Retirement

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Franco1289
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Retirement

Post by Franco1289 » Tue Nov 05, 2019 1:07 pm

I’m currently 37 years old and if I were to invest 20% of my income yearly for the next 30 years at a modest 5% return I could retire at 67 years of age with $4 million. $4 million would be 25x my expenses. I also still have student loans to pay off as well as a big mortgage and car loan. Meaning I will not be able to save 20% of my income until I’m 45 years old. By then I’ll be finished paying off my 250K of student loan debt. I’m currently saving 10% of my income. Am I screwed?

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Mullins
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Re: Retirement

Post by Mullins » Tue Nov 05, 2019 1:18 pm

I'd say no, you're not screwed, because people have a cognitive tendency to believe the way things are today for them will be the way things will always be for them, yet you have 30 years to go and a lot of things which you can't foresee can happen in that time.

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Watty
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Re: Retirement

Post by Watty » Tue Nov 05, 2019 1:21 pm

Franco1289 wrote:
Tue Nov 05, 2019 1:07 pm
$4 million would be 25x my expenses.
If that is in current dollars then you have $160,000 a year in expenses.

If so you may be living well above your means if you can't save and also pay off the student loans.

You will get better responses if you post your information in this suggested format.

viewtopic.php?f=1&t=6212

deikel
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Re: Retirement

Post by deikel » Tue Nov 05, 2019 1:22 pm

Are you sure you have your math right ?

Are you really spending 160k a year ? That would be ...above average lets say.

And paying down debt is a form of investment since it will reduce your expenses and retirement is all about expenses really. So, I would suggest to aggressively pay down the debt, car and student loans probably have relatively high APRs, so those are primary targets, home loan is probably low enough to be used as inflation protection

Overall, check your expenses, 160k post tax sounds high...( 4 mil divided by 25), To answer your question, yes you seem screwed because you lived well above what you could afford in the past (you borrowed your education, your house and even your transportation), so thank your past self to burden your future self with a lot of work to do.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

delamer
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Re: Retirement

Post by delamer » Tue Nov 05, 2019 1:28 pm

So in 30 years, you know your expenses will be $160,000 per year?

That’s pretty amazing.

If you want to save more, then you can either reduce expenses or increase income. The big mortgage and the car loan can be undone/reduced, as an example.

It certainly isn’t too late to take control of the situation.

Thegame14
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Re: Retirement

Post by Thegame14 » Tue Nov 05, 2019 1:30 pm

have you saved nothing for retirement for the last 15 working years?

Thegame14
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Re: Retirement

Post by Thegame14 » Tue Nov 05, 2019 1:31 pm

also remember to deduct from your "current expenses" your student loan payments, car payments, mortgage payments as they will all be paid off in retirement, also then add about $30-40K per year in Social security and the numbers may look drastically different. Also exclude investments into retirement, as that goes away in retirement as well.
Last edited by Thegame14 on Tue Nov 05, 2019 1:50 pm, edited 1 time in total.

HomeStretch
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Re: Retirement

Post by HomeStretch » Tue Nov 05, 2019 1:35 pm

Is your $4 million number a good estimate?
1. Does your estimate of $160k per year in retirement exclude your mortgage and car loan expenses as they will be paid off?
2. Does the $160k take into account 30 years of inflation on your current expenses?
3. Did you take into account SS or other retirement income when calculating $4 million?

If you really need to save 20% per year to get to retirement savings of $4 million and you are only saving 10% per year, then you will likely not have $4 million to retire on. You need to either reduce your expenses now (to save more and to reduce your $4 million goal) or you will need to live on less in retirement.

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David Jay
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Re: Retirement

Post by David Jay » Tue Nov 05, 2019 1:54 pm

As others have said, retirement finances are all about expenses. Many items in your current expenses are likely to be paid off in retirement, so you need to evaluate living expenses carefully.

Once you have living expenses, subtract out your expected SS benefit to arrive at the amount that needs to come from your portfolio. Multiply by 25.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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JoeRetire
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Re: Retirement

Post by JoeRetire » Tue Nov 05, 2019 1:59 pm

Franco1289 wrote:
Tue Nov 05, 2019 1:07 pm
I’m currently 37 years old and if I were to invest 20% of my income yearly for the next 30 years at a modest 5% return I could retire at 67 years of age with $4 million. $4 million would be 25x my expenses.
You know what your expenses will be almost 30 years down the road?
I also still have student loans to pay off as well as a big mortgage and car loan. Meaning I will not be able to save 20% of my income until I’m 45 years old. By then I’ll be finished paying off my 250K of student loan debt. I’m currently saving 10% of my income. Am I screwed?
No.

Save more later. That's what most folks do.
Don't be a lemming.

JBTX
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Re: Retirement

Post by JBTX » Tue Nov 05, 2019 3:45 pm

Franco1289 wrote:
Tue Nov 05, 2019 1:07 pm
I’m currently 37 years old and if I were to invest 20% of my income yearly for the next 30 years at a modest 5% return I could retire at 67 years of age with $4 million. $4 million would be 25x my expenses. I also still have student loans to pay off as well as a big mortgage and car loan. Meaning I will not be able to save 20% of my income until I’m 45 years old. By then I’ll be finished paying off my 250K of student loan debt. I’m currently saving 10% of my income. Am I screwed?
We don't know if you are talking in real or nominal dollars. I'm going to guess nominal non inflation dollars.

Let's just assume that in 30 years, prices have doubled. That is somewhere between 2 and 3 percent annual inflation. That means you would have $2 million in today's dollars and expenses of $80k. You would also have social security coming in. That is at your 20% savings, which gives you maybe $110k to $120k per year in today's dollars which is a lot for a single and still well above average for a couple.


If you are only able to save 10% your options are:

- find a way to save more.
- find a way to live on less than $110k in retirement
- invest more aggressively to try to exceed 5% nominal - or 2.5% real

I'd say do a little of all 3.

evilityb
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Re: Retirement

Post by evilityb » Tue Nov 05, 2019 3:55 pm

Nope, not screwed. This is how you do it:

1) Get a detailed picture of all of your spending over the last year. I use Mint.com for this, personally.
2) Look at each category of spending (housing, transportation, groceries, restaurants, travel, et cetera) and see where your biggest expenses are.
3) Begin trimming down your expenses. Remember, after you've secured adequate housing, food, utilities, transportation, and medical care, all else will only bring you marginal benefit. Choose those marginal benefits wisely.
4) Increase your savings rate. Depending on the interest rates on the debt you mentioned, you might want to put extra money towards those to pay them off.
5) Keep doing this until your spending is as efficient as possible. Before you know it, you'll be saving far more than 10%.
6) Invest wisely -- 3-fund portfolio with low-fee, passively-managed index funds and tax efficient investments where possible.
7) Tune out the noise. Don't listen to the talking heads on CNBC or Yahoo finance that tell us we need zillions of dollars to retire.
8) Stay the course.
She/her/hers | Make sure the fortune that you seek is the fortune that you need - Ben Harper

Tal-
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Re: Retirement

Post by Tal- » Tue Nov 05, 2019 4:11 pm

You're not screwed, but you are behind.

I'll sidestep the math and expense comments which have already been made, and instead focus on the 10% saving. If you're making $160K a year, and want to get to $4M in 30 years, you do need to be saving more than 10%.
Debt is to personal finance as a knife is to cooking.

megabad
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Re: Retirement

Post by megabad » Tue Nov 05, 2019 6:10 pm

Franco1289 wrote:
Tue Nov 05, 2019 1:07 pm
I’m currently 37 years old and if I were to invest 20% of my income yearly for the next 30 years at a modest 5% return I could retire at 67 years of age with $4 million. $4 million would be 25x my expenses. I also still have student loans to pay off as well as a big mortgage and car loan. Meaning I will not be able to save 20% of my income until I’m 45 years old. By then I’ll be finished paying off my 250K of student loan debt. I’m currently saving 10% of my income. Am I screwed?
No just save 10% for the first 23 years and up it to 50% for the last 7 assuming your predictions for the next 50 years are 100% accurate and flat real income. Not screwed at all. As others said, I think most folks would consider "screwed" to be equal to substantially less than $4 million.

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HomerJ
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Re: Retirement

Post by HomerJ » Tue Nov 05, 2019 6:19 pm

Franco1289 wrote:
Tue Nov 05, 2019 1:07 pm
I also still have student loans to pay off as well as a big mortgage and car loan. Meaning I will not be able to save 20% of my income until I’m 45 years old. By then I’ll be finished paying off my 250K of student loan debt. I’m currently saving 10% of my income. Am I screwed?
Once the student loans and car loans are paid off, you'll be able to save more.

Hopefully over time, you'll make more money too. Save half your raises, and it won't take long before you're saving 20%, then 30%, then 40% of your income. All while still raising your standard of living.

The other option of course is to spend less.

If you spend too much of your income throughout your entire life, yes you may end up screwed. I'm pretty sure you understand this simple concept.
The J stands for Jay

Grt2bOutdoors
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Re: Retirement

Post by Grt2bOutdoors » Tue Nov 05, 2019 8:34 pm

You aren't screwed.....YET!

As you pay off your student loans and mortgage, redirect those payments to retirement accounts. Don't use the money for consumption. It's not a windfall to be spent!
Make a budget - do you really spend $160K a year, net of taxes? If you are spending $160K, how much is your gross income?
Find 5% more, somewhere in the budget is a trickle here and a trickle there, before you know it, you have 5% of your income. Take that 5% and throw it into retirement. Do you have a ROTH IRA? Start one.

Is your employment secure? Today? How about in 20 years? If your employment is not secure, the more you put away today, can potentially save your bacon tomorrow.

How much have you saved thus far? Those savings ought to be worth more in 30 years, let's say it's tripled in value, then you only need to accumulate less than 20x your income. You will have Social Security if you pay into it, that might amount to $25K or more.

Things aren't so dire...YET! Each day, month and year is an opportunity for you to direct consumption into investment. You'll find a way, if you don't accumulate your target, you'll adjust. Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
Franco1289
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Re: Retirement

Post by Franco1289 » Thu Nov 07, 2019 1:48 pm

Thank you all for the great responses. To answer your questions. No the $4 million calculation is not accurate. It doesn’t include social security because I’m not sure if it will be around when I retire. I’m also currently using 30% of my income to pay off my student loans aggressively. I will def be putting this to investments when I’m finished paying off those loans in the next 5 years.

I’m pretty sure I will be caught up in the “forever home “ mentality. I’ve tried to talk my wife out of it. Live in the “forever home” and pay a mortgage for about 20 years or so. Basically until the kids are off to college. Then we have to down size to a new “forever home” with another 30 year mortgage in retirement. So housing cost will likely stay relatively unchanged.

I’m a physician and started medical school when I was 27 years old. I finished all my training at 34. I have worked at various jobs before starting medical school at 27 including manual labor, supervisor at a fast food restaurant and a laboratory technician. The sad part is that I didn’t contribute not even a single penny towards retirement in all that time. I was young and financially illiterate and only focused on girl’s, partying and making good grades in school in my twenties. After I started medical school I basically lived in a book. At age 34 is when I finally stated making money and figured out I’d better get serious about managing it. For that there’s no better place than the BOGLeheads forum.

Dottie57
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Re: Retirement

Post by Dottie57 » Thu Nov 07, 2019 2:11 pm

At first I saved 6%, then moved to 10%, then 15% for quite a few years. When I could put the max in 401k I was delighted. Later on I added Roth IRA. And later yet I added taxable

Kept expenses low -especially housing. When I take SS i will have more spendable income than I have ever had. Consistency in saving in retirement vehicles and upping my savings rate as income goes up did the trick.
Last edited by Dottie57 on Thu Nov 07, 2019 2:14 pm, edited 1 time in total.

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teen persuasion
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Re: Retirement

Post by teen persuasion » Thu Nov 07, 2019 2:12 pm

Franco1289 wrote:
Thu Nov 07, 2019 1:48 pm
Thank you all for the great responses. To answer your questions. No the $4 million calculation is not accurate. It doesn’t include social security because I’m not sure if it will be around when I retire. I’m also currently using 30% of my income to pay off my student loans aggressively. I will def be putting this to investments when I’m finished paying off those loans in the next 5 years.

I’m pretty sure I will be caught up in the “forever home “ mentality. I’ve tried to talk my wife out of it. Live in the “forever home” and pay a mortgage for about 20 years or so. Basically until the kids are off to college. Then we have to down size to a new “forever home” with another 30 year mortgage in retirement. So housing cost will likely stay relatively unchanged.

I’m a physician and started medical school when I was 27 years old. I finished all my training at 34. I have worked at various jobs before starting medical school at 27 including manual labor, supervisor at a fast food restaurant and a laboratory technician. The sad part is that I didn’t contribute not even a single penny towards retirement in all that time. I was young and financially illiterate and only focused on girl’s, partying and making good grades in school in my twenties. After I started medical school I basically lived in a book. At age 34 is when I finally stated making money and figured out I’d better get serious about managing it. For that there’s no better place than the BOGLeheads forum.
You will be building equity in your home as you pay down the mortgage for 20+ years, and hopefully there will be an increase in value over time. Downsizing usually means selling and moving to a smaller (and hopefully less expensive) home. You shouldn't need a new 30 year mortgage - the proceeds of first home cover the second, perhaps even freeing up some equity.

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JoeRetire
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Re: Retirement

Post by JoeRetire » Thu Nov 07, 2019 2:42 pm

Franco1289 wrote:
Thu Nov 07, 2019 1:48 pm
It doesn’t include social security because I’m not sure if it will be around when I retire.
It will be around.

It would be silly to plan for it not being there at all.
Don't be a lemming.

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HomerJ
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Re: Retirement

Post by HomerJ » Thu Nov 07, 2019 3:05 pm

Franco1289 wrote:
Thu Nov 07, 2019 1:48 pm
I’m pretty sure I will be caught up in the “forever home “ mentality. I’ve tried to talk my wife out of it. Live in the “forever home” and pay a mortgage for about 20 years or so. Basically until the kids are off to college. Then we have to down size to a new “forever home” with another 30 year mortgage in retirement. So housing cost will likely stay relatively unchanged.
If you "down-size", why would you need a new mortgage? Even if you went nicer, but smaller, you'd probably pay the same as the first house (which means no new mortgage - you'd sell the old one, and use all that money to buy the new one)

The only way you'd need a new mortgage is if you increased your house cost significantly in retirement, after the kids are gone... And that's just silly.

If you can't pay off a house over the next 30-40 years as a doctor, you're doing it wrong. This should be part of your plan.
The J stands for Jay

KingRiggs
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Re: Retirement

Post by KingRiggs » Thu Nov 07, 2019 4:02 pm

Physician here, too. You really aren't that far behind, even with the late medical school. I went into practice at 30 having not started any retirement savings at all. Your large yearly contributions to tax-deferred and (hopefully) taxable investments will quickly dwarf what you would have contributed as a resident. We can only deal with this moment going forward.

Max out your savings rate to the best of your ability (within the constraints of spousal harmony), avoid lifestyle creep as much as possible, and you'll be fine.

Best of fortune to you.
Advice = noun | Advise = verb | | Roth, not ROTH

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