity to scoop stocks up at good prices, particularly in 2008-2009. Real life is not like the retirement calculators. What you find is that markets are volatile and a good part of your return comes from those sudden spikes upward. Pretty much, you have to be on the train when it leaves the station.Dude2 wrote:Have you checked out Firecalc?
Not to be Debbie Downer here, but I'm almost 50. When I first started saving for retirement I went in thinking that all I had to do was invest, and I would see my money double and then triple, etc. (Granted I understood there would be ups and downs). That's the way the books were written back then. From my experience, it didn't happen like that. Crash after crash and bubble after bubble happened. I started to get less and less aggressive with my investments.
I'm still doing pretty well getting to my goal, but only because of working hard in my career (human capital)-- not because my money "worked for me."
It sounds like what you are asking. "How much do I need to save where I can just sit back and watch it grow?" My advice is to do your best to save all that you can and expect the worse. Sounds like an old Russian proverb or something.
A fool and his money are good for business.
Re: How do you calculate "enough" for retirement accounts?
Those retirement calculators are like real life. The whole point of running them is to put a range on exactly that volatility. The output should be an appreciation for how uncertain things really are.nedsaid wrote:Timing has a lot to do with it. We had a long stretch were the US Stock Market was essentially flat, from 2000 to 2012 or 2013. It was pretty frustrating to be running in place. The good news was that you had two pretty bad bear markets during that time, giving you the opportunity to scoop stocks up at good prices, particularly in 2008-2009. Real life is not like the retirement calculators. What you find is that markets are volatile and a good part of your return comes from those sudden spikes upward. Pretty much, you have to be on the train when it leaves the station.Dude2 wrote:Have you checked out Firecalc?
Not to be Debbie Downer here, but I'm almost 50. When I first started saving for retirement I went in thinking that all I had to do was invest, and I would see my money double and then triple, etc. (Granted I understood there would be ups and downs). That's the way the books were written back then. From my experience, it didn't happen like that. Crash after crash and bubble after bubble happened. I started to get less and less aggressive with my investments.
I'm still doing pretty well getting to my goal, but only because of working hard in my career (human capital)-- not because my money "worked for me."
It sounds like what you are asking. "How much do I need to save where I can just sit back and watch it grow?" My advice is to do your best to save all that you can and expect the worse. Sounds like an old Russian proverb or something.
Re: How do you calculate "enough" for retirement accounts?
What you need is something like a Monte Carlo simulation which shows a range of possible outcomes and calculates a portfolio success rate. I have to admit that I haven't used FireCalc. A financial planner calculated this for me and I got two things. First, was a Monte Carlo situation as described before. Second was a pretty linear calculation of how my accounts would grow from year to year based on historical averages. It seemed like Quicken used linear calculations too.dbr wrote:Those retirement calculators are like real life. The whole point of running them is to put a range on exactly that volatility. The output should be an appreciation for how uncertain things really are.nedsaid wrote:Timing has a lot to do with it. We had a long stretch were the US Stock Market was essentially flat, from 2000 to 2012 or 2013. It was pretty frustrating to be running in place. The good news was that you had two pretty bad bear markets during that time, giving you the opportunity to scoop stocks up at good prices, particularly in 2008-2009. Real life is not like the retirement calculators. What you find is that markets are volatile and a good part of your return comes from those sudden spikes upward. Pretty much, you have to be on the train when it leaves the station.Dude2 wrote:Have you checked out Firecalc?
Not to be Debbie Downer here, but I'm almost 50. When I first started saving for retirement I went in thinking that all I had to do was invest, and I would see my money double and then triple, etc. (Granted I understood there would be ups and downs). That's the way the books were written back then. From my experience, it didn't happen like that. Crash after crash and bubble after bubble happened. I started to get less and less aggressive with my investments.
I'm still doing pretty well getting to my goal, but only because of working hard in my career (human capital)-- not because my money "worked for me."
It sounds like what you are asking. "How much do I need to save where I can just sit back and watch it grow?" My advice is to do your best to save all that you can and expect the worse. Sounds like an old Russian proverb or something.
A fool and his money are good for business.
-
- Posts: 3908
- Joined: Fri Jan 17, 2014 9:19 am
Re: How do you calculate "enough" for retirement accounts?
I think I have enough with respect to the 4% SWR. So I semi-retired (not work as crazy as before) and started living like in retirement (lots of travels and loose money spending). I still contribute to my retirement accounts (the tax-advantaged). I want to experiment retirement life a few years before I decide to retire completely.
Re: How do you calculate "enough" for retirement accounts?
+1 on using Firecalc to so how your investments would have grown in 23 years in the past.
The high and low results will be extremely different so you can't count on getting average returns.
If you decide to stop saving and start spending the money that could be a big problem if your plans don't work out like expected. If you start spending more you are also increasing your expenses so retiring without reducing your lifestyle become harder.
It is a bit different if you decide to cut back on your savings in order to do something like get a mortgage paid off. In that situation your net worth keeps increasing.
If you are pretty well off then one thing to look at is if you have enough to retire now with a drastically reduced lifestyle even if you don't want to retire now.
Ten or fifteen years before I actually retired I realized that I had enough to move to an inexpensive mid-west college town, buy a very modest house for less than $100K, and live a frugal but comfortable retirement. That was not how I wanted to actually retire but as a "plan B"(or C) it felt good that some big setback would not leave me in a dire situation.
It is always good to keep a good balance on your "now vs later" choices and that very well could mean that you might want to reduce your retirement savings so you can spend more on enjoying life now and there is nothing inherently wrong with that. About five years before I retired I was doing pretty good so I cut my 401k contributions back to just be enough to get my employers match, I was then able to do things like traveling more.
Stopping your retirement saving altogether is a bit extreme though if you don't have enough to retire today.
The high and low results will be extremely different so you can't count on getting average returns.
Another big issue for you is that the 2045 is not engraved in stone and I have seen lots of people have their financial plans change when they are in their 40's and 50's with things like layoffs, health issues, disability, divorce, etc.Booper wrote:I have put all my IRA / 401K money into Vanguard's 2045 retirement fund.
If you decide to stop saving and start spending the money that could be a big problem if your plans don't work out like expected. If you start spending more you are also increasing your expenses so retiring without reducing your lifestyle become harder.
It is a bit different if you decide to cut back on your savings in order to do something like get a mortgage paid off. In that situation your net worth keeps increasing.
If you are pretty well off then one thing to look at is if you have enough to retire now with a drastically reduced lifestyle even if you don't want to retire now.
Ten or fifteen years before I actually retired I realized that I had enough to move to an inexpensive mid-west college town, buy a very modest house for less than $100K, and live a frugal but comfortable retirement. That was not how I wanted to actually retire but as a "plan B"(or C) it felt good that some big setback would not leave me in a dire situation.
Booper wrote:One possibility I have would be to stop adding money to my retirement accounts altogether.
It is always good to keep a good balance on your "now vs later" choices and that very well could mean that you might want to reduce your retirement savings so you can spend more on enjoying life now and there is nothing inherently wrong with that. About five years before I retired I was doing pretty good so I cut my 401k contributions back to just be enough to get my employers match, I was then able to do things like traveling more.
Stopping your retirement saving altogether is a bit extreme though if you don't have enough to retire today.
Re: How do you calculate "enough" for retirement accounts?
My wife and I are at the same point in our lives. We have reached our "number," but neither of us is ready totally to call it quits. My wife wants to start phased retirement next year, but I will continue to work full time. Physically, we will still be working and hopefully making positive contributions, but we plan on enjoying our lives a bit more, sort of a psychological quasi-retirement. We won't be fearful of losing our jobs and won't feel the weight of needing to save as much as possible. We will still contribute to our 403B's up to the match and will fully fund our Roths, but the rest of the money will probably go into taxable accounts or simply be spent (traveling mostly). More and more of our friends are dealing with health issues, and their experiences helped remind us of the things that are really important.I think I have enough with respect to the 4% SWR. So I semi-retired (not work as crazy as before) and started living like in retirement (lots of travels and loose money spending). I still contribute to my retirement accounts (the tax-advantaged). I want to experiment retirement life a few years before I decide to retire completely.