Does advice of saving 10% of income for retirement still app

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haban01
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Does advice of saving 10% of income for retirement still app

Post by haban01 » Sun Jan 19, 2014 12:35 pm

http://www.latimes.com/business/la-fi-m ... 027.column



Does advice of saving 10% of income for retirement still apply?
Depending on when you start saving for retirement, you may need to be saving 40% or more to help you get by when you stop working.


By Liz Weston Money Talk

January 19, 2014, 5:00 a.m
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hoppy08520
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Re: Does advice of saving 10% of income for retirement still

Post by hoppy08520 » Sun Jan 19, 2014 12:51 pm

No. Haven't you heard? It's gone up to 16.6%.
http://money.cnn.com/2013/02/18/retirem ... .moneymag/
How much do you need to save to retire? It's a vexing question because different generations of savers have different luck.... Jack VanDerhei at the Employee Benefit Research Institute found that setting aside 16.6% of income and putting it in a diversified portfolio of stocks and bonds did the trick every time. (Good news: Employer matches count toward that savings rate.)

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sometimesinvestor
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Re: Does advice of saving 10% of income for retirement still

Post by sometimesinvestor » Sun Jan 19, 2014 12:55 pm

for what its worth fidelity recommends 8 times your final salary as a good minimum. i guess if you then assume a not clearly somewhat optimistic 7% return you can figure out how much to save in a given year as a minimum.

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Re: Does advice of saving 10% of income for retirement still

Post by Valuethinker » Sun Jan 19, 2014 1:04 pm

haban01 wrote:http://www.latimes.com/business/la-fi-m ... 027.column



Does advice of saving 10% of income for retirement still apply?
Depending on when you start saving for retirement, you may need to be saving 40% or more to help you get by when you stop working.


By Liz Weston Money Talk

January 19, 2014, 5:00 a.m
No hard and fast rule but 15% of gross salary from when you start working is the usual number that is quoted these days. To give a replacement income, after 35 years of working, of c. 65% of previous salary.

Given that most people early in their careers struggle to save 10% (student loans, mortgages etc.) this is a hard one.

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Re: Does advice of saving 10% of income for retirement still

Post by Grt2bOutdoors » Sun Jan 19, 2014 1:47 pm

No - to play it safe, save 20% or more, especially with insecure employment. The ideal world is 16.6% for forty years straight - how many folks do you know are employed that length of time with zero break in service?
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ofcmetz
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Re: Does advice of saving 10% of income for retirement still

Post by ofcmetz » Sun Jan 19, 2014 1:55 pm

In reference to the link, I think the columnist gave a pretty decent answer.
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Re: Does advice of saving 10% of income for retirement still

Post by Swampy » Sun Jan 19, 2014 2:00 pm

10% still applies, it isn't enough, but it still applies.

I think 20+% is really the figure that most should strive for. In order for retirement planning to be successful, there has to be some privation of 'wants' not needs.

Usually that means no: McMansion, new automobile every 2-3 years, annual ski trips or European forays, frequent going out at fancy dining establishments, etc.

The more you save (30+%) allows you to say yes to FREEDOM to do what you want to do when you want to do it.

Don't end up like this stooge: http://www.squeegi.com/video.php?v=66b0 ... 259002621a

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Re: Does advice of saving 10% of income for retirement still

Post by masteraleph » Sun Jan 19, 2014 2:06 pm

To be more clear, with numbers:

Let's take Person A, who starts with a salary of $100,000 (nice starting salary), and puts away 10% per year. Though Person A started with a nice salary, they only receive increases to adjust for inflation. In turn, they continue to put in 10% of their inflation adjusted salary.

If Person A gets 3% real return, they'll end up with a total of $776,633 after 30 years- enough for a "safe withdrawal rate," at 4% of $31,000/year (keep in mind we're talking real returns- so that's $31,000 in today's dollars). At 4% real, they can take out $39,530, since they've got nearly a million (real) dollars saved. They'll also get a nice social security check, but they still won't be close to their salary at the end of the day.

If they're putting away 16.6%, and receiving a 3% real return, they now have just short of $1.3m, or about $51,000 at 4% withdrawal rate. At 4% real, it's about $1.64m, and a little over $65,000 per year. Add in social security and they've met their target.

As others have pointed out though, there are some issues with these numbers. First, you're likely to end up with a higher salary at the end, even after inflation adjustments, but we assumed that wasn't the case. Ideally, you'll actually put away more money early on- maybe 20 or 25%, but that may not be feasible. Second, we're presuming no breaks in service. Third, we have a nice real return that we've predicted- not unfeasible, but also not something that can be counted on.

The reality is that the 10% number presumed an additional leg to stand on- that you were also going to receive a defined benefit pension. Most of us won't, so we need additional savings. And all of this depends on market returns- ideally, if you have a period of low returns it'll be early on, with high returns late in your working career and early in retirement, but there's no way to assure that. This is why the closest that 4% SWR gets to failing is if you retire in the late 1960s- despite the great returns of the 1990s, retiring in the late 1960s meant flat stocks for upwards of a decade combined with inflation, that is, you lost real money in both stocks and bonds. 10% probably isn't high enough, and 16.6% is- if things go reasonably well.

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Re: Does advice of saving 10% of income for retirement still

Post by Ged » Sun Jan 19, 2014 2:17 pm

I did 15% of my gross for most of my career and it has worked out pretty well. There was a period where my income dropped off and I had college expenses where I was doing less, but 15% overall was robust enough to weather that.

I would not put much emphasis on formulas that give you a ratio vs. final. You cannot predict what that will be while you are working. For me the final income was 2x what it was for most of my career.

If I was starting out now I'd go for 20% because of the uncertainty with entitlement programs. What's the worst thing that could happen? Early retirement?

Beyond 20% would be if you want to be sure you can retire early.

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Re: Does advice of saving 10% of income for retirement still

Post by peppers » Sun Jan 19, 2014 2:34 pm

Grt2bOutdoors wrote:No - to play it safe, save 20% or more, especially with insecure employment. The ideal world is 16.6% for forty years straight - how many folks do you know are employed that length of time with zero break in service?
40 years, 6 months and 16 days with globalmegacorp.....

T minus 7 months and 11 days to liftoff.... :)
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Re: Does advice of saving 10% of income for retirement still

Post by haban01 » Sun Jan 19, 2014 4:55 pm

Thanks for all of your postings and responses. Additionally, I've always encouraged others around me to save additionally beyond the match. This forced savings means they are not living higher off the hog now and will be better off if they lose their job, take a pay reduction, short term layoff or reduction in work hours. There was a nice article in a recent AARP issue by JBQ and she talked about learning from the past lessons of the great recession. The average 65 y/o will experience 2-3 of these yet. All of us 30-40 y/o or younger should learn from the past so we are slightly better prepared for the future!!

Yep, Fidelity and others have recommended 8 Times final Income as a benchmark or starting point to be at when first retiring. Obliviously, This is just a starting point. :oops:

Younger People: I also have to wonder about the change in the inflation adjustment on the Social Security Benefits going forward as they've always repalced x % of your income. It appears that may be greatly reduced over the long haul because of this change. Many retirees were getting 2,3,4% adjustments. How will this inpact on a say 40 year stretch until one is ready for that benefit. This all drives back to saving more and controlling your own destiny. :beer
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Re: Does advice of saving 10% of income for retirement still

Post by basspond » Sun Jan 19, 2014 4:59 pm

10% there if there is non mortgage debt. On the premise to retire the debt ASAP.

Rodc
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Re: Does advice of saving 10% of income for retirement still

Post by Rodc » Sun Jan 19, 2014 5:13 pm

Depends at least in part on what margin of error you are comfortable with, and a host of approximations that may or may not fit your situation.

In general, 10 percent is light, 15 percent likely safe, and 20 percent has a bit more margin.

If that is too much to start, just steadily increase over time.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: Does advice of saving 10% of income for retirement still

Post by The Wizard » Sun Jan 19, 2014 5:34 pm

I agree with Rodc.
10% is the minimum to retire at 65 or 70.
Start with 10% and then ramp that up annually.
Sooner you get to 30% or beyond, sooner the Good Times begin...
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Re: Does advice of saving 10% of income for retirement still

Post by JDaniels » Sun Jan 19, 2014 5:50 pm

15% for 25 years now. I don't think having that other 5% would have made any difference in our lifestyle. I do know the extra 5% makes a HUGE difference in our investments.
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Re: Does advice of saving 10% of income for retirement still

Post by scb175 » Sun Jan 19, 2014 6:34 pm

I have been saving 50% of my salary for the past year since all my debts are paid off besides my mortgage. The only problem is I am deathly afraid of investing into this high market. I know I am missing out and not following the Bogle way...

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Re: Does advice of saving 10% of income for retirement still

Post by ofcmetz » Sun Jan 19, 2014 7:18 pm

scb175 wrote:I have been saving 50% of my salary for the past year since all my debts are paid off besides my mortgage. The only problem is I am deathly afraid of investing into this high market. I know I am missing out and not following the Bogle way...

That is why we encourage people to set a reasonable asset allocation in their investor policy statement. You then stick to the allocation while rebalancing. Your fear has cost you a lot of money. Although if you are saving 50% of your income with no debt then you could probably get by with a lower than normal equity allocation. Me, I only save 20% or so. :sharebeer
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Re: Does advice of saving 10% of income for retirement still

Post by Grt2bOutdoors » Sun Jan 19, 2014 7:40 pm

ofcmetz wrote:
scb175 wrote:I have been saving 50% of my salary for the past year since all my debts are paid off besides my mortgage. The only problem is I am deathly afraid of investing into this high market. I know I am missing out and not following the Bogle way...

That is why we encourage people to set a reasonable asset allocation in their investor policy statement. You then stick to the allocation while rebalancing. Your fear has cost you a lot of money. Although if you are saving 50% of your income with no debt then you could probably get by with a lower than normal equity allocation. Me, I only save 20% or so. :sharebeer
:confused Not including your state provided pension, correct? I would think that is a significant percentage of current pay, though payable in the future.
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Re: Does advice of saving 10% of income for retirement still

Post by guitarguy » Sun Jan 19, 2014 8:52 pm

I was always confused about the whole percentage thing....how do you take into account pre and post tax savings?

Say someone saves 10-15% in their 401k, but then also maxes out a Roth. Do you tack on what you paid in taxes on your Roth money and then use that to calculate your total percentage of gross income saved?

:confused

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Re: Does advice of saving 10% of income for retirement still

Post by DonCamillo » Sun Jan 19, 2014 9:41 pm

scb175 wrote:I have been saving 50% of my salary for the past year since all my debts are paid off besides my mortgage. The only problem is I am deathly afraid of investing into this high market. I know I am missing out and not following the Bogle way...
I am saving most of my salary (more than 50%) and have also been worried about the high market and low yield and high prices for bonds. My solution is not Boglehead orthodox, particularly the market timing aspects, but I am:
1) Keeping some of my dividends in cash so that I can invest them if the market drops (MARKET TIMING)
2) Increasing my allocation to Real Estate (TIAA Real Estate)
3) Increasing my allocation to Foreign Stocks
4) Accepting less income from bonds by seeking shorter maturities (MARKET TIMING)
5) Paying a portion of my investable income in extra taxes to convert some of my IRA to a Roth
I can keep at least some of these measures up for years, but try to balance them with "Stay the course." The majority of my investments are going to previous allocations. #1 and #4 will each reduce the amount I reinvest by about 1/3 of 1% per year, so it is like paying 67 basis points in expenses for a put on stocks and bonds.

As for the 10% goal; It is a great place to start. It is much more achievable than 15% or 20% to a newbie, and once you have a good start, you will reassess your progress anyway. Once you start saving, always try to split any real wage increase between spending and additional saving.
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Re: Does advice of saving 10% of income for retirement still

Post by DonCamillo » Sun Jan 19, 2014 9:50 pm

guitarguy wrote:I was always confused about the whole percentage thing....how do you take into account pre and post tax savings?
All these numbers are completely arbitrary. Deciding whether to base your percentage on pre-tax or post-tax income, and whether to adjust for the tax status of the investments is as arbitrary as deciding whether to allocate 50/50 or 60/40. The whole point is to set a goal, make progress toward that goal, and then revaluate your progress as you go along.

Rebalancing to a particular percentage does have the virtue of forcing you to sell high and buy low as you shift from assets that have appreciated more to those that have appreciated less, but the actual numbers and the reasoning behind them will probably start with random numbers and eventually move to something you are comfortable with as you gain experience.
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Re: Does advice of saving 10% of income for retirement still

Post by castlemodesto » Sun Jan 19, 2014 10:15 pm

Wade Pfau "Safe savings rate" has done the best research on this. it can be googled

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Re: Does advice of saving 10% of income for retirement still

Post by ofcmetz » Sun Jan 19, 2014 10:22 pm

Grt2bOutdoors wrote:
ofcmetz wrote:
scb175 wrote:I have been saving 50% of my salary for the past year since all my debts are paid off besides my mortgage. The only problem is I am deathly afraid of investing into this high market. I know I am missing out and not following the Bogle way...

That is why we encourage people to set a reasonable asset allocation in their investor policy statement. You then stick to the allocation while rebalancing. Your fear has cost you a lot of money. Although if you are saving 50% of your income with no debt then you could probably get by with a lower than normal equity allocation. Me, I only save 20% or so. :sharebeer
:confused Not including your state provided pension, correct? I would think that is a significant percentage of current pay, though payable in the future.

Correct. We save 20% in addition to my required police pension contribution. If I added the pension contribution (9.5% of my base pay but no 6.2% social security for me) then I'm saving 24 or 25% of our pay depending on my overtime and the wife's pay. I think everyone calculates savings rates slightly different around here. For me I've simplified it to amount put into investments divided by total gross pre-tax pay. I think most Bogleheads are talking about what they put into investments and are not including pension contributions like mine. I'm trying to come as close as I can to comparing apples and apples.
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Re: Does advice of saving 10% of income for retirement still

Post by nedsaid » Sun Jan 19, 2014 10:32 pm

Over my 30 year career, I have been saving 16-17% of my income for retirement not counting employer matches. If I keep it up until retirement that should be plenty.

What is important is that a person save consistently over an extended period of time. The exact percentage is not so important. 10% it seems to me is a good starting point. Of course the earlier you start, the easier it will be. Investing properly is also vital. Stock heavy when young and easing off and going more for bonds as one gets into middle age. I didn't do it perfectly but well enough.
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