What should the savings be for an average professional

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Helo80
Posts: 436
Joined: Sat Apr 29, 2017 8:47 pm

Re: What should the savings be for an average professional

Post by Helo80 » Thu Aug 24, 2017 6:03 pm

gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc

Well that, and you spend 4 years for the privilege of attending medical school, and then 3-5 years on residency salary earning very little per hour when you calculate your actual hours worked (plus 1-3 more years of fellowship which you basically have to do now), and then suddenly you have this big salary at the end that affords you luxuries to pay off said debt. It's a recipe for disaster especially since the turtle beats the hare in investing.

delamer
Posts: 3120
Joined: Tue Feb 08, 2011 6:13 pm

Re: What should the savings be for an average professional

Post by delamer » Thu Aug 24, 2017 6:13 pm

thangngo wrote:
Thu Aug 24, 2017 11:33 am
skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
At the very least, one individual should be able to save close to $1M (not counting growth of the portfolio). Here's the math for an average professional:
18,000 retirement account 401k
5,000 + Roth IRA
2,000 + brokerage/savings
--------------------------
25,000 = average annual saving
40 × years of working
--------------------------
1,000,000 =

Following a general guideline: 1/3 pay the tax man, 1/3 savings, and 1/3 spending:
Start salary at 60k: 20k tax, 20k savings, 20 spending
At 5 year mark, salary at 100k: 30k tax, 30k savings, 30k spending
At 10 year mark, salary at 160k: 48k tax, 48k savings, 48k spending, and so on.

If you live below your means, the more money you bring in, the more money you should be able to save.

If you live below your means, know your annual budget from the general guideline, then make decision on your life style and purchases.

So, 500k savings after 20 years of working s/b a conservative number since you don't count any growth of the portfolio.
I have lived a HCOL area for 40 years, so my perspective may be a little skewed. However, it would very difficult for a young couple here with one worker and one kid to save 1/3 of their income from year to year. Even if that one worker fit into that professional category. Living below your means is necessary at any stage of life, but projecting savings assuming that young people with families would or could put away 1/3 of their income just does not seem realistic. Some young couples don't control their expenses as well as they could, but many are treading water financially until expenses go down (kids in school) and/or income goes up (spouse goes back to work) while still saving something. Thinking back more than a few years, that was us. We made sure we got the matches for our 401(k), but that was about it for several years.

JBTX
Posts: 1530
Joined: Wed Jul 26, 2017 12:46 pm

Re: What should the savings be for an average professional

Post by JBTX » Fri Aug 25, 2017 8:47 am

gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I worked in an engineering company for years and my observation was most engineers are pretty good with finance because they are by nature good with numbers and have a great degre of attention to detail. As to doctors my observations are more sweeping and generalized, but I think some doctors, especially the prior generation, attain and perceive a lot of status with their MD title, as society greatly values doctors. Sometimes that can lead to some hubris and some think their expertise carries over to finance and that can get them into trouble.

Obviously that doesn't apply to all , or even necessarily most these days, but it does happen.

thangngo
Posts: 358
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Fri Aug 25, 2017 10:35 am

delamer wrote:
Thu Aug 24, 2017 6:13 pm
I have lived a HCOL area for 40 years, so my perspective may be a little skewed. However, it would very difficult for a young couple here with one worker and one kid to save 1/3 of their income from year to year. Even if that one worker fit into that professional category. Living below your means is necessary at any stage of life, but projecting savings assuming that young people with families would or could put away 1/3 of their income just does not seem realistic. Some young couples don't control their expenses as well as they could, but many are treading water financially until expenses go down (kids in school) and/or income goes up (spouse goes back to work) while still saving something. Thinking back more than a few years, that was us. We made sure we got the matches for our 401(k), but that was about it for several years.
I understand life events and cost of living in HCOL areas can slow down saving rate significantly. I live in Houston and occasionally, I have friends and family visiting from California. All of them more or less made comments to the effects of:
- It's so boring in Houston. There's nothing to do here.
- I should go shopping for clothes and dress appropriately (There's some truth in that because I've been keeping five pairs of work clothes for the past 5 years).
- We make more money in California. People should get at least $12.50 minimum wages.

I guess that's why I choose to live in Houston and very happy with that decision. I can't imagine living in California because I don't see myself fitting in that life style. Even if I win the game and don't have to worry about money anymore, I will consider living in state with a lot of nature and adventures.


User avatar
gasdoc
Posts: 1248
Joined: Mon Nov 03, 2014 8:26 am

Re: What should the savings be for an average professional

Post by gasdoc » Sat Aug 26, 2017 11:17 am

I am the 3,389,513th richest person on earth. Kind of humbling.

gasdoc

User avatar
TomatoTomahto
Posts: 6801
Joined: Mon Apr 11, 2011 1:48 pm

Re: What should the savings be for an average professional

Post by TomatoTomahto » Sat Aug 26, 2017 11:38 am

JBTX wrote:
Fri Aug 25, 2017 8:47 am
gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I worked in an engineering company for years and my observation was most engineers are pretty good with finance because they are by nature good with numbers and have a great degre of attention to detail. As to doctors my observations are more sweeping and generalized, but I think some doctors, especially the prior generation, attain and perceive a lot of status with their MD title, as society greatly values doctors. Sometimes that can lead to some hubris and some think their expertise carries over to finance and that can get them into trouble.

Obviously that doesn't apply to all , or even necessarily most these days, but it does happen.
Let me be politically incorrect and pile on. IME, engineers suffer from an almost pathological honesty, which is why they're dangerous to accompany salespeople on sales calls. That honesty also applies to looking at themselves, so good for them.

I have many doctors in my family, but I was struck 50 years ago by a comment made by my flight instructor. As he was showing me how to manually check fuel level and for the absence of water, he told me to note in accident reports how often doctors are at the controls when a plane runs out of fuel. He ascribed this to a habit of delegation, assuming that nobody (nurse, or fuel jockey, or for that matter, fuel gauge) would do anything but a perfect job of verifying that the gauges were accurate, because they had been told to check, by the doctor.

student
Posts: 1336
Joined: Fri Apr 03, 2015 6:58 am

Re: What should the savings be for an average professional

Post by student » Sat Aug 26, 2017 12:39 pm

DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
You are right about Fidelity. I also read it.

https://www.fidelity.com/viewpoints/ret ... -to-retire

student
Posts: 1336
Joined: Fri Apr 03, 2015 6:58 am

Re: What should the savings be for an average professional

Post by student » Sat Aug 26, 2017 12:49 pm

gasdoc wrote:
Sat Aug 26, 2017 11:17 am
I am the 3,389,513th richest person on earth. Kind of humbling.

gasdoc
I guess this makes your net worth 4,5000,000 US dollars.

User avatar
gasdoc
Posts: 1248
Joined: Mon Nov 03, 2014 8:26 am

Re: What should the savings be for an average professional

Post by gasdoc » Sat Aug 26, 2017 12:54 pm

student wrote:
Sat Aug 26, 2017 12:49 pm
gasdoc wrote:
Sat Aug 26, 2017 11:17 am
I am the 3,389,513th richest person on earth. Kind of humbling.

gasdoc
I guess this makes your net worth 4,5000,000 US dollars.
Good work. Actually did not use real numbers....

gasdoc

ThePrince
Posts: 78
Joined: Sun Aug 20, 2017 9:15 pm

Re: What should the savings be for an average professional

Post by ThePrince » Sat Aug 26, 2017 1:30 pm

Those are very nifty. Thank you for sharing.

Dottie57
Posts: 2269
Joined: Thu May 19, 2016 5:43 pm

Re: What should the savings be for an average professional

Post by Dottie57 » Sat Aug 26, 2017 1:38 pm

skor99 wrote:
Wed Aug 23, 2017 8:57 pm
The Wizard wrote:
Wed Aug 23, 2017 8:45 pm
KlangFool wrote:
Wed Aug 23, 2017 8:23 pm

<<I was house poor in 1976 and a while after buying my place for a whopping $44,000.>>

How much was your annual income at that time? And, please note that salary income has not kept up with inflation over the last 10 to 20 years.

KlangFool
My salary started at an incredible $13,000 in 1973.
By 1976, I was up close to $15,000 I'm guessing.
My ex wife was probably $10,000 salary or so but who really cares.

Point is, buy a residence young and don't keep upgrading every ten years and you'll be ok, on average...
That seems very less even after accounting for inflation. Just out of curiousity, Was it for a professional line of work or some other job ?

Started life after college at 14k per year in 1982.I was lucky to find a job as a software developer. It might seem like little to you. For comparison, my apartment - a decent but not ritzy apartment was $300 per month. It was very hard to afford, but I squeaked by.

By 1988 I was making 30k. 401k employee contributions were in the $7k range.

Jack FFR1846
Posts: 5771
Joined: Tue Dec 31, 2013 7:05 am

Re: What should the savings be for an average professional

Post by Jack FFR1846 » Sat Aug 26, 2017 2:04 pm

gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I don't agree with the progression picture you're painting. In general (I'm an engineer), engineers graduate and make far more than similar business, nursing, accounting classmates. Big raises for a few years then promotions with less increases. Those of us who stay in technical work level out and then as the 50's hit decline. Going away from technical work and into management opens up the door to potential higher salary.

Periods from the 80's to the 2000's skewed engineering income (not salaries) because of stock options and big profit sharing payouts. When interviewing to switch jobs, one VP of sales told me at lunchtime that the previous year's profit sharing check ended up being 125% of whatever was paid the previous year. So if the engineer made $100k, he now is handed a check for $125k. I lucked out exactly once with stock options and caught the end of that trend, collecting about 9 months worth of salary in stock option redemptions. That doesn't happen so much anymore. There aren't hundreds of telecoms like there were in 2000 competing for engineers. Now, we're replaced by $15k a year people in 3rd world countries.
Bogle: Smart Beta is stupid

JBTX
Posts: 1530
Joined: Wed Jul 26, 2017 12:46 pm

Re: What should the savings be for an average professional

Post by JBTX » Sat Aug 26, 2017 4:12 pm

Jack FFR1846 wrote:
Sat Aug 26, 2017 2:04 pm
gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I don't agree with the progression picture you're painting. In general (I'm an engineer), engineers graduate and make far more than similar business, nursing, accounting classmates. Big raises for a few years then promotions with less increases. Those of us who stay in technical work level out and then as the 50's hit decline. Going away from technical work and into management opens up the door to potential higher salary.

Periods from the 80's to the 2000's skewed engineering income (not salaries) because of stock options and big profit sharing payouts. When interviewing to switch jobs, one VP of sales told me at lunchtime that the previous year's profit sharing check ended up being 125% of whatever was paid the previous year. So if the engineer made $100k, he now is handed a check for $125k. I lucked out exactly once with stock options and caught the end of that trend, collecting about 9 months worth of salary in stock option redemptions. That doesn't happen so much anymore. There aren't hundreds of telecoms like there were in 2000 competing for engineers. Now, we're replaced by $15k a year people in 3rd world countries.
Having worked in an engineering firm I would agree that if you stay in a technical position your salary will top out fairly quickly. Those that progress to 6 figure salaries usually move up to into middle management, project management or some sort of technical sales/client relationship management. That is true for other professions as well such as accounting and finance.

JBTX
Posts: 1530
Joined: Wed Jul 26, 2017 12:46 pm

Re: What should the savings be for an average professional

Post by JBTX » Sat Aug 26, 2017 4:15 pm

TomatoTomahto wrote:
Sat Aug 26, 2017 11:38 am
JBTX wrote:
Fri Aug 25, 2017 8:47 am
gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I worked in an engineering company for years and my observation was most engineers are pretty good with finance because they are by nature good with numbers and have a great degre of attention to detail. As to doctors my observations are more sweeping and generalized, but I think some doctors, especially the prior generation, attain and perceive a lot of status with their MD title, as society greatly values doctors. Sometimes that can lead to some hubris and some think their expertise carries over to finance and that can get them into trouble.

Obviously that doesn't apply to all , or even necessarily most these days, but it does happen.
Let me be politically incorrect and pile on. IME, engineers suffer from an almost pathological honesty, which is why they're dangerous to accompany salespeople on sales calls. That honesty also applies to looking at themselves, so good for them.

I have many doctors in my family, but I was struck 50 years ago by a comment made by my flight instructor. As he was showing me how to manually check fuel level and for the absence of water, he told me to note in accident reports how often doctors are at the controls when a plane runs out of fuel. He ascribed this to a habit of delegation, assuming that nobody (nurse, or fuel jockey, or for that matter, fuel gauge) would do anything but a perfect job of verifying that the gauges were accurate, because they had been told to check, by the doctor.
I'd generally agree with that. I could see the difference in engineers and architects where I worked. As a general rule engineers were very conservative and good with numbers whereas architects were more big picture and seat of the pants and didn't want to be bothered with numbers.

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 4:21 pm

DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Sat Aug 26, 2017 5:03 pm

michaeljc70 wrote:
Sat Aug 26, 2017 4:21 pm
DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.
Very few people spend 100% of their income pre-retirement. In retirement, you will be in a lower tax bracket, will not be paying Social Security taxes, will not be saving 15% or more for retirement because you are Retired. Therefore, at a maximum your needs are .78% of gross income. Earning an additional 4-5% in annual returns would essentially leave your nest egg intact. What is the need to save 25x gross income, you should target 25x annual expenses, if you are spending 100% of gross income you are spending too much.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 5:13 pm

Grt2bOutdoors wrote:
Sat Aug 26, 2017 5:03 pm
michaeljc70 wrote:
Sat Aug 26, 2017 4:21 pm
DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.
Very few people spend 100% of their income pre-retirement. In retirement, you will be in a lower tax bracket, will not be paying Social Security taxes, will not be saving 15% or more for retirement because you are Retired. Therefore, at a maximum your needs are .78% of gross income. Earning an additional 4-5% in annual returns would essentially leave your nest egg intact. What is the need to save 25x gross income, you should target 25x annual expenses, if you are spending 100% of gross income you are spending too much.
Grt2bOutdoors,

Given that we have to pay tax, people that spend 100% of their gross income will have to get into serious debt in order to do that over a long period of time.

KlangFool

CppCoder
Posts: 548
Joined: Sat Jan 23, 2016 9:16 pm

Re: What should the savings be for an average professional

Post by CppCoder » Sat Aug 26, 2017 5:20 pm

Grt2bOutdoors wrote:
Sat Aug 26, 2017 5:03 pm
...if you are spending 100% of gross income you are spending too much.
This also makes it exceedingly difficult to save 10x salary by 65 :wink:.

User avatar
Pajamas
Posts: 2780
Joined: Sun Jun 03, 2012 6:32 pm

Re: What should the savings be for an average professional

Post by Pajamas » Sat Aug 26, 2017 5:27 pm

gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
Their salaries don't really start low, especially for people with a four-year degree. They start at about the median household income.

https://webcache.googleusercontent.com/ ... -salaries/

Don't forget that doctors start out as residents, generally at lower salaries than starting engineers. Like doctors, engineers also have a lot of on-the-job learning to do before reaching their "full" baseline salary. They also can get paid quite well for internships during the summer or even during the primary academic year while still in undergraduate school.

Engineers are generally very good with numbers, formulae, calculations, planning, analyzing a problem to determine various solutions, margins of safety, progressive and accummulative forces, etc., skills that help with financial planning.

Lars_2013
Posts: 151
Joined: Sun Dec 15, 2013 2:00 pm

Re: What should the savings be for an average professional

Post by Lars_2013 » Sat Aug 26, 2017 5:35 pm

michaeljc70 wrote:
Sat Aug 26, 2017 4:21 pm
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.
Social Security helpfully provides expected income replacement ratios for different pre-retirement incomes (https://www.ssa.gov/oact/NOTES/ran9/an2014-9.pdf). For a median-earning individual (about $45k/year in earnings) born 1970 or later, they show a social security replacement rate of 41% at normal retirement age (age 67). For a higher-earning individual ($72k/year), they show a replacement rate of 34%. Having 10x final salary in retirement investments will provide another 40% of earnings (for example, $72,000*10/25=$28,800). So, together social security and 10x final earnings in retirement investments will provide a replacement rate of 81% (normal earner) or 75% (high earner). That doesn't even consider spousal benefits, which can boost the social security replacement rate. With a paid-off house and no longer paying FICA, that seems like a very reasonable target.

marcopolo
Posts: 267
Joined: Sat Dec 03, 2016 10:22 am

Re: What should the savings be for an average professional

Post by marcopolo » Sat Aug 26, 2017 5:36 pm

JBTX wrote:
Sat Aug 26, 2017 4:12 pm
Jack FFR1846 wrote:
Sat Aug 26, 2017 2:04 pm
gasdoc wrote:
Thu Aug 24, 2017 5:58 pm
It just dawned on me that one reason engineers do so well in retirement planning (wealth accumulation) is that their salaries start low, and progress relatively rapidly. Does that allow them to follow the advice of starting their lifestyle on the lower side, and increasing their savings rate as their salary increases? Docs, on the other hand, esp outside of the partnership model, sort of start near their maximum income. Thinking out loud here.

Gasdoc
I don't agree with the progression picture you're painting. In general (I'm an engineer), engineers graduate and make far more than similar business, nursing, accounting classmates. Big raises for a few years then promotions with less increases. Those of us who stay in technical work level out and then as the 50's hit decline. Going away from technical work and into management opens up the door to potential higher salary.

Periods from the 80's to the 2000's skewed engineering income (not salaries) because of stock options and big profit sharing payouts. When interviewing to switch jobs, one VP of sales told me at lunchtime that the previous year's profit sharing check ended up being 125% of whatever was paid the previous year. So if the engineer made $100k, he now is handed a check for $125k. I lucked out exactly once with stock options and caught the end of that trend, collecting about 9 months worth of salary in stock option redemptions. That doesn't happen so much anymore. There aren't hundreds of telecoms like there were in 2000 competing for engineers. Now, we're replaced by $15k a year people in 3rd world countries.
Having worked in an engineering firm I would agree that if you stay in a technical position your salary will top out fairly quickly. Those that progress to 6 figure salaries usually move up to into middle management, project management or some sort of technical sales/client relationship management. That is true for other professions as well such as accounting and finance.
Moving into management position can certainly open up many new opportunities. But, i don't think that is necessary to progress to 6 figure salaries. Many technical positions pay in that range. Many senior level engineers in my circle of colleagues are making base salaries in the 150-180k range, with bonuses, many are above $200k, and this is not in Bay area or NYC, but more reasonable COL areas.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Sat Aug 26, 2017 7:07 pm

KlangFool wrote:
Sat Aug 26, 2017 5:13 pm
Grt2bOutdoors wrote:
Sat Aug 26, 2017 5:03 pm
michaeljc70 wrote:
Sat Aug 26, 2017 4:21 pm
DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.
Very few people spend 100% of their income pre-retirement. In retirement, you will be in a lower tax bracket, will not be paying Social Security taxes, will not be saving 15% or more for retirement because you are Retired. Therefore, at a maximum your needs are .78% of gross income. Earning an additional 4-5% in annual returns would essentially leave your nest egg intact. What is the need to save 25x gross income, you should target 25x annual expenses, if you are spending 100% of gross income you are spending too much.
Grt2bOutdoors,

Given that we have to pay tax, people that spend 100% of their gross income will have to get into serious debt in order to do that over a long period of time.

KlangFool
Klang,

There are plenty of folks who do just that. They are the "live for today" generation. :oops:

Grt
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 7:10 pm

Grt2bOutdoors wrote:
Sat Aug 26, 2017 5:03 pm
michaeljc70 wrote:
Sat Aug 26, 2017 4:21 pm
DaftInvestor wrote:
Thu Aug 24, 2017 9:47 am
One rule-of-thumb I read (which we can criticize in many ways - but its still a nice rule of thumb) claimed that you should have:
- 0.5x of Annual Salary for retirement at Age 30,
- 2X at age 40
- 4x at Age 50
- 6X at age 55
- 8x at age 60
- 10x at age 65

I wish I could find the article but can't (I think it was written by Fidelity) - Every time I read about a rule-of-thumb - or get a new formula that I like - I have added it to my spreadsheet allowing me to run calculations a number of different ways to gauge how I am doing and this is one of those I wrote down but can't find a reference to now. The biggest flaw with above might be the focus on salary versus what your actual expense might be - but I think this rule-of-thumb can answer your question.
Assuming you make $100K per year and are age 40 - you should have $200K saved for retirement.
Assuming you make $100K per year and are age 50 - you should have $400K saved for retirement.
Assuming a 4% SWR and no pension, shouldn't you really have 25x at 65? I realize you can spend less in retirement and you will get social security, but 10x seems low without a pension. Example: Income 100k. 10x100k= $1M. 4% SWR = $40k. That leaves a $60k shortfall (from your working income) for SS (which maxes out around $36k), savings due to paying less taxes (hopefully), and cutting your spending.
Very few people spend 100% of their income pre-retirement. In retirement, you will be in a lower tax bracket, will not be paying Social Security taxes, will not be saving 15% or more for retirement because you are Retired. Therefore, at a maximum your needs are .78% of gross income. Earning an additional 4-5% in annual returns would essentially leave your nest egg intact. What is the need to save 25x gross income, you should target 25x annual expenses, if you are spending 100% of gross income you are spending too much.
I get everything you are saying. Some people don't cut their expenses that much though. Some like to travel. Some want a 2nd home (snowbirds). I assume the factors quoted are for retiring at 65. I have no plans to work until I am 65. I cannot even get full SS until I am 67. That means years of retirement paying healthcare costs and no SS.

If you saved a lot, your taxes may not drop that much depending on the composition (taxable/Tira/Roth). Part of your SS can easily become taxable. It starts at $25k if you are single. If you are single getting the max in 2017 ($32k), you would only need $13k (25k-(X-.5 * 32k)) of taxable income to make part of your SS start being taxed.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 7:29 pm

michaeljc70 wrote:
Sat Aug 26, 2017 7:10 pm

If you saved a lot, your taxes may not drop that much depending on the composition (taxable/Tira/Roth). Part of your SS can easily become taxable. It starts at $25k if you are single. If you are single getting the max in 2017 ($32k), you would only need $13k (25k-(X-.5 * 32k)) of taxable income to make part of your SS start being taxed.
michaeljc70,

I disagreed. What do you mean by saving a lot?

1) I save 30+%of my gross income.

2) I save one year of annual expense every year.

If I fit your definition,

A) In my case, my portfolio is 45/45/10 (Tax deferred/Taxable/Roth). There is not enough room in my tax deferred account for my annual savings. I have 55% of my money in the taxable and Roth accounts. I could spend from those accounts while doing my Roth conversion.

B) I will retire early before 67 years old because I will hit my 25 times annual expense way before then.

So, I do not believe your thinking make any sense.

In summary, people that saved a lot has plenty of money beyond the tax deferred accounts.

KlangFool

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 7:32 pm

KlangFool wrote:
Sat Aug 26, 2017 7:29 pm
michaeljc70 wrote:
Sat Aug 26, 2017 7:10 pm

If you saved a lot, your taxes may not drop that much depending on the composition (taxable/Tira/Roth). Part of your SS can easily become taxable. It starts at $25k if you are single. If you are single getting the max in 2017 ($32k), you would only need $13k (25k-(X-.5 * 32k)) of taxable income to make part of your SS start being taxed.
michaeljc70,

I disagreed. What do you mean by saving a lot?

1) I save 30+%of my gross income.

2) I save one year of annual expense every year.

If I fit your definition,

A) In my case, my portfolio is 45/45/10 (Tax deferred/Taxable/Roth). There is not enough room in my tax deferred account for my annual savings. I have 55% of my money in the taxable and Roth accounts. I could spend from those accounts while doing my Roth conversion.

B) I will retire early before 67 years old because I will hit my 25 times annual expense way before then.

So, I do not believe your thinking make any sense.

In summary, people that saved a lot has plenty of money beyond the tax deferred accounts.

KlangFool
I mean you have a lot of assets generating income due to saving a lot. As I pointed out, it depends on the composition. If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. If you have it in a Tira, you will be paying on the entire withdrawal. Most of my money is in Tiras and taxable accounts. Hopefully I can convert more to Roths in the coming years. My spouse is younger than I am and will continue to work (most likely) for years beyond me making Roth conversions in a low bracket trickier.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 7:39 pm

michaeljc70 wrote:
Sat Aug 26, 2017 7:32 pm

I mean you have a lot of assets generating income due to saving a lot. As I pointed out, it depends on the composition. If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. If you have it in a Tira, you will be paying on the entire withdrawal. Most of my money is in Tiras and taxable accounts. Hopefully I can convert more to Roths in the coming years.
michaeljc70,

<<If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. >>

Why? If you use proper tax management strategy and lower yourself into the 15% tax bracket, you pay 0% tax long-term capital gain. Ditto for the qualified dividend. I have not added in the effect of tax loss harvesting.

<<If you have it in a Tira, you will be paying on the entire withdrawal. >>

Why would you withdraw everything in one year?

<<Most of my money is in Tiras and taxable accounts. >>

Why may not apply to most people. Most folks have a combination of Trad. 401K and Roth IRA.

<<Hopefully I can convert more to Roths in the coming years.>>

Unless you are retired, you can contribute to Roth IRA now. Why wait for later?

KlangFool

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 7:50 pm

KlangFool wrote:
Sat Aug 26, 2017 7:39 pm
michaeljc70 wrote:
Sat Aug 26, 2017 7:32 pm

I mean you have a lot of assets generating income due to saving a lot. As I pointed out, it depends on the composition. If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. If you have it in a Tira, you will be paying on the entire withdrawal. Most of my money is in Tiras and taxable accounts. Hopefully I can convert more to Roths in the coming years.
michaeljc70,

<<If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. >>

Why? If you use proper tax management strategy and lower yourself into the 15% tax bracket, you pay 0% tax long-term capital gain. Ditto for the qualified dividend. I have not added in the effect of tax loss harvesting. It depends on your income. Not everyone can get themselves into that tax bracket. As I said above, my spouse will probably continue to work.

<<If you have it in a Tira, you will be paying on the entire withdrawal. >>

Why would you withdraw everything in one year? I didn't say anything about taking it all out in one year. Of course I would only take out of the TIRa as needed or RMDs.

<<Most of my money is in Tiras and taxable accounts. >>

Why may not apply to most people. Most folks have a combination of Trad. 401K and Roth IRA.

<<Hopefully I can convert more to Roths in the coming years.>>

Unless you are retired, you can contribute to Roth IRA now. Why wait for later? I can contribute $5500 a year which is an insignificant part of my NW. If in a high tax bracket now, it makes more sense to contribute to a TIRa. I

KlangFool
See above. The Fidelity factors are a general guideline and not applicable to everyone. Personally I wouldn't feel comfortable with that guideline for my situation. I also think most Bogleheads aim for more than 10x salary at age 65. If you make a $100k and have $1M at 65, I think you weren't a big saver and/or very good investor.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 8:08 pm

michaeljc70 wrote:
Sat Aug 26, 2017 7:50 pm
KlangFool wrote:
Sat Aug 26, 2017 7:39 pm
michaeljc70 wrote:
Sat Aug 26, 2017 7:32 pm

I mean you have a lot of assets generating income due to saving a lot. As I pointed out, it depends on the composition. If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. If you have it in a Tira, you will be paying on the entire withdrawal. Most of my money is in Tiras and taxable accounts. Hopefully I can convert more to Roths in the coming years.
michaeljc70,

<<If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. >>

Why? If you use proper tax management strategy and lower yourself into the 15% tax bracket, you pay 0% tax long-term capital gain. Ditto for the qualified dividend. I have not added in the effect of tax loss harvesting. It depends on your income. Not everyone can get themselves into that tax bracket. As I said above, my spouse will probably continue to work.

<<If you have it in a Tira, you will be paying on the entire withdrawal. >>

Why would you withdraw everything in one year? I didn't say anything about taking it all out in one year. Of course I would only take out of the TIRa as needed or RMDs.

<<Most of my money is in Tiras and taxable accounts. >>

Why may not apply to most people. Most folks have a combination of Trad. 401K and Roth IRA.

<<Hopefully I can convert more to Roths in the coming years.>>

Unless you are retired, you can contribute to Roth IRA now. Why wait for later? I can contribute $5500 a year which is an insignificant part of my NW. If in a high tax bracket now, it makes more sense to contribute to a TIRa. I

KlangFool
michaeljc70,

<<Of course I would only take out of the TIRa as needed or RMDs.>>

You are a very lucky person in order to have this problem. Most of us would not have enough money to worry about this. So, your problem does not apply to most of us.

<<If in a high tax bracket now, it makes more sense to contribute to a TIRa. >>

I do not get this. Are you confused between 401K and IRA? They are two different accounts. If your tax bracket is high enough, your contribution to the Traditional IRA account is not tax deductible. Why would you want to do that when you can contribute to Roth IRA account?

KlangFool

Lars_2013
Posts: 151
Joined: Sun Dec 15, 2013 2:00 pm

Re: What should the savings be for an average professional

Post by Lars_2013 » Sat Aug 26, 2017 8:09 pm

michaeljc70 wrote:
Sat Aug 26, 2017 7:50 pm
The Fidelity factors are a general guideline and not applicable to everyone. Personally I wouldn't feel comfortable with that guideline for my situation. I also think most Bogleheads aim for more than 10x salary at age 65. If you make a $100k and have $1M at 65, I think you weren't a big saver and/or very good investor.
+1. I find the Fidelity factors useful as rules of thumb for my 20- and 30-something friends who make about the median income and just want some idea of how much they should be saving so they can retire comfortably at the normal time. Most bogleheads are either supersavers aiming for early retirement or high income folks for whom social security won't replace a high share of their income. For those folks, the Fidelity factors are not appropriate.

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 8:16 pm

KlangFool wrote:
Sat Aug 26, 2017 8:08 pm
michaeljc70 wrote:
Sat Aug 26, 2017 7:50 pm
KlangFool wrote:
Sat Aug 26, 2017 7:39 pm
michaeljc70 wrote:
Sat Aug 26, 2017 7:32 pm

I mean you have a lot of assets generating income due to saving a lot. As I pointed out, it depends on the composition. If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. If you have it in a Tira, you will be paying on the entire withdrawal. Most of my money is in Tiras and taxable accounts. Hopefully I can convert more to Roths in the coming years.
michaeljc70,

<<If you have a lot in taxable accounts, you will be paying taxes on the capital gains and dividends. >>

Why? If you use proper tax management strategy and lower yourself into the 15% tax bracket, you pay 0% tax long-term capital gain. Ditto for the qualified dividend. I have not added in the effect of tax loss harvesting. It depends on your income. Not everyone can get themselves into that tax bracket. As I said above, my spouse will probably continue to work.

<<If you have it in a Tira, you will be paying on the entire withdrawal. >>

Why would you withdraw everything in one year? I didn't say anything about taking it all out in one year. Of course I would only take out of the TIRa as needed or RMDs.

<<Most of my money is in Tiras and taxable accounts. >>

Why may not apply to most people. Most folks have a combination of Trad. 401K and Roth IRA.

<<Hopefully I can convert more to Roths in the coming years.>>

Unless you are retired, you can contribute to Roth IRA now. Why wait for later? I can contribute $5500 a year which is an insignificant part of my NW. If in a high tax bracket now, it makes more sense to contribute to a TIRa. I

KlangFool
michaeljc70,

<<Of course I would only take out of the TIRa as needed or RMDs.>>

You are a very lucky person in order to have this problem. Most of us would not have enough money to worry about this. So, your problem does not apply to most of us.

<<If in a high tax bracket now, it makes more sense to contribute to a TIRa. >>

I do not get this. Are you confused between 401K and IRA? They are two different accounts. If your tax bracket is high enough, your contribution to the Traditional IRA account is not tax deductible. Why would you want to do that when you can contribute to Roth IRA account?

KlangFool
I don't think we disagree that much. People are in different situations and that needs to be accounted for. The phase out for Roth (married/jointly) begins at $186k. It is the same for deductibility of a TIra. So, if you made $150k, would you contribute to a Roth or Tira? This is assuming you don't have a 401k. The way I work, sometimes I am self-employed and can contribute a lot to a Solo 401k. Sometimes I can't contribute to a 401k at all (work on W-2, no benefits). Sometimes I can contribute to a company 401k (rare).

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 8:26 pm

michaeljc70 wrote:
Sat Aug 26, 2017 8:16 pm

I don't think we disagree that much. People are in different situations and that needs to be accounted for. The phase out for Roth (married/jointly) begins at $186k. It is the same for deductibility of a TIra. So, if you made $150k, would you contribute to a Roth or Tira? This is assuming you don't have a 401k. The way I work, sometimes I am self-employed and can contribute a lot to a Solo 401k. Sometimes I can't contribute to a 401k at all (work on W-2, no benefits). Sometimes I can contribute to a company 401k (rare).
michaeljc70,

<<The way I work, sometimes I am self-employed and can contribute a lot to a Solo 401k. >>

And, you can contribute to the Roth IRA at the same time.

For most people, it is a combination of Trad. 401K and/or Solo 401K with Roth IRA.

<<The phase out for Roth (married/jointly) begins at $186k. It is the same for deductibility of a TIra.>>

Then, people do the Backdoor Roth IRA.

I guess I do not get what you are trying to get that. You have a choice to contribute to Roth IRA. And, if you did that long enough, you have a substantial amount that you can spend while doing Roth conversion.

KlangFool

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 8:34 pm

KlangFool wrote:
Sat Aug 26, 2017 8:26 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:16 pm

I don't think we disagree that much. People are in different situations and that needs to be accounted for. The phase out for Roth (married/jointly) begins at $186k. It is the same for deductibility of a TIra. So, if you made $150k, would you contribute to a Roth or Tira? This is assuming you don't have a 401k. The way I work, sometimes I am self-employed and can contribute a lot to a Solo 401k. Sometimes I can't contribute to a 401k at all (work on W-2, no benefits). Sometimes I can contribute to a company 401k (rare).
michaeljc70,

<<The way I work, sometimes I am self-employed and can contribute a lot to a Solo 401k. >>

And, you can contribute to the Roth IRA at the same time. Sure. And you would because the Tira wouldn't be deductible. No question there.

For most people, it is a combination of Trad. 401K and/or Solo 401K with Roth IRA.

<<The phase out for Roth (married/jointly) begins at $186k. It is the same for deductibility of a TIra.>>

Then, people do the Backdoor Roth Ira. I stated income of $150k, so no need for backdoor. The question is, will you be in a lower tax bracket when you retire?

I guess I do not get what you are trying to get that. You have a choice to contribute to Roth IRA. And, if you did that long enough, you have a substantial amount that you can spend while doing Roth conversion.

KlangFool
You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 8:40 pm

michaeljc70 wrote:
Sat Aug 26, 2017 8:34 pm

You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.
michaeljc70,

I think you had confused me with some other poster. I save 30+% of my gross income.

KlangFool

The Wizard
Posts: 11018
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: What should the savings be for an average professional

Post by The Wizard » Sat Aug 26, 2017 8:51 pm

KlangFool wrote:
Sat Aug 26, 2017 8:40 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:34 pm

You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.
michaeljc70,

I think you had confused me with some other poster. I save 30+% of my gross income.

KlangFool
I also saved 30+% of my gross income my last few working years, less in previous working years.
But only $6500 went to Roth IRA. The other $40,000+ went to tax sheltered 403(b).
With a large tax sheltered accumulation, you will have a large AGI in retirement, especially if you annuitize a portion for a 7% annual payout rather than do a 4% SWR approach.
I don't really mind having higher AGI now than when working, but it's something to be aware of if still working full-time...
Attempted new signature...

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 8:51 pm

KlangFool wrote:
Sat Aug 26, 2017 8:40 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:34 pm

You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.
michaeljc70,

I think you had confused me with some other poster. I save 30+% of my gross income.

KlangFool
Okay. Sorry. If you are saving 30% of your income (long term) there is no way you will have just 10x your income at age 65 (assuming working until 65). I have been a big saver too, that is why I think the number is low. I have more than 10x my income and I am in my 40s. My overall point is aiming for 10x income at 65 is setting the bar low.

Another point is the Solo 401k puts you in an interesting position. With not huge income, you can contribute a lot. So, say you make $130k net (self employed). And this is off the top of my head so the numbers may be slightly off. You can contribute $43k to a Solo 401k. That is a big percent of income after taxes. Sure, you can take $5500 and put it in a Roth and pay taxes on that $5500 (because it isn't going in the 401k). And maybe it is worth it if you think you will be in a very high tax bracket in retirement. I've generally opted to put it all in the Solo 401k as it saves a lot in taxes now. Keep state taxes in mind too. The state I live in Tira withdrawals aren't taxable to the state. Making $130k, you are paying 15%+ just in SS and Medicare taxes off the top. Then Federal and State taxes (obviously you get the 401k deduction for those). Subtract $43k for the 401k. May not have the $5500 for the Roth.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 9:00 pm

michaeljc70 wrote:
Sat Aug 26, 2017 8:51 pm
KlangFool wrote:
Sat Aug 26, 2017 8:40 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:34 pm

You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.
michaeljc70,

I think you had confused me with some other poster. I save 30+% of my gross income.

KlangFool
Okay. Sorry. If you are saving 30% of your income (long term) there is no way you will have just 10x your income at age 65 (assuming working until 65). I have been a big saver too, that is why I think the number is low. I have more than 10x my income and I am in my 40s. My overall point is aiming for 10x income at 65 is setting the bar low.

Another point is the Solo 401k puts you in an interesting position. With not huge income, you can contribute a lot. So, say you make $130k net (self employed). And this is off the top of my head so the numbers may be slightly off. You can contribute $43k to a Solo 401k. That is a big percent of income after taxes. Sure, you can take $5500 and put it in a Roth and pay taxes on that $5500 (because it isn't going in the 401k). And maybe it is worth it if you think you will be in a very high tax bracket in retirement. I've generally opted to put it all in the Solo 401k as it saves a lot in taxes now. Keep state taxes in mind too. The state I live in Tira withdrawals aren't taxable to the state.
michaeljc70,

<<You can contribute $43k to a Solo 401k. That is a big percent of income after taxes. Sure, you can take $5500 and put it in a Roth and pay taxes on that $5500 (because it isn't going in the 401k).>>

1) Or, after the 43K, you have another 11K to save and you are married. So, it is between Roth IRA or taxable account.

2) Or, after the 43K to Solo 401K and 11K to Roth IRAs, you still have a lot more. Then, the taxable account is the only choice.

In my case, I max my 401K and Roth IRAs. Then, the taxable account is the only choice.

KlangFool

michaeljc70
Posts: 1955
Joined: Thu Oct 15, 2015 3:53 pm

Re: What should the savings be for an average professional

Post by michaeljc70 » Sat Aug 26, 2017 9:11 pm

KlangFool wrote:
Sat Aug 26, 2017 9:00 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:51 pm
KlangFool wrote:
Sat Aug 26, 2017 8:40 pm
michaeljc70 wrote:
Sat Aug 26, 2017 8:34 pm

You said you save 15%. If you have done that your working life, do you think you will have 10x income or less at age 65? You seem to be disputing what I say on the one hand but defying it on the other.
michaeljc70,

I think you had confused me with some other poster. I save 30+% of my gross income.

KlangFool
Okay. Sorry. If you are saving 30% of your income (long term) there is no way you will have just 10x your income at age 65 (assuming working until 65). I have been a big saver too, that is why I think the number is low. I have more than 10x my income and I am in my 40s. My overall point is aiming for 10x income at 65 is setting the bar low.

Another point is the Solo 401k puts you in an interesting position. With not huge income, you can contribute a lot. So, say you make $130k net (self employed). And this is off the top of my head so the numbers may be slightly off. You can contribute $43k to a Solo 401k. That is a big percent of income after taxes. Sure, you can take $5500 and put it in a Roth and pay taxes on that $5500 (because it isn't going in the 401k). And maybe it is worth it if you think you will be in a very high tax bracket in retirement. I've generally opted to put it all in the Solo 401k as it saves a lot in taxes now. Keep state taxes in mind too. The state I live in Tira withdrawals aren't taxable to the state.
michaeljc70,

<<You can contribute $43k to a Solo 401k. That is a big percent of income after taxes. Sure, you can take $5500 and put it in a Roth and pay taxes on that $5500 (because it isn't going in the 401k).>>

1) Or, after the 43K, you have another 11K to save and you are married. So, it is between Roth IRA or taxable account.

2) Or, after the 43K to Solo 401K and 11K to Roth IRAs, you still have a lot more. Then, the taxable account is the only choice.

In my case, I max my 401K and Roth IRAs. Then, the taxable account is the only choice.

KlangFool
You need earned income for both contribute to a Roth, but assuming you both have that, yes.

Taking my example above, $130k SE income (net). $43k in solo 401k. $18k in SE taxes. $25k Fed income taxes. That leaves around $43k not counting state taxes! As I said, each situation is different. Not many people making $130k live on less than $40k.

KlangFool
Posts: 6987
Joined: Sat Oct 11, 2008 12:35 pm

Re: What should the savings be for an average professional

Post by KlangFool » Sat Aug 26, 2017 9:36 pm

michaeljc70 wrote:
Sat Aug 26, 2017 9:11 pm


You need earned income for both contribute to a Roth, but assuming you both have that, yes.
michaeljc70,

That statement is not true. As long as you filed jointly, only one spouse needs to have earned income in order for both to contribute to Roth IRAs. I did this for 10+years.

KlangFool

mega317
Posts: 1115
Joined: Tue Apr 19, 2016 10:55 am

Re: What should the savings be for an average professional

Post by mega317 » Sun Aug 27, 2017 12:17 am

TomatoTomahto wrote:
Sat Aug 26, 2017 11:38 am
He ascribed this to a habit of delegation, assuming that nobody (nurse, or fuel jockey, or for that matter, fuel gauge) would do anything but a perfect job of verifying that the gauges were accurate, because they had been told to check, by the doctor.
This is interesting. In my work setting it is the opposite. Most of the doctors don't trust anyone to do anything, and it actually creates a good deal of friction with the people who should be trusted.

madbrain
Posts: 4522
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: What should the savings be for an average professional

Post by madbrain » Sun Aug 27, 2017 12:32 am

KlangFool wrote:
Sat Aug 26, 2017 5:13 pm
Given that we have to pay tax, people that spend 100% of their gross income will have to get into serious debt in order to do that over a long period of time.
Not if those people consider taxes as an expense.

User avatar
TomatoTomahto
Posts: 6801
Joined: Mon Apr 11, 2011 1:48 pm

Re: What should the savings be for an average professional

Post by TomatoTomahto » Sun Aug 27, 2017 1:17 am

mega317 wrote:
Sun Aug 27, 2017 12:17 am
TomatoTomahto wrote:
Sat Aug 26, 2017 11:38 am
He ascribed this to a habit of delegation, assuming that nobody (nurse, or fuel jockey, or for that matter, fuel gauge) would do anything but a perfect job of verifying that the gauges were accurate, because they had been told to check, by the doctor.
This is interesting. In my work setting it is the opposite. Most of the doctors don't trust anyone to do anything, and it actually creates a good deal of friction with the people who should be trusted.
I don't doubt that this, as so much else related to the profession, might have changed in the 50 years since the opinion was expressed. Probably longer time since the opinion was formed.

User avatar
DaftInvestor
Posts: 3129
Joined: Wed Feb 19, 2014 10:11 am

Re: What should the savings be for an average professional

Post by DaftInvestor » Mon Aug 28, 2017 8:01 am

michaeljc70 wrote:
Sat Aug 26, 2017 7:50 pm
See above. The Fidelity factors are a general guideline and not applicable to everyone. Personally I wouldn't feel comfortable with that guideline for my situation. I also think most Bogleheads aim for more than 10x salary at age 65. If you make a $100k and have $1M at 65, I think you weren't a big saver and/or very good investor.
True - that's why when I brought it up I said it was a "rule of thumb" that could be disputed. I do believe the factors I listed are good guides to make sure you are doing okay at each age-milestone in regards to saving. Most Americans are BELOW the factors at each age - not above them. (Most Bogleheads are likely above them).
In addition to the SS discussed above contributing to retirement income - you also should make sure you are taking a close look at actual expenses. In my case - I will no longer be saving 15%+ a year for retirement, I will no longer have children-upbringing costs nor college costs (which I spent 18 years saving for), I will no longer have a mortgage (housing costs far lower), and I will no longer have work-related costs (bringing down clothing, gas, car costs slightly). In my case - I estimate if I end up with only 10x salary - I would actually do okay in retirement.
Your last statement about "not a big saver if you end up with only 10x" isn't necessarily true either. If I was making $40-$50K early in career, $100K mid-career, and $300K late career (due to promotions/move-to-management/etc) - having 10xsalary = $3M at retirement doesn't necessarily mean I wasn't a good saver or investor.

freebeer
Posts: 1904
Joined: Wed May 02, 2007 8:30 am
Location: Seattle area USA

Re: What should the savings be for an average professional

Post by freebeer » Mon Aug 28, 2017 11:03 am

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
... how much an average earning professional like an engineer or accountant should have saved after working for 20 years... should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and . he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending...
No he's not sensible with his money because by definition his lower savings is due to excessive spending, as compared to the sensible alternative of tracking towards financial independence by spending less. That this puts him in the same boat as average professional still doesn't make it sensible. I recommend a dose of MMM,even taken with a grain of salt (as it should be IMO) it could be a valuable wake up call.

Jags4186
Posts: 1392
Joined: Wed Jun 18, 2014 7:12 pm

Re: What should the savings be for an average professional

Post by Jags4186 » Mon Aug 28, 2017 1:38 pm

skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
Well I did a little playing around in excel and it looks like the average starting salary for a Chemical Engineer graduating form Cornell in 1997 was $42,500. That was the quickest number I was able to find by googling...but let's go with it. So $42,5000 with 6% raises for 20 years puts that person at $128,XXX in 2017. If that person saved 15% of their salary every year into a 401k and got a 3% employer match, and just threw the money into the S&P 500, they should have $552,000 as of December 31 2016.

So I would posit that your friend is not that great of a saver.

wrongfunds
Posts: 837
Joined: Tue Dec 21, 2010 3:55 pm

Re: What should the savings be for an average professional

Post by wrongfunds » Mon Aug 28, 2017 1:55 pm

gasdoc wrote:
Sat Aug 26, 2017 12:54 pm
student wrote:
Sat Aug 26, 2017 12:49 pm
gasdoc wrote:
Sat Aug 26, 2017 11:17 am
I am the 3,389,513th richest person on earth. Kind of humbling.

gasdoc
I guess this makes your net worth 4,5000,000 US dollars.
Good work. Actually did not use real numbers....

gasdoc
Am I the only one who believes that numbers of zeros do not match with the intention of the person providing them? Otherwise, this would be very odd way of writing $45Millions!

If I am right about incorrect number of zeros, it is amazing that even on this forum this type of error goes unchecked. It is doubly ironic that we were discussing how engineers are good with numbers :oops:
Last edited by wrongfunds on Mon Aug 28, 2017 2:16 pm, edited 1 time in total.

Grt2bOutdoors
Posts: 17146
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: What should the savings be for an average professional

Post by Grt2bOutdoors » Mon Aug 28, 2017 2:14 pm

Jags4186 wrote:
Mon Aug 28, 2017 1:38 pm
skor99 wrote:
Wed Aug 23, 2017 7:32 pm
I was talking to a friend who am I open with about money topics and issues. We got talking about how much an average earning professional like an engineer or accountant should have saved after working for 20 years. To keep things simple, we just talked about a single earner family.
Obviously there are many factors at play such as number of kids and COL etc. But as a ballpark, I was of the opinion that a person starting out say in the mid 50s salary range right after college and working their way upto say 120K per year with two kids in a MCOL area with a 30 yr mortgage on a 300 K house ( all average numbers) should have around $450K - $500K saved including their retirement accounts ( not including home equity). He laughed at the suggestion and said 150K-200K is more like it in the real world and even lesser for financially ignorant people. He hinted that he falls in roughly the same pattern and is not close to 500K. I know for sure that he is sensible with his money, so his lower number is not due to excessive spending.
I understand the number can vary widely, but as a general guideline, is 400K too much in the real non boglehead world for an average middle aged professional ?
Well I did a little playing around in excel and it looks like the average starting salary for a Chemical Engineer graduating form Cornell in 1997 was $42,500. That was the quickest number I was able to find by googling...but let's go with it. So $42,5000 with 6% raises for 20 years puts that person at $128,XXX in 2017. If that person saved 15% of their salary every year into a 401k and got a 3% employer match, and just threw the money into the S&P 500, they should have $552,000 as of December 31 2016.

So I would posit that your friend is not that great of a saver.
You assume that a) 401k plan offered such a fund and b) that fund was that of a low-cost variety. Also, the years 1999-2000 and 2008 were such bang-up years in terms of returns, not. $42,500 with a degree from Cornell? Sounds like that is where they were short-changed!!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Jags4186
Posts: 1392
Joined: Wed Jun 18, 2014 7:12 pm

Re: What should the savings be for an average professional

Post by Jags4186 » Mon Aug 28, 2017 2:31 pm

Grt2bOutdoors wrote:
Mon Aug 28, 2017 2:14 pm
You assume that a) 401k plan offered such a fund and b) that fund was that of a low-cost variety. Also, the years 1999-2000 and 2008 were such bang-up years in terms of returns, not. $42,500 with a degree from Cornell? Sounds like that is where they were short-changed!!
A) I do assume a company had an S&P500 fund.
B) I also assume this--I used VFINX as a proxy.
C) 1999-2000 and 2008 are irrelevant and are calculated for in the final number
D) $42,500 wage in 1997 is about $71,600 today. I think that's pretty good for a first year graduate with a bachelors degree. In fairness, I have no idea what engineers make starting out today so maybe someone can enlighten me?

User avatar
DaftInvestor
Posts: 3129
Joined: Wed Feb 19, 2014 10:11 am

Re: What should the savings be for an average professional

Post by DaftInvestor » Mon Aug 28, 2017 3:03 pm

Jags4186 wrote:
Mon Aug 28, 2017 2:31 pm
Grt2bOutdoors wrote:
Mon Aug 28, 2017 2:14 pm
You assume that a) 401k plan offered such a fund and b) that fund was that of a low-cost variety. Also, the years 1999-2000 and 2008 were such bang-up years in terms of returns, not. $42,500 with a degree from Cornell? Sounds like that is where they were short-changed!!
A) I do assume a company had an S&P500 fund.
B) I also assume this--I used VFINX as a proxy.
C) 1999-2000 and 2008 are irrelevant and are calculated for in the final number
D) $42,500 wage in 1997 is about $71,600 today. I think that's pretty good for a first year graduate with a bachelors degree. In fairness, I have no idea what engineers make starting out today so maybe someone can enlighten me?
Mean Starting salary for a chemical engineer is about $67K:
http://www.mtu.edu/engineering/outreach/welcome/salary/
Of course you can't assume someone at the 128K salary level is putting 15% in a 401K since there is an 18K yearly contribution limit for those under 50 :) ... nor can you assume that an engineer is going to get 6% raises for 20 years - many positions level-out at which point you are lucky if your raises meet cost-of-living increases ... you also can't assume a company match exists as many engineers work for companies that don't give them out.
But in any case - likely "the friend" does like many and puts away only 4-5% yearly towards retirement (Or, perhaps, has been putting away up to 10% but has a much lower salary than assumed). Some 401K plans are now offered defaulting at a 5% contribution rate - nice in a way because it is causing people to get started by default versus putting it off - but in other ways it sets a precedence letting them assume its a good rate. With some "Professionals" I have talked to in that when they do put in a higher savings rate into their 401K plan and hit the 18K max - they don't start a taxable savings plan to continue to a 10-15% contribution rate. They hit the limit during the summer and spend what they should be contributing toward retirement for the rest of year on other things (vacations, purchases, etc.).

Jags4186
Posts: 1392
Joined: Wed Jun 18, 2014 7:12 pm

Re: What should the savings be for an average professional

Post by Jags4186 » Mon Aug 28, 2017 3:17 pm

DaftInvestor wrote:
Mon Aug 28, 2017 3:03 pm
Jags4186 wrote:
Mon Aug 28, 2017 2:31 pm
Grt2bOutdoors wrote:
Mon Aug 28, 2017 2:14 pm
You assume that a) 401k plan offered such a fund and b) that fund was that of a low-cost variety. Also, the years 1999-2000 and 2008 were such bang-up years in terms of returns, not. $42,500 with a degree from Cornell? Sounds like that is where they were short-changed!!
A) I do assume a company had an S&P500 fund.
B) I also assume this--I used VFINX as a proxy.
C) 1999-2000 and 2008 are irrelevant and are calculated for in the final number
D) $42,500 wage in 1997 is about $71,600 today. I think that's pretty good for a first year graduate with a bachelors degree. In fairness, I have no idea what engineers make starting out today so maybe someone can enlighten me?
Mean Starting salary for a chemical engineer is about $67K:
http://www.mtu.edu/engineering/outreach/welcome/salary/
Of course you can't assume someone at the 128K salary level is putting 15% in a 401K since there is an 18K yearly contribution limit for those under 50 :) ... nor can you assume that an engineer is going to get 6% raises for 20 years - many positions level-out at which point you are lucky if your raises meet cost-of-living increases ... you also can't assume a company match exists as many engineers work for companies that don't give them out.
But in any case - likely "the friend" does like many and puts away only 4-5% yearly towards retirement (Or, perhaps, has been putting away up to 10% but has a much lower salary than assumed). Some 401K plans are now offered defaulting at a 5% contribution rate - nice in a way because it is causing people to get started by default versus putting it off - but in other ways it sets a precedence letting them assume its a good rate. With some "Professionals" I have talked to in that when they do put in a higher savings rate into their 401K plan and hit the 18K max - they don't start a taxable savings plan to continue to a 10-15% contribution rate. They hit the limit during the summer and spend what they should be contributing toward retirement for the rest of year on other things (vacations, purchases, etc.).
I can assume a lot of things. I can assume everyone should save 75% of their money :shock: . I was just going by the OPs rational, 20 year professional worker starting in the mid $50k/yr ending in the 120s. I took some real numbers ($42.5k starting salary) and just glided it up to $128k. Of course that person probably got bonuses and promotions and job hopped along the way increasing their income as well...but I'm not including that in the mix :D

I'm agreeing with the OP that $500k after 20 years of work for a "professional" isn't that hard to get to and I'm suggesting his friend, like you point out, is saving practically nothing.

Post Reply