Am I saving enough?

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Topic Author
chrischris
Posts: 114
Joined: Fri Apr 16, 2010 1:25 pm

Am I saving enough?

Post by chrischris » Sat Feb 03, 2018 4:04 pm

Quick facts:

Emergency funds: Yes
Debt: Mortgage ($272k at 3.5%)
Tax Filing Status: Married filing jointly
Tax Rate: 25% Federal, no state income tax (edit, sorry I put 28% by mistake)
State of Residence: WA
Age: 32 me, 31 wife
Desired Asset allocation: 100% stocks
Desired International allocation: 35% international

Current Portfolio: $189k spread over a 401k, 457b and two Roth IRAs

New annual contributions: $15,000 ish

Question:
I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.

When I play around with a compound interest calculator, my projected portfolio size varies greatly. According to Vanguard, a portfolio of 80% stocks / 20% bonds has an average return of 9.5%. I understand past performance is no indicator of the future, but how do I estimate my future portfolio if I don't use an investment return?

Is it reasonable to expect a portfolio of this size in 21 years?

Image[/url]

If not, how do I forecast what my current portfolio and savings rate will bring me? I understand we can't predict the market, but I am just trying to figure out which ballpark I will be in. I also plan to adjust my asset allocation to bonds in the next decade. Thanks for any advice.
Last edited by chrischris on Sat Feb 03, 2018 4:16 pm, edited 1 time in total.

hazlitt
Posts: 43
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Re: Am I saving enough?

Post by hazlitt » Sat Feb 03, 2018 4:12 pm

Reasonable to expect it to grow that much? Sure. Should you count on it? No way.

Also, consider inflation. Ultimately, the amount of dollars you have is irrelevant. All that matters is the buying power of those dollars. There’s no way to forecast inflation over two years, much less 20+ years. But it’s a near certainty that $2MM will have much less buying power 20 years from now than it does today.

runner540
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Re: Am I saving enough?

Post by runner540 » Sat Feb 03, 2018 4:14 pm

No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
$15k is less than 10% of your income.

Save while you can. Life is uncertain. A lot can change over 20 years.

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TheAccountant
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Re: Am I saving enough?

Post by TheAccountant » Sat Feb 03, 2018 4:15 pm

A general rule is 15% at the bare minimum.
Making cents out of every dollar.

Topic Author
chrischris
Posts: 114
Joined: Fri Apr 16, 2010 1:25 pm

Re: Am I saving enough?

Post by chrischris » Sat Feb 03, 2018 4:25 pm

runner540 wrote:
Sat Feb 03, 2018 4:14 pm
No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
I mistakenly posted the wrong tax bracket. We make a combined $110k a year, with a small amount coming from my wife who works very part time.
TheAccountant wrote:
Sat Feb 03, 2018 4:15 pm
A general rule is 15% at the bare minimum.
Does this include or exclude SS? My pension alone takes 8% of my income, which I ignore. My annual savings of around $15k is around 14%.

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TheAccountant
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Re: Am I saving enough?

Post by TheAccountant » Sat Feb 03, 2018 4:28 pm

chrischris wrote:
Sat Feb 03, 2018 4:25 pm
runner540 wrote:
Sat Feb 03, 2018 4:14 pm
No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
I mistakenly posted the wrong tax bracket. We make a combined $110k a year, with a small amount coming from my wife who works very part time.
TheAccountant wrote:
Sat Feb 03, 2018 4:15 pm
A general rule is 15% at the bare minimum.
Does this include or exclude SS? My pension alone takes 8% of my income, which I ignore. My annual savings of around $15k is around 14%.
15% of your gross income before any taxes or deductions.
Making cents out of every dollar.

H-Town
Posts: 2125
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Re: Am I saving enough?

Post by H-Town » Sat Feb 03, 2018 4:46 pm

chrischris wrote:
Sat Feb 03, 2018 4:04 pm

Question:
I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.

When I play around with a compound interest calculator, my projected portfolio size varies greatly. According to Vanguard, a portfolio of 80% stocks / 20% bonds has an average return of 9.5%. I understand past performance is no indicator of the future, but how do I estimate my future portfolio if I don't use an investment return?

Is it reasonable to expect a portfolio of this size in 21 years?

Image[/url]

If not, how do I forecast what my current portfolio and savings rate will bring me? I understand we can't predict the market, but I am just trying to figure out which ballpark I will be in. I also plan to adjust my asset allocation to bonds in the next decade. Thanks for any advice.
1) Don't use any growth rate higher than 4% for planning. You would rather run the risk of having more money than having a risk of running out of money.

2) Saving rate is very personal. Your situation might be different. But you could do a lot better. Try to reach at least 15% and shoot for 50%. I'm at 50% now, meaning that I save $2 for every $1 I spent.

3) When you plan for risk management, it's better to prepare for the worse. Having 100% equities exposes you to more risk than you think. In a long bear market, you won't be able to touch your portfolio unless you have to take a loss. What if you need money then before you receive your pension?

aristotelian
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Re: Am I saving enough?

Post by aristotelian » Sat Feb 03, 2018 4:53 pm

runner540 wrote:
Sat Feb 03, 2018 4:14 pm
No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
$15k is less than 10% of your income.

Save while you can. Life is uncertain. A lot can change over 20 years.
The 15% guideline doesn't usually assume a pension covering half his income. I would like him to save more but he will be fine with pension and 200k already saved. If he wants early retirement or a more luxurious retirement he may want to step it up.

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iceport
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Re: Am I saving enough?

Post by iceport » Sat Feb 03, 2018 4:57 pm

chrischris wrote:
Sat Feb 03, 2018 4:04 pm
When I play around with a compound interest calculator, my projected portfolio size varies greatly. According to Vanguard, a portfolio of 80% stocks / 20% bonds has an average return of 9.5%. I understand past performance is no indicator of the future, but how do I estimate my future portfolio if I don't use an investment return?

Is it reasonable to expect a portfolio of this size in 21 years?

If not, how do I forecast what my current portfolio and savings rate will bring me? I understand we can't predict the market, but I am just trying to figure out which ballpark I will be in. I also plan to adjust my asset allocation to bonds in the next decade. Thanks for any advice.
Your assumed rate of return seems high, compared to the rough approximations by other experts. I think to get in the right ballpark, it might be better to use an "aftcasting" tool like cFIREsim: http://www.cfiresim.com/input.php

You can input all your assumptions and the calculator will simulate what would have happened in the past using actual historic return sequences. It can account for anticipated retirement year, pensions, social security, asset allocation, and ongoing savings in the period prior to retirement. The report will include an average portfolio value at retirement. More usefully, it can show how much retirement spending your plan (existing plus anticipated savings, retirement dates, etc.) might be able to support.

A similar tool is available at FIRECalc, though I'm not sure you will get a detailed report of the starting (at retirement) portfolio value, though you can eyeball a plot (and that's about as much precision as you should be hoping for at this point, anyway).
"Discipline matters more than allocation.” ─William Bernstein

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fortfun
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Re: Am I saving enough?

Post by fortfun » Sat Feb 03, 2018 4:58 pm

If your 457 has some low ER choices, you might consider maxing that one out. You should be able to withdraw from it as soon as you retire at 53. With the 401k, you'd have to wait till 59.5. With your salary, it seems like 18k would be doable.

drk
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Location: Seattle

Re: Am I saving enough?

Post by drk » Sat Feb 03, 2018 5:01 pm

chrischris wrote:
Sat Feb 03, 2018 4:25 pm
runner540 wrote:
Sat Feb 03, 2018 4:14 pm
No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
I mistakenly posted the wrong tax bracket. We make a combined $110k a year, with a small amount coming from my wife who works very part time.
There is no 28% or 25% tax bracket as of the new year. You're in the new 22% tax bracket.

Ron Ronnerson
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Location: Bay Area

Re: Am I saving enough?

Post by Ron Ronnerson » Sat Feb 03, 2018 5:44 pm

drk wrote:
Sat Feb 03, 2018 5:01 pm
chrischris wrote:
Sat Feb 03, 2018 4:25 pm
runner540 wrote:
Sat Feb 03, 2018 4:14 pm
No.

If you are in the 28% bracket your taxable income is $150k +, so gross is more like $175k+.
I mistakenly posted the wrong tax bracket. We make a combined $110k a year, with a small amount coming from my wife who works very part time.
There is no 28% or 25% tax bracket as of the new year. You're in the new 22% tax bracket.
There’s a good chance you’re actually in the 12% tax bracket. Subtract the following from your gross income of $110k to figure out your bracket: standard deduction of $24k (or possibly more if you itemize), pension contributions, 401k contributions, 457b contributions, HSA/FSA account contributions if applicable, and medical and/or dental premiums if deducted from your paycheck. These things come to mind but there could be other deductions as well. My wife and I gross $150k and are in the 12% bracket due to deductions.

I would really look into figuring out what your tax bracket is. If you’re in the 12% bracket, I’d fill that space up with Roth contributions (rather than traditional) until I got to the 22% bracket.

You say you’re confident in your pension but are ignoring it in terms of calculating how much to save. If your pension is in good shape, I wouldn’t completely ignore it. If you’ll get a pension (and possibly also social security), those things would be relevant factors in deciding how much you need to save.

I think you should take off about 3% from the interest rate you’ve selected to try to account for inflation. Of course, it could be higher or lower than 3%, but 3% is about the historical average and, in my opinion, it's better to take a guess than ignore inflation completely. So, if you assume 6% growth instead of 9%, you’d have 1.3M instead of 2.1M. That should give you about $50k of income to spend per year from your investments.

Olemiss540
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Re: Am I saving enough?

Post by Olemiss540 » Sat Feb 03, 2018 6:07 pm

Short answer, nope. Need to adjust you rate of return down to 4 or 5 percent to remove the effects of inflation. Assuming your pension is funded and healthy, I would plan for a goal of at least 80k/year from your portfolio. At an age of 53, a 3.5%Withdrawal Rate gives $2.285 Million nest egg needed. Rerun your calculations with 5% returns and then work backwards to your contribution rate.

Also, with a pension and being in the 12% bracket (no state tax), I would strongly consider a Roth alternative.....

Ninja edit: ran the numbers and looks like 47k a year......

Maybe shoot for retiring at 63, would drop all the way to 23k a year. Good luck!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

ETadvisor
Posts: 314
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Re: Am I saving enough?

Post by ETadvisor » Sat Feb 03, 2018 6:26 pm

Two issues:
    Growth rate of 9.5% is optimistic. I would insert 3-5%
      What is buying power of $2m in 20+years
      Last edited by ETadvisor on Sat Feb 03, 2018 7:52 pm, edited 1 time in total.

      Topic Author
      chrischris
      Posts: 114
      Joined: Fri Apr 16, 2010 1:25 pm

      Re: Am I saving enough?

      Post by chrischris » Sat Feb 03, 2018 6:38 pm

      Olemiss540 wrote:
      Sat Feb 03, 2018 6:07 pm
      Short answer, nope. Need to adjust you rate of return down to 4 or 5 percent to remove the effects of inflation. Assuming your pension is funded and healthy, I would plan for a goal of at least 80k/year from your portfolio. At an age of 53, a 3.5%Withdrawal Rate gives $2.285 Million nest egg needed. Rerun your calculations with 5% returns and then work backwards to your contribution rate.

      Also, with a pension and being in the 12% bracket (no state tax), I would strongly consider a Roth alternative.....

      Ninja edit: ran the numbers and looks like 47k a year......

      Maybe shoot for retiring at 63, would drop all the way to 23k a year. Good luck!
      Why $80k? Just trying to understand, thanks.

      If my pension covers half my income, that leaves me only needing to cover around $50k from my portfolio. This will also leave me with more money to spend since I won’t be paying 8% towards my pension in retirement or 15% in Roth and other investments.

      None of this counts for inflation, but if I utilize a rate of return of around 4-6%, shouldn’t my final expected return be low to account for inflation ? I hope my logic makes sense. Thanks to everyone for the help.
      Last edited by chrischris on Sat Feb 03, 2018 6:50 pm, edited 1 time in total.

      KlangFool
      Posts: 14177
      Joined: Sat Oct 11, 2008 12:35 pm

      Re: Am I saving enough?

      Post by KlangFool » Sat Feb 03, 2018 6:47 pm

      chrischris wrote:
      Sat Feb 03, 2018 6:38 pm
      Olemiss540 wrote:
      Sat Feb 03, 2018 6:07 pm
      Short answer, nope. Need to adjust you rate of return down to 4 or 5 percent to remove the effects of inflation. Assuming your pension is funded and healthy, I would plan for a goal of at least 80k/year from your portfolio. At an age of 53, a 3.5%Withdrawal Rate gives $2.285 Million nest egg needed. Rerun your calculations with 5% returns and then work backwards to your contribution rate.

      Also, with a pension and being in the 12% bracket (no state tax), I would strongly consider a Roth alternative.....

      Ninja edit: ran the numbers and looks like 47k a year......

      Maybe shoot for retiring at 63, would drop all the way to 23k a year. Good luck!
      Why $80k? Just trying to understand, thanks.
      chrischris,

      When will you be vested for the pension? What happened if you are laid off before you are vested for the pension?

      KlangFool

      Topic Author
      chrischris
      Posts: 114
      Joined: Fri Apr 16, 2010 1:25 pm

      Re: Am I saving enough?

      Post by chrischris » Sat Feb 03, 2018 6:55 pm

      KlangFool wrote:
      Sat Feb 03, 2018 6:47 pm
      chrischris,

      When will you be vested for the pension? What happened if you are laid off before you are vested for the pension?

      KlangFool
      I am already vested based on years of service. My final payout amount is a formula based on years of service and highest salary. At 53, the payout will be around 45-48% of my estimated salary.

      KlangFool
      Posts: 14177
      Joined: Sat Oct 11, 2008 12:35 pm

      Re: Am I saving enough?

      Post by KlangFool » Sat Feb 03, 2018 6:59 pm

      chrischris wrote:
      Sat Feb 03, 2018 6:55 pm
      KlangFool wrote:
      Sat Feb 03, 2018 6:47 pm
      chrischris,

      When will you be vested for the pension? What happened if you are laid off before you are vested for the pension?

      KlangFool
      I am already vested based on years of service. My final payout amount is a formula based on years of service and highest salary. At 53, the payout will be around 45-48% of my estimated salary.
      chrischris,

      1) If you are laid off now, what will be the payout?

      2) You are 32 years old now. IMHO, it is too risky to count the payout that you had not earned yet. If you want to count your pension, you should count whatever payout that you are vested for at this moment.

      KlangFool

      Topic Author
      chrischris
      Posts: 114
      Joined: Fri Apr 16, 2010 1:25 pm

      Re: Am I saving enough?

      Post by chrischris » Sat Feb 03, 2018 7:22 pm

      KlangFool wrote:
      Sat Feb 03, 2018 6:59 pm


      chrischris,

      1) If you are laid off now, what will be the payout?

      2) You are 32 years old now. IMHO, it is too risky to count the payout that you had not earned yet. If you want to count your pension, you should count whatever payout that you are vested for at this moment.

      KlangFool
      If I were laid off now, right now it would be around $12k a year starting at age 53. Or, I could take a lump sum payment of around $50k whenever I separate.

      I understand the value of not counting a pension I haven't earned. However, I am attempting to make future predictions based on several things outside my control. I expect a reasonable return from the stock market, involving the market going up and down. I expect a reasonable pension in which I pay in 8% of my salary and my employer doing the same.

      If I am laid off, which would take such a severe offense that would also involve prison time, I would of course reevaluate my savings rate. Is that too risky to count on? It seems at some point we all need to have some faith in our plan. Otherwise, shouldn't we all just buy ammo and toilet paper? Nothing is foolproof :confused

      I guess this process is just a little frustrating. I understand no one can predict the future. I am not asking anyone to. But so far I have been told I need to save as much as 50% of my income, which frankly will never happen (I have a family). I don't mean to come off as being disrespectful, again I am just frustrated.

      student
      Posts: 4142
      Joined: Fri Apr 03, 2015 6:58 am

      Re: Am I saving enough?

      Post by student » Sat Feb 03, 2018 7:31 pm

      chrischris wrote:
      Sat Feb 03, 2018 7:22 pm
      KlangFool wrote:
      Sat Feb 03, 2018 6:59 pm


      chrischris,

      1) If you are laid off now, what will be the payout?

      2) You are 32 years old now. IMHO, it is too risky to count the payout that you had not earned yet. If you want to count your pension, you should count whatever payout that you are vested for at this moment.

      KlangFool
      If I were laid off now, right now it would be around $12k a year starting at age 53. Or, I could take a lump sum payment of around $50k whenever I separate.

      I understand the value of not counting a pension I haven't earned. However, I am attempting to make future predictions based on several things outside my control. I expect a reasonable return from the stock market, involving the market going up and down. I expect a reasonable pension in which I pay in 8% of my salary and my employer doing the same.

      If I am laid off, which would take such a severe offense that would also involve prison time, I would of course reevaluate my savings rate. Is that too risky to count on? It seems at some point we all need to have some faith in our plan. Otherwise, shouldn't we all just buy ammo and toilet paper? Nothing is foolproof :confused

      I guess this process is just a little frustrating. I understand no one can predict the future. I am not asking anyone to. But so far I have been told I need to save as much as 50% of my income, which frankly will never happen (I have a family). I don't mean to come off as being disrespectful, again I am just frustrated.
      I think counting pension is fine as long as your job is safe based on reasonable assumption. I would agree with others that 9% growth rate seems optimistic.

      MrNewEngland
      Posts: 807
      Joined: Sun Sep 28, 2014 11:38 am

      Re: Am I saving enough?

      Post by MrNewEngland » Sat Feb 03, 2018 8:29 pm

      thangngo wrote:
      Sat Feb 03, 2018 4:46 pm


      2) Savings rate...I'm at 50% now, meaning that I save $2 for every $1 I spent.
      Wouldn’t that be 67%?

      drk
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      Location: Seattle

      Re: Am I saving enough?

      Post by drk » Sat Feb 03, 2018 9:08 pm

      Ron Ronnerson wrote:
      Sat Feb 03, 2018 5:44 pm
      drk wrote:
      Sat Feb 03, 2018 5:01 pm
      There is no 28% or 25% tax bracket as of the new year. You're in the new 22% tax bracket.
      There’s a good chance you’re actually in the 12% tax bracket. Subtract the following from your gross income of $110k to figure out your bracket: standard deduction of $24k (or possibly more if you itemize), pension contributions, 401k contributions, 457b contributions, HSA/FSA account contributions if applicable, and medical and/or dental premiums if deducted from your paycheck. These things come to mind but there could be other deductions as well. My wife and I gross $150k and are in the 12% bracket due to deductions.
      Good call! I meant to throw a "probably" in there to hedge.

      Ron Ronnerson
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      Location: Bay Area

      Re: Am I saving enough?

      Post by Ron Ronnerson » Sat Feb 03, 2018 9:30 pm

      drk wrote:
      Sat Feb 03, 2018 9:08 pm
      Ron Ronnerson wrote:
      Sat Feb 03, 2018 5:44 pm
      drk wrote:
      Sat Feb 03, 2018 5:01 pm
      There is no 28% or 25% tax bracket as of the new year. You're in the new 22% tax bracket.
      There’s a good chance you’re actually in the 12% tax bracket. Subtract the following from your gross income of $110k to figure out your bracket: standard deduction of $24k (or possibly more if you itemize), pension contributions, 401k contributions, 457b contributions, HSA/FSA account contributions if applicable, and medical and/or dental premiums if deducted from your paycheck. These things come to mind but there could be other deductions as well. My wife and I gross $150k and are in the 12% bracket due to deductions.
      Good call! I meant to throw a "probably" in there to hedge.
      Thanks! Since this thread was started, OP's tax rate has gone from 28% to 25% to 22% to possibly 12%. If nothing else, it's provided him with a bit of good news. Though, hopefully, he will take the time to determine his actual rate and make use of Roth accounts if there's space available in the 12% bracket.

      cherijoh
      Posts: 6357
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      Location: Charlotte NC

      Re: Am I saving enough?

      Post by cherijoh » Sat Feb 03, 2018 9:33 pm

      chrischris wrote:
      Sat Feb 03, 2018 4:04 pm
      Quick facts:

      Emergency funds: Yes
      Debt: Mortgage ($272k at 3.5%)
      Tax Filing Status: Married filing jointly
      Tax Rate: 25% Federal, no state income tax (edit, sorry I put 28% by mistake)
      State of Residence: WA
      Age: 32 me, 31 wife
      Desired Asset allocation: 100% stocks
      Desired International allocation: 35% international

      Current Portfolio: $189k spread over a 401k, 457b and two Roth IRAs

      New annual contributions: $15,000 ish

      Question:
      I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.
      Don't count your chickens before they hatch. Twenty-one years is a long way away and a lot can happen between now and then. Your pension may be indeed be solid - I think the gov't will be the last to stop offering pensions. But the big question is - will you still be working there to collect it?

      I worked in private industry and had a nice pension (although no COLA) that I thought I would be able to draw at age 55. I would have had 33 years of service and would have received ~55% of my average of highest 3 years. Unfortunately, at year 24 the company decided to shut down our site and relocate out of state to somewhere I had no interest in living. :annoyed Fortunately, I hadn't been counting on that pension and had been saving the maximum in 401k plus doing additional investing in taxable. Therefore I had the option to stay put, do a mid-career change (and go back to school for a Masters), and find another job. Many of my former colleagues had no plan B and were forced to take the transfer whether they wanted to move or not.

      I'm a few years behind on retiring at 55, but I will be retired before 60 - something that wouldn't have been possible if I'd scaled back on retirement savings early in my career because I assumed my pension was a sure thing.

      So I would suggest saving more now. That way you aren't tied to golden handcuffs. IF for whatever reason you aren't able to collect on the full pension, you will need a much larger nest egg than can be achieved with your current savings rate - it is just NOT high enough to cover your expenses without the pension. You can always scale back on your savings rate at a later date when you are more confident of where you'll end up, but it is hard to accellerate savings to reach your goal if you encounter a bump in the road late in the game.

      tesuzuki2002
      Posts: 854
      Joined: Fri Dec 11, 2015 12:40 pm

      Re: Am I saving enough?

      Post by tesuzuki2002 » Sat Feb 03, 2018 9:45 pm

      chrischris wrote:
      Sat Feb 03, 2018 4:04 pm
      Quick facts:

      Emergency funds: Yes
      Debt: Mortgage ($272k at 3.5%)
      Tax Filing Status: Married filing jointly
      Tax Rate: 25% Federal, no state income tax (edit, sorry I put 28% by mistake)
      State of Residence: WA
      Age: 32 me, 31 wife
      Desired Asset allocation: 100% stocks
      Desired International allocation: 35% international

      Current Portfolio: $189k spread over a 401k, 457b and two Roth IRAs

      New annual contributions: $15,000 ish

      Question:
      I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.

      When I play around with a compound interest calculator, my projected portfolio size varies greatly. According to Vanguard, a portfolio of 80% stocks / 20% bonds has an average return of 9.5%. I understand past performance is no indicator of the future, but how do I estimate my future portfolio if I don't use an investment return?

      Is it reasonable to expect a portfolio of this size in 21 years?

      Image[/url]

      If not, how do I forecast what my current portfolio and savings rate will bring me? I understand we can't predict the market, but I am just trying to figure out which ballpark I will be in. I also plan to adjust my asset allocation to bonds in the next decade. Thanks for any advice.

      Save 30 to 40%... when you hit a point that your investments are making more annually than you do... you can back off to only getting to match....

      CppCoder
      Posts: 902
      Joined: Sat Jan 23, 2016 9:16 pm

      Re: Am I saving enough?

      Post by CppCoder » Sat Feb 03, 2018 9:51 pm

      chrischris wrote:
      Sat Feb 03, 2018 7:22 pm
      If I am laid off, which would take such a severe offense that would also involve prison time, I would of course reevaluate my savings rate. Is that too risky to count on? It seems at some point we all need to have some faith in our plan. Otherwise, shouldn't we all just buy ammo and toilet paper? Nothing is foolproof :confused
      I would agree that your pension is pretty safe, and you probably won't get laid off from a government job. I would, however, worry about getting bored and wanting a different job over the next 20 years and leaving your job due to a disability. With these two things in mind, I would say make sure you have disability insurance (maybe you do through the job). Then, that worry is off the table. Only you know if you'll want to stick with the job, and that feeling may change. Save a little more just to give yourself the flexibility of changing careers if you want to. The last thing you want is to be stuck in a job you hate because your entire retirement plan is based on needing that pension.

      Olemiss540
      Posts: 1137
      Joined: Fri Aug 18, 2017 8:46 pm

      Re: Am I saving enough?

      Post by Olemiss540 » Sun Feb 04, 2018 7:16 am

      chrischris wrote:
      Sat Feb 03, 2018 6:38 pm
      Olemiss540 wrote:
      Sat Feb 03, 2018 6:07 pm
      Short answer, nope. Need to adjust you rate of return down to 4 or 5 percent to remove the effects of inflation. Assuming your pension is funded and healthy, I would plan for a goal of at least 80k/year from your portfolio. At an age of 53, a 3.5%Withdrawal Rate gives $2.285 Million nest egg needed. Rerun your calculations with 5% returns and then work backwards to your contribution rate.

      Also, with a pension and being in the 12% bracket (no state tax), I would strongly consider a Roth alternative.....

      Ninja edit: ran the numbers and looks like 47k a year......

      Maybe shoot for retiring at 63, would drop all the way to 23k a year. Good luck!
      Why $80k? Just trying to understand, thanks.

      If my pension covers half my income, that leaves me only needing to cover around $50k from my portfolio. This will also leave me with more money to spend since I won’t be paying 8% towards my pension in retirement or 15% in Roth and other investments.

      None of this counts for inflation, but if I utilize a rate of return of around 4-6%, shouldn’t my final expected return be low to account for inflation ? I hope my logic makes sense. Thanks to everyone for the help.
      I used 80k as a shotgun blast to cover healthcare costs in early retirement. You are catching on as far as the lower rate (5% is what I used) accounting f9r inflation to keep the math more simple.

      Try not to get discouraged. This forum is typically conservative with it comes to early retirement. Check into MrMoneyMustache if retiring at 53 is a serious goal. It is DEFINATELY achievable with your pension, it is just a matter of reducing expenses while increasing your expenses. If you can live off of 50k/year, you could retire at 53. That about the median household income! So if you can drive your expenses to the 80k or 75k arena now, while saving 35k per year you would pretty much guarantee success.

      What you will find is the higher your savings rate, the less you have to count on market return to become financially independent.
      I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

      cherijoh
      Posts: 6357
      Joined: Tue Feb 20, 2007 4:49 pm
      Location: Charlotte NC

      Re: Am I saving enough?

      Post by cherijoh » Sun Feb 04, 2018 7:30 am

      chrischris wrote:
      Sat Feb 03, 2018 4:04 pm
      Quick facts:

      Emergency funds: Yes
      Debt: Mortgage ($272k at 3.5%)
      Tax Filing Status: Married filing jointly
      Tax Rate: 25% Federal, no state income tax (edit, sorry I put 28% by mistake)
      State of Residence: WA
      Age: 32 me, 31 wife
      Desired Asset allocation: 100% stocks
      Desired International allocation: 35% international

      Current Portfolio: $189k spread over a 401k, 457b and two Roth IRAs

      New annual contributions: $15,000 ish

      Question:
      I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.
      Don't count your chickens before they hatch. Twenty-one years is a long way away and a lot can happen between now and then. Your pension may be indeed be solid - I think the gov't will be the last to stop offering pensions. But the big question is - will you still be working there to collect it?

      I worked in private industry and had a nice pension (although no COLA) that I thought I would be able to draw at age 55. I would have had 33 years of service and would have received ~55% of my average of highest 3 years. Unfortunately, at year 24 the company decided to shut down our site and relocate out of state to somewhere I had no interest in living. :annoyed Fortunately, I hadn't been counting on that pension and had been saving the maximum in 401k plus doing additional investing in taxable. Therefore I had the option to stay put, do a mid-career change (and go back to school for a Masters degree), and find another job. Many of my former colleagues had no plan B and were forced to take the transfer whether they wanted to move or not.

      I'm a few years behind on retiring at 55, but I will be retired before 60 - something that wouldn't have been possible if I'd scaled back on retirement savings early in my career because I assumed my pension was a sure thing.

      So I would suggest saving more now. That way you aren't tied to the golden handcuffs. IF for whatever reason you aren't able to collect on the full pension, IMO you will need a much larger nest egg if you want to retire early than can be achieved with your current savings rate. I'm not even sure a 10% savings rate will guarantee the retirement you want at age 65. (IIRC Bernstein says to save 15% to ensure that you can comfortably retire at 65). You can always scale back on your savings rate at a later date when you are more confident of where you'll end up, but it is hard to accellerate savings to reach your goal if you encounter a bump in the road later in the game.

      Olemiss540
      Posts: 1137
      Joined: Fri Aug 18, 2017 8:46 pm

      Re: Am I saving enough?

      Post by Olemiss540 » Sun Feb 04, 2018 7:52 am

      Also, consider just sending your upcoming raises to your 401k so the transition is easier and not so overwhelming. After 5 or 7 years, your saving rate could be closer to 25% and fully automated..
      I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

      NightFall
      Posts: 267
      Joined: Wed Mar 12, 2014 4:38 pm

      Re: Am I saving enough?

      Post by NightFall » Sun Feb 04, 2018 8:35 am

      I might suggest the OP pays some attention to tax optimization. $110K (income) - $15K (deductible retirement contributions) - $24K (standard deduction) = $71K taxable income. That's solidly in the 12% bracket. However, with another $8K in deductions (traditional IRA contributions should be deductible in this range, there might be deductible pension contributions too), the OP should qualify for the retirement savings contribution credit of up to $2K. Not bad. Saving is good. Saving while understanding tax implications is better.

      cherijoh
      Posts: 6357
      Joined: Tue Feb 20, 2007 4:49 pm
      Location: Charlotte NC

      Re: Am I saving enough?

      Post by cherijoh » Sun Feb 04, 2018 8:58 am

      CppCoder wrote:
      Sat Feb 03, 2018 9:51 pm
      I would agree that your pension is pretty safe, and you probably won't get laid off from a government job. I would, however, worry about getting bored and wanting a different job over the next 20 years and leaving your job due to a disability. With these two things in mind, I would say make sure you have disability insurance (maybe you do through the job). Then, that worry is off the table. Only you know if you'll want to stick with the job, and that feeling may change. Save a little more just to give yourself the flexibility of changing careers if you want to. The last thing you want is to be stuck in a job you hate because your entire retirement plan is based on needing that pension.
      +1
      There is also the possibility of a toxic work environment or an incompetent manager, the need to relocate to be closer to older family members, and a host of other reasons!
      chrischris wrote:
      Sat Feb 03, 2018 7:22 pm
      I understand the value of not counting a pension I haven't earned. However, I am attempting to make future predictions based on several things outside my control. I expect a reasonable return from the stock market, involving the market going up and down. I expect a reasonable pension in which I pay in 8% of my salary and my employer doing the same.

      If I am laid off, which would take such a severe offense that would also involve prison time, I would of course reevaluate my savings rate. Is that too risky to count on? It seems at some point we all need to have some faith in our plan. Otherwise, shouldn't we all just buy ammo and toilet paper? Nothing is foolproof :confused

      I guess this process is just a little frustrating. I understand no one can predict the future. I am not asking anyone to. But so far I have been told I need to save as much as 50% of my income, which frankly will never happen (I have a family). I don't mean to come off as being disrespectful, again I am just frustrated.
      I hear you - but you seem to be ignoring one very key point. If you start with the most optimistic set of assumptions then if you hit a bump in the road you may not have the time to "reevalute your savings rate" and do anything about it! Just talk to someone who was over 50, was behind on saving for retirement (because they had 2 kids in college), and got laid off during the Great Recession. I know several of these people and the picture isn't pretty! Many are still working (mostly at much lower paying jobs than pre-recession) long after they assumed they would be retired.

      IMO you started from a much too optimistic stand point:
      • At this point you should only count on what pension you currently have vested and adjust it as time goes by and you stay at your government job
      • Your assumption of a 9% return going forward is NOT a "reasonable rate of return" - we are due for a stock market correction or at the very least a fizzle so I wouldn't expect historical rates of returns - you should be discounting them to take into account the long bull run.
      • In addition, you didn't take into account inflation so your projected $2MM nest egg is in 2039 dollars but you are estimating your expenses based on 2018 dollars. :oops: If you lop off 3 - 4% for inflation, your numbers will be considerably smaller but they will also allow you to see what % of your current expenses your nest egg will actually cover in real $S terms.
      • Finally, you haven't accounted for a more moderate portfolio as you get closer to retirement. Or are you planning to stay at 100% stocks for the next 21 years? That is like playing Russian Roulette IMO
      You are a long way from retirement, so I would take this approach. See if there is any room in your budget to increase savings a bit. I'd target at least 15%. (That isn't enough on its own to be able to retire at 53, but would provide a better foundation to build from if you don't stay with the government job). If that is not possible, then do what you can and pledge to bring it up a little bit every time you get a raise or a step change. Evaluate your progress every year updating your vested pension amount as well as your portfolio. The closer you get to retirement, the more faith that you can put into your plan working as anticipated. At that point you'll be able to forecast whether retiring at 53 is feasible. You may even find as you get closer to retirement that you have overshot your goal (in light of that pension that we are telling you not to count on early in the planning period). But that gives you the option to ease up on retirement savings - probably right when you are worried about paying for your kids college education. So win-win.

      Trying to balance current spending with future needs IS a frustrating process. You are to commended for giving it serious thought this far away from retirement.

      cherijoh
      Posts: 6357
      Joined: Tue Feb 20, 2007 4:49 pm
      Location: Charlotte NC

      Re: Am I saving enough?

      Post by cherijoh » Sun Feb 04, 2018 9:05 am

      NightFall wrote:
      Sun Feb 04, 2018 8:35 am
      I might suggest the OP pays some attention to tax optimization. $110K (income) - $15K (deductible retirement contributions) - $24K (standard deduction) = $71K taxable income. That's solidly in the 12% bracket. However, with another $8K in deductions (traditional IRA contributions should be deductible in this range, there might be deductible pension contributions too), the OP should qualify for the retirement savings contribution credit of up to $2K. Not bad. Saving is good. Saving while understanding tax implications is better.
      My Dad retired from the goverment and I ended up doing my widowed mother's taxes. A portion of each year's pension was a tax-free return of his contribution, therefore I don't believe government workers get a tax deduction for their pension contribution. Of course this was the old civil servant system (pre-FERS) so that may have changed.

      H-Town
      Posts: 2125
      Joined: Sun Feb 26, 2017 2:08 pm

      Re: Am I saving enough?

      Post by H-Town » Sun Feb 04, 2018 9:34 am

      MrNewEngland wrote:
      Sat Feb 03, 2018 8:29 pm
      thangngo wrote:
      Sat Feb 03, 2018 4:46 pm


      2) Savings rate...I'm at 50% now, meaning that I save $2 for every $1 I spent.
      Wouldn’t that be 67%?
      In 2017, we paid 26% total tax (federal tax, SALT, SS & Medicare tax), spend 24.94% and save the rest. Although the 26% total tax is not final until we file the tax return and might get some tax refund back.

      So if my math is right, it's 50% saving rate, with $2 saved for every dollar spent.

      RealHornblower
      Posts: 11
      Joined: Sun Dec 24, 2017 11:55 am

      Re: Am I saving enough?

      Post by RealHornblower » Sun Feb 04, 2018 9:42 am

      chrischris wrote:
      Sat Feb 03, 2018 4:04 pm
      Quick facts:

      Emergency funds: Yes
      Debt: Mortgage ($272k at 3.5%)
      Tax Filing Status: Married filing jointly
      Tax Rate: 25% Federal, no state income tax (edit, sorry I put 28% by mistake)
      State of Residence: WA
      Age: 32 me, 31 wife
      Desired Asset allocation: 100% stocks
      Desired International allocation: 35% international

      Current Portfolio: $189k spread over a 401k, 457b and two Roth IRAs

      New annual contributions: $15,000 ish

      Question:
      I am trying to decide if I am saving enough, or perhaps too much. Among the Boblehead community, it seems the mindset is to save as much as possible for retirement. I work for the government and am eligible for a pension at 53 years of age. I project I will receive around 45% of my highest salary. There is COLA. For this reason, I am currently 100% equities. I understand the risks of this allocation and the risks of a pension. I do feel confident in my pension.

      When I play around with a compound interest calculator, my projected portfolio size varies greatly. According to Vanguard, a portfolio of 80% stocks / 20% bonds has an average return of 9.5%. I understand past performance is no indicator of the future, but how do I estimate my future portfolio if I don't use an investment return?

      Is it reasonable to expect a portfolio of this size in 21 years?
      Question A: I would use real returns, rather than nominal returns, as some others have touched on. Over 20 years, I think a Real Return of 4 or 5% is reasonable, although there's nothing wrong with being more conservative to give yourself a margin of error. Entering your numbers with a 4% real rate of return, I get about $910,000.

      Question B:After contributions, pension, and taxes are taken out, how much do you actually spend? You say your HH gross is $110k, assuming $100k is yours, a pension covering 45% pays you $45k/year. You therefore need (Your Total Spending-$45k) per year. Multiply that number by 25 and you get the portfolio size you need using a 4% withdrawal rate. This assumes your salary, and therefore future pension, also rises with inflation for the next 21 years.

      The other question is- will your house be paid off in 21 years? If yes, then you might be saving enough because that's going to significantly lower your expenses. You may be able to retire with the traditional "3 pillars" of retirement, a paid off house, a pension, and savings/investments.

      MrNewEngland
      Posts: 807
      Joined: Sun Sep 28, 2014 11:38 am

      Re: Am I saving enough?

      Post by MrNewEngland » Sun Feb 04, 2018 10:09 am

      thangngo wrote:
      Sun Feb 04, 2018 9:34 am
      MrNewEngland wrote:
      Sat Feb 03, 2018 8:29 pm
      thangngo wrote:
      Sat Feb 03, 2018 4:46 pm


      2) Savings rate...I'm at 50% now, meaning that I save $2 for every $1 I spent.
      Wouldn’t that be 67%?
      In 2017, we paid 26% total tax (federal tax, SALT, SS & Medicare tax), spend 24.94% and save the rest. Although the 26% total tax is not final until we file the tax return and might get some tax refund back.

      So if my math is right, it's 50% saving rate, with $2 saved for every dollar spent.
      I look at taxes as “money spent”, but I do see your logic now.

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