james22 wrote:I don't believe most begin to save for retirement before 45. Should they count on any 8 year period to give them the long-term market average return?
I guess I understand what they are saying... Someone who starts at 45 and only saves 10% isn't going to have a good pile of money until 57 or so.
But by then, they are too close to retirement to put a lot in the stock market, so they better stick with bond returns, and hope they can live on Social Security...
I'm not getting the 25-year-old stats though... Even saving only saving 10%, they should have a decent amount saved by 40, which gives them 25 years in the market...
For example, consider the scenario of a 25 year-old plan participant who earns $50,000 in her first year, gets a 1% real raise every year and gradually increases her 401(k) contributions from 9.5% of salary in the first year to 13.3% of salary in the final year.
So this is about as accurate as assuming stock market rises 7% each year every year, and planning around that.
Many people get large raises/promotions over their lifetimes. Not a steady slow increase. Plus they assume the savings rate barely goes up at all over 45 years. All you have to do is save half your big raises, and the savings rate goes up very fast.
My wife and were making 90k together 18 years ago, and living a 80k lifestyle (11% savings rate)... 5 years later we were making $150k together and living a $100k lifestyle (33% saving rate). Our lifestyle still increased quite a bit, but our savings rate tripled.