How much to save?

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clicobb
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How much to save?

Post by clicobb » Fri Jul 26, 2019 7:08 pm

So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.

regularguy455
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Re: How much to save?

Post by regularguy455 » Fri Jul 26, 2019 7:13 pm

You’ll get a million responses but I try to save enough where I can retire at an age I want and continue my lifestyle. Assuming you follow boglehead investing philosophy, your only job is to pick a savings rate and an age where your investments facilitate that.

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Sandtrap
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Re: How much to save?

Post by Sandtrap » Fri Jul 26, 2019 7:14 pm

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
No Rule Of Thumb
DW and I have always been very frugal and the amount of income didn't matter.
We spend what we need to and the rest is always saved, whatever it is., the more the better.

Financial advancements come from focusing on maximizing income and income streams, as well as making the most of what one earns.
j
Wiki Bogleheads Wiki: Everything You Need to Know

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fortfun
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Re: How much to save?

Post by fortfun » Fri Jul 26, 2019 7:14 pm

I'd recommend another 10-15% on top of your pension, more if you can. I'm doing about 50% on top of my pension but I'm closer to the end of my career. Wish I'd done more when I was younger. Just depends if you want to retire early, etc.

TheDDC
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Re: How much to save?

Post by TheDDC » Fri Jul 26, 2019 7:17 pm

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
Welcome to the forum!

When I add up my savings, I do count my pension contribution (7.5% in my case) as part of the mix. It's a contribution that you are bound to by law, and it is a deferred compensation plan in which you will turn those funds around into something close to your final average salary (FAS).

There is no magic number, but we do have at least one of our members who advocates saving a year's worth of expenses annually. I tend to go with that philosophy. Our savings rate is around 40-50%. We save in a variety of ways including IRA (traditional and Roth) as well as workplace 403(b). If you have access to a state 457 plan that is also an excellent way to boost savings as well and gives you another $19,000 pre-tax savings vehicle. Some will advocate a 529 plan for college savings, but I do not like them because of the severe limitations on withdrawals if you don't use it for college. However, a 529 would give you additional tax advantaged space.

Good luck!

-TheDDC
Refreshingly, a double barrel shotgun blast of truth...

Ron Ronnerson
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Re: How much to save?

Post by Ron Ronnerson » Fri Jul 26, 2019 7:58 pm

I would save in addition to the pension. I'm a teacher in California. Our income is $120k ($115k is from my job as a teacher and $5k is from interest). My wife is a stay-at-home parent and we have one kid (age 5). I count my pension contributions and mortgage principal as part of our savings. Our numbers are approximately: $12k toward pension, $19k into 403b, $19k into 457b, $4k into traditional IRA, and $10k toward mortgage principal. I consider our savings rate to be around half our income. It's probably more than we need to save but we live comfortably as it is and don't feel the need to blow a bunch of money just for the sake of it.

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arcticpineapplecorp.
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Re: How much to save?

Post by arcticpineapplecorp. » Fri Jul 26, 2019 8:25 pm

10% is a minimum but lately the new minimum I've seen is 15% and most should be saving more than that. It does depend on when you start and what other income you might have to rely on besides SSA. You might be able to get away with saving 15% starting in your 20s and doing that for 40 years, but with each subsequent year/decade you delay saving, the need/amount becomes greater. These articles get into it a little:

https://www.investopedia.com/articles/p ... y-save.asp
https://www.fidelity.com/viewpoints/ret ... uld-I-save

the pension savings is a little different in that depending on how your plan works and what choices you make/have available and your marital status, there's the possibility that the pension ends at your death (if no survivor benefit). That may not matter to you, but it might to any heirs/charities you would have at time of death. So what I'm saying is you can pass other assets but not usually so with pension (and SSA).

Another thing to think about is the pension reduces your need to save, but maybe doesn't eliminate the need to save (it also depends on your spending and your income with pension/ssa compared to your spending). In the past there was the three legged stool of retirement. That is SSA, pension and savings, each of which may have made up a 1/3rd of total spending needs. So you still may need savings to make up any shortfall. you might not, if you have a generous pension, or you reduce spending costs in retirement (like move to a cheaper area or cut costs in other ways).

Sometimes things don't work out as planned. I can project how much of my pre-retirement (salary) income will be made up of my pension and SSA. It may cover all my expenses so that I might not need any additional spending. But since I have a multiplier (and the pension is actuarily based so starting payments are greater the older one starts getting them), the pension becomes more generous with each additional year. I might not want to work longer to get a larger pension, especially if I've saved other assets in retirement accounts which gives me the flexibility to retire earlier.

Sometimes pension agreements get changed. Like they change a multiplier on your midstream or change the pension amount, etc. It happens sometimes, especially when states are distressed or underfunded (nothing more on that since it mostly comes down to politics). Other things can change like taxes can go up, or inflation can be high and if your pension is fixed, that will lose purchasing power over time. You might have more costly medical expenses in retirement than you imagined or health care costs continue to go up more than the rate of inflation. You'll be glad you saved if this comes to pass.

I also try to figure what my income might be in retirement but it's difficult because my pension and SSA keep increasing with each passing year (a good problem to have, I know). but it makes planning difficult, and I have to adjust for inflation the best I can with the numbers used in my projections. You could think about best, mid and worst case scenarios and plan for each.

Having savings is really about having some financial independence. Being able to call some shots rather than have to be dependent on working longer than you might want or in a job you might not like. So it's never a bad idea to save, because it provides you with flexibility which is always beneficial.

hope that helps.

read Bill Bernstein's free booklet (only 16 pages):
https://www.etf.com/docs/IfYouCan.pdf
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Nestegg_User
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Re: How much to save?____Texas teacher

Post by Nestegg_User » Fri Jul 26, 2019 9:42 pm

We should also remember that most all Texas teachers DON'T pay into Social Security, and due to any pension benefit WOULD NOT be eligible for spousal SS due to GPO and WEP provisions..... so that must require a larger amount for savings than those that have SS benefits (whether at 70 or earlier)

It also apparently depends on what "Tier" you are in: https://www.trs.texas.gov/TRS%20Documen ... ndbook.pdf

Jablean
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Re: How much to save?

Post by Jablean » Fri Jul 26, 2019 11:47 pm

Wow, from looking up that most Texas teachers aren't paying money into Social Security (district by district basis) and that the Texas teacher pension fund is underfunded too I wouldn't count anything you are paying into the system as "savings". You need to be prepared for the pension system to go belly up if you stay with teaching for your career. If you leave before vesting in the pension plan you may not have a social security record for those years.
https://www.teacherpensions.org/blog/fi ... t-benefits

Do run yourself a budget and make savings one of the buckets you fill each month.

CurlyDave
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Re: How much to save?

Post by CurlyDave » Sat Jul 27, 2019 12:01 am

Retired now and fairly comfortable.

While I was working I was contributing 13% to savings, plus a 5% company match, so 18%. I have a pension, but did not consider company contribution to that as savings.

BUT, I also had taxable savings, and made real estate investments from take home.

Saving instead of spending helps you two ways. First it increases your portfolio, and secondly it reduces the living expense you become accustomed to, so it reduces the need for income in retirement. I have never felt deprived by not taking expensive vacations, having used cars I drove for many miles, etc.

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tooluser
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Re: How much to save?

Post by tooluser » Sat Jul 27, 2019 12:17 am

1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.

bada bing
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Re: How much to save?

Post by bada bing » Sat Jul 27, 2019 5:19 am

Increasing your retirement savings percentage of gross salary is a double whammy as far as accelerating your progress to retirement. Each additional dollar saved is also a dollar reduction in current budget spending. Your nestegg grows faster and the budget it will fund in the future is reduced.

Image

I would shoot for at least 20% of gross savings rate - not including any pension contributions, mortgage principal reductions, etc.

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JoeRetire
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Re: How much to save?

Post by JoeRetire » Sat Jul 27, 2019 5:28 am

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
How much you should save depends solely on your goals. The loftier your goals are, the more you should save.

What are you saving for? What do you hope to achieve with this saving? How much will it cost?

Once you figure that out, the rest is just math.

smitcat
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Re: How much to save?

Post by smitcat » Sat Jul 27, 2019 6:06 am

tooluser wrote:
Sat Jul 27, 2019 12:17 am
1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.
33% in taxes is pretty high for most.

HomeStretch
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Re: How much to save?

Post by HomeStretch » Sat Jul 27, 2019 6:26 am

You don’t mention your goals but I can share what I did/do in case it’s helpful.

The younger one is, the harder it can be to define a target retirement age and retirement “number” (at least it was for me). Early on, after income/payroll taxes, I tried to save 1/2 and spend 1/2 of my remaining compensation. This meant each year I was saving one year of expenses for retirement and after about 25 years I should roughly have “enough” to retire.

As time went on, my income increased more than my spending so I was able to add saving for other goals too (house, college). At 45, I was able to better define when I wanted to retire, my forecasted retirement expenses and my retirement “number”. From age 45-55 I continued to fine-tune these projections to stay on track to retire mid-fifties.

basspond
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Re: How much to save?

Post by basspond » Sat Jul 27, 2019 7:02 am

I would save 20% but count half of your pension “contribution” over 6.2% as part of your savings. Us regular folk don’t offset our SS contribution.

Ron
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Re: How much to save?

Post by Ron » Sat Jul 27, 2019 7:35 am

During the last decade of our employment, we saved/invested 33% of our total gross income. That includes contributions from our respective employers to our 401(k) plans (no Roth 401(k)'s in our day).

We started out slow, starting in 1982 (the first year we were eligible for a TIRA; 401(k)'s were offered by our employers later), but increased our contribution amount year over year by directing a percentage of any salary raise we would get along the way to our retirement saving/investments.

BTW, we both receive small pension benefits - wife from two previous employers, me from a cash balance plan from my employer, that replaced a traditional pension back in the 80's. We never considered including those income sources in our retirement savings/investment plans when measuring the amount of money we were putting away for retirement.

- Ron

qwerty3020
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Re: How much to save?

Post by qwerty3020 » Sat Jul 27, 2019 7:48 am

smitcat wrote:
Sat Jul 27, 2019 6:06 am
tooluser wrote:
Sat Jul 27, 2019 12:17 am
1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.
33% in taxes is pretty high for most.
Nope.
https://www.nerdwallet.com/blog/taxes/h ... axes-2015/
https://www.fool.com/retirement/2017/03 ... -rate.aspx

tomwood
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Re: How much to save?

Post by tomwood » Sat Jul 27, 2019 7:50 am

bada bing wrote:
Sat Jul 27, 2019 5:19 am
Increasing your retirement savings percentage of gross salary is a double whammy as far as accelerating your progress to retirement. Each additional dollar saved is also a dollar reduction in current budget spending. Your nestegg grows faster and the budget it will fund in the future is reduced.

Image

I would shoot for at least 20% of gross savings rate - not including any pension contributions, mortgage principal reductions, etc.
Is this a savings percentage of take home pay or annual salary ?

JoeJohnson
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Re: How much to save?

Post by JoeJohnson » Sat Jul 27, 2019 8:34 am

qwerty3020 wrote:
Sat Jul 27, 2019 7:48 am
smitcat wrote:
Sat Jul 27, 2019 6:06 am
tooluser wrote:
Sat Jul 27, 2019 12:17 am
1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.
33% in taxes is pretty high for most.
Nope.
https://www.nerdwallet.com/blog/taxes/h ... axes-2015/
https://www.fool.com/retirement/2017/03 ... -rate.aspx
Many taxes (real estate, sales tax) in the nerdwallet article would be considered 'expenses' in the 33%/33%/33% split. So yes, 33% is way too high for effective income tax rate

cusetownusa
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Re: How much to save?

Post by cusetownusa » Sat Jul 27, 2019 8:38 am

tomwood wrote:
Sat Jul 27, 2019 7:50 am
bada bing wrote:
Sat Jul 27, 2019 5:19 am
Increasing your retirement savings percentage of gross salary is a double whammy as far as accelerating your progress to retirement. Each additional dollar saved is also a dollar reduction in current budget spending. Your nestegg grows faster and the budget it will fund in the future is reduced.

Image

I would shoot for at least 20% of gross savings rate - not including any pension contributions, mortgage principal reductions, etc.
Is this a savings percentage of take home pay or annual salary ?
Take home pay net of taxes.

chevca
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Re: How much to save?

Post by chevca » Sat Jul 27, 2019 8:46 am

That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....

I have no idea what percentage DW and I save of our incomes. We pay ourselves first, pay the bills, keep food in the fridge and the lights on, spend some on things we like, and try to save some more after that. Good enough for us. We do both have pensions, and SS for DW, to look forward to and plan to move to a LCOL later on though. So, that factors into our no need to track a percentage attitude, maybe?

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Toons
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Re: How much to save?

Post by Toons » Sat Jul 27, 2019 8:50 am

20%
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

JoeJohnson
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Re: How much to save?

Post by JoeJohnson » Sat Jul 27, 2019 8:51 am

chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....

I have no idea what percentage DW and I save of our incomes. We pay ourselves first, pay the bills, keep food in the fridge and the lights on, spend some on things we like, and try to save some more after that. Good enough for us. We do both have pensions, and SS for DW, to look forward to and plan to move to a LCOL later on though. So, that factors into our no need to track a percentage attitude, maybe?
The chart is starting with $0 net worth, so no, it's not implying you should save 65%. Unless your net worth is $0 today

Yes, pensions would definitely make me care less about saving for retirement; especially two of them

jimmyrules712
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Re: How much to save?

Post by jimmyrules712 » Sat Jul 27, 2019 8:52 am

Depends. Do you want to retire in your mid to late 60's or earlier? 10%-15% is fine for mid to late 60's. If you want to retire in your 50's shoot for at least 30%.

chevca
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Re: How much to save?

Post by chevca » Sat Jul 27, 2019 8:55 am

JoeJohnson wrote:
Sat Jul 27, 2019 8:51 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....

I have no idea what percentage DW and I save of our incomes. We pay ourselves first, pay the bills, keep food in the fridge and the lights on, spend some on things we like, and try to save some more after that. Good enough for us. We do both have pensions, and SS for DW, to look forward to and plan to move to a LCOL later on though. So, that factors into our no need to track a percentage attitude, maybe?
The chart is starting with $0 net worth, so no, it's not implying you should save 65%. Unless your net worth is $0 today

Yes, pensions would definitely make me care less about saving for retirement; especially two of them
Oh, so if one started savings that far out from retirement? That makes more sense. I was reading that completely different.

supersecretname
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Re: How much to save?

Post by supersecretname » Sat Jul 27, 2019 9:07 am

chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
You didn’t understand the chart. If you want to retire in 10 years starting from 0, you would need to save 65%.

chevca
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Re: How much to save?

Post by chevca » Sat Jul 27, 2019 9:08 am

supersecretname wrote:
Sat Jul 27, 2019 9:07 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
You didn’t understand the chart. If you want to retire in 10 years starting from 0, you would need to save 65%.
I just said that right above you. :wink:

Mike Scott
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Re: How much to save?

Post by Mike Scott » Sat Jul 27, 2019 9:28 am

When I started my first full time professional position several decades ago, we were barely getting by and had some debt and no savings other than anything left in the checking account at the end of the month. Retirement seemed a long way off and I was in a good pension system and expected social security so everything seemed OK. I know a little more now than then, have had some unexpected medical issues, health insurance and health care have turned into whatever it is they are now, and I have gotten more financially conservative. Retirement is closer and I still believe that pension and social security will be "enough" but we also save about 20% gross income. I have encouraged my children to put a minimum of 10% into tax advantaged accounts beginning with their first paychecks as teenagers and am trying to get them to move it closer to 15-20% as they are all out of college and working now. If you only have your savings and nothing else, 10% is probably not enough. 20% would be better. You should do the math on how much time you have to work and how much you want to have at the end of that time compared to what you are spending. Also, you don't have to be obsessive about money but please teach your children financial literacy so they don't have to stumble into it as adults.

holycow007
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Re: How much to save?

Post by holycow007 » Sat Jul 27, 2019 9:39 am

chevca wrote:
Sat Jul 27, 2019 9:08 am
supersecretname wrote:
Sat Jul 27, 2019 9:07 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
You didn’t understand the chart. If you want to retire in 10 years starting from 0, you would need to save 65%.
I just said that right above you. :wink:
still not sure if that makes sense.
Is the assumption that the retirement is at 65?

if I make 100K and save 65K at age 40, i can retire by 50?
If I make 100K and save 65K at age 30, i can retire by 40?

May be it is the living at a low spending (even less than 35K - may be 30K after taxes) that is factoring in
Assuming I have over 650K with growth (say 900K), that is a 3% perpetual withdrawal?

If so, the wisdom is reduction of spending I guess

H-Town
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Re: How much to save?

Post by H-Town » Sat Jul 27, 2019 9:42 am

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
Just do your best and save what you can. Ideally, for every dollar you spend, you save at least a dollar for your future self. This way, you can comfortably retire in 20-25 years regardless of market outcome.

chevca
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Re: How much to save?

Post by chevca » Sat Jul 27, 2019 9:46 am

holycow007 wrote:
Sat Jul 27, 2019 9:39 am
chevca wrote:
Sat Jul 27, 2019 9:08 am
supersecretname wrote:
Sat Jul 27, 2019 9:07 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
You didn’t understand the chart. If you want to retire in 10 years starting from 0, you would need to save 65%.
I just said that right above you. :wink:
still not sure if that makes sense.
Is the assumption that the retirement is at 65?

if I make 100K and save 65K at age 40, i can retire by 50?
If I make 100K and save 65K at age 30, i can retire by 40?

May be it is the living at a low spending (even less than 35K - may be 30K after taxes) that is factoring in
Assuming I have over 650K with growth (say 900K), that is a 3% perpetual withdrawal?

If so, the wisdom is reduction of spending I guess
I agree, still not the best of charts. But, I think the main point of it, now that I'm looking at it correctly, is just to start early. I wish I had done that.

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willthrill81
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Re: How much to save?

Post by willthrill81 » Sat Jul 27, 2019 9:48 am

Due to potential factors like the last and most important decade of your portfolio's returns being poor; age discrimination; the need to financially assist family members; long-term solvency problems with Social Security and Medicare; etc.; I believe that you should save however much is needed for you to be financially independent by age 55. You can certainly continue working being that point if you wish, but planning to just barely have enough by age 65 is fraught with risk.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JoeJohnson
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Re: How much to save?

Post by JoeJohnson » Sat Jul 27, 2019 9:49 am

holycow007 wrote:
Sat Jul 27, 2019 9:39 am
chevca wrote:
Sat Jul 27, 2019 9:08 am
supersecretname wrote:
Sat Jul 27, 2019 9:07 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
You didn’t understand the chart. If you want to retire in 10 years starting from 0, you would need to save 65%.
I just said that right above you. :wink:
still not sure if that makes sense.
Is the assumption that the retirement is at 65?

if I make 100K and save 65K at age 40, i can retire by 50?
If I make 100K and save 65K at age 30, i can retire by 40?

May be it is the living at a low spending (even less than 35K - may be 30K after taxes) that is factoring in
Assuming I have over 650K with growth (say 900K), that is a 3% perpetual withdrawal?

If so, the wisdom is reduction of spending I guess

The age is irrelevant.

65% of net pay (gross income - taxes), so gross income is in excess of $100k in your example. Say $125k

Assumptions are 5% real return and 4% perpetual withdrawal

$125k gross
-25k taxes
$100k net income

-35k expenses

65k invested

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willthrill81
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Re: How much to save?

Post by willthrill81 » Sat Jul 27, 2019 9:57 am

chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....
If you wanted to be financially independent in 10 years and had no savings, yes, that would be a good estimate.

Charts like this, the '4% rule of thumb', etc. are simply intended to give laypeople a ballpark idea of how much to save, how much to withdraw, etc. They are all built on assumptions that may or may not be true for any specific individual. That doesn't mean that they aren't useful, but they are most definitely not a shortcut for real analysis.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: How much to save?

Post by supersecretname » Sat Jul 27, 2019 10:02 am

holycow007 wrote:
Sat Jul 27, 2019 9:39 am
If so, the wisdom is reduction of spending I guess
Yup. Reduction in spending is a double bonus, you save more now and will need to spend less later.

holycow007
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Re: How much to save?

Post by holycow007 » Sat Jul 27, 2019 10:17 am

JoeJohnson wrote:
Sat Jul 27, 2019 9:49 am

The age is irrelevant.

65% of net pay (gross income - taxes), so gross income is in excess of $100k in your example. Say $125k

Assumptions are 5% real return and 4% perpetual withdrawal

$125k gross
-25k taxes
$100k net income

-35k expenses

65k invested
Except that one should attempt to save off gross pre-tax than post-tax
as one poster said, the detail can be excruciating but the overall message is save twice your spending each year to retire in 10-15 years

Ron Ronnerson
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Re: How much to save?

Post by Ron Ronnerson » Sat Jul 27, 2019 10:20 am

qwerty3020 wrote:
Sat Jul 27, 2019 7:48 am
smitcat wrote:
Sat Jul 27, 2019 6:06 am
tooluser wrote:
Sat Jul 27, 2019 12:17 am
1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.
33% in taxes is pretty high for most.
Nope.
https://www.nerdwallet.com/blog/taxes/h ... axes-2015/
https://www.fool.com/retirement/2017/03 ... -rate.aspx
These are average taxes, not median. A few people with high incomes can skew the average. Take the first link (NerdWallet) and scroll down to the cities with the highest taxes. The third column says “median household income” but all the other columns listing the tax percentage say “average” (instead of “median”). For the city ranked #1 on the list (Fremont, CA) it implies a household with $105k in income would pay $36k in federal, state, and local taxes (this column doesn’t include property and sales taxes). How is this even possible? After taking the standard deduction, a family with an income of 105k would have an AGI of around $80k. If they put $1k toward retirement, they’d find themselves in the 12% federal income tax bracket (and maybe the 8% state tax bracket) with an effective rate that is likely much lower.

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teen persuasion
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Re: How much to save?

Post by teen persuasion » Sat Jul 27, 2019 10:24 am

chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....

I have no idea what percentage DW and I save of our incomes. We pay ourselves first, pay the bills, keep food in the fridge and the lights on, spend some on things we like, and try to save some more after that. Good enough for us. We do both have pensions, and SS for DW, to look forward to and plan to move to a LCOL later on though. So, that factors into our no need to track a percentage attitude, maybe?
The purpose of the chart is to help newbies figure out how long it will take them to reach FIRE at any given savings rate. Conversely, what savings rate to target, if they have a preferred FIRE age.

So if you save 65%, you can reach FIRE in 10.5 years starting from zero. If you only save 15%, it will take you 43 years to reach FIRE starting from zero.

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Re: How much to save?

Post by stoptothink » Sat Jul 27, 2019 10:24 am

H-Town wrote:
Sat Jul 27, 2019 9:42 am
clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
Just do your best and save what you can.
There's no reason to overthink this. Save what you can, the more you can the better off you'll be. When you aim to save a specific amount, you'll likely spend some of the excess frivolously on things which will not improve your QOL just to meet this arbitrary saving/spending number. I meet my needs, set aside moderate amounts for wants (vacations, new clothes, etc.) and save the rest. "The rest" has varied from <5% to nearly 70% of income since I left home.

chevca
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Re: How much to save?

Post by chevca » Sat Jul 27, 2019 10:34 am

teen persuasion wrote:
Sat Jul 27, 2019 10:24 am
chevca wrote:
Sat Jul 27, 2019 8:46 am
That has to be one of the silliest charts I've seen. So, 10 years from retirement we should be saving 65% of our income?? Okay....

I have no idea what percentage DW and I save of our incomes. We pay ourselves first, pay the bills, keep food in the fridge and the lights on, spend some on things we like, and try to save some more after that. Good enough for us. We do both have pensions, and SS for DW, to look forward to and plan to move to a LCOL later on though. So, that factors into our no need to track a percentage attitude, maybe?
The purpose of the chart is to help newbies figure out how long it will take them to reach FIRE at any given savings rate. Conversely, what savings rate to target, if they have a preferred FIRE age.

So if you save 65%, you can reach FIRE in 10.5 years starting from zero. If you only save 15%, it will take you 43 years to reach FIRE starting from zero.
I have already addressed that I was reading the chart wrong. Read the thread, people. :oops:

TheDDC
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Re: How much to save?

Post by TheDDC » Sat Jul 27, 2019 11:14 am

Jablean wrote:
Fri Jul 26, 2019 11:47 pm
Wow, from looking up that most Texas teachers aren't paying money into Social Security (district by district basis) and that the Texas teacher pension fund is underfunded too I wouldn't count anything you are paying into the system as "savings". You need to be prepared for the pension system to go belly up if you stay with teaching for your career. If you leave before vesting in the pension plan you may not have a social security record for those years.
https://www.teacherpensions.org/blog/fi ... t-benefits

Do run yourself a budget and make savings one of the buckets you fill each month.
Oh please. This site has a clear agenda to push and should not be taken as gospel truth. This has been posted before

To the OP: You will not want to listen to the pension "have nots" on this forum. There are a few of them and are vocal. You earned your pension and are paying into it what you must. Go ahead and factor your pension into savings (both mandated contributions and payout after retirement). The pension is taken as a budget obligation protected as property. The state funds it's obligations via revenue as is always the case, or via investment vehicles. If one is lagging, the other one picks up.

A good point was brought up earlier in this thread about your pension system making your ineligible for SS and the WEP provision for spousal SS. That should definitely factor into your savings rate.

-TheDDC
Refreshingly, a double barrel shotgun blast of truth...

smitcat
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Re: How much to save?

Post by smitcat » Sat Jul 27, 2019 11:31 am

qwerty3020 wrote:
Sat Jul 27, 2019 7:48 am
smitcat wrote:
Sat Jul 27, 2019 6:06 am
tooluser wrote:
Sat Jul 27, 2019 12:17 am
1/3 to taxes
1/3 to expenses
1/3 to savings

This will overachieve for most goals. Which is a goal that will likely take some time to achieve. I didn't start out that way, and most people can't. Taxes and savings were lower but expenses were much higher. Ratchet down over time and you will find your way. Higher savings is a cushion against bad times.

Reducing taxes and expenses are the only way to higher savings. The hard part for some is understanding that if you are paying more taxes, but also saving more, that you will come out ahead overall. Work hard to increase your income and all three categories can go up.

Some people find they don't want to retire early, and at some point it's all sort of irrelevant. Still, I think it's nice to have the option.
33% in taxes is pretty high for most.
Nope.
https://www.nerdwallet.com/blog/taxes/h ... axes-2015/
https://www.fool.com/retirement/2017/03 ... -rate.aspx
OK - so you are saying that you are including all taxes not just payroll taxes. (real estate, sales etc)

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abuss368
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Re: How much to save?

Post by abuss368 » Sat Jul 27, 2019 11:34 am

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
Of course the pension contribution should be counted. Think of it as this way: if you did not make the contribution you would have more take home to save and invest on your own. So either way it’s counted.
John C. Bogle: "Simplicity is the master key to financial success."

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abuss368
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Re: How much to save?

Post by abuss368 » Sat Jul 27, 2019 11:35 am

Save and invest until it hurts! Then find a way to increase over time.
John C. Bogle: "Simplicity is the master key to financial success."

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abuss368
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Re: How much to save?

Post by abuss368 » Sat Jul 27, 2019 11:37 am

clicobb wrote:
Fri Jul 26, 2019 7:08 pm
So, in general I understand you should save/invest as much as possible. General rules of thumb I have seen is minimum 10% - 15% + of income. When using this advice does that include the amount of money taken out of my paycheck that goes towards pension? Or an additional 10%+ of take home pay in addition to what is taken out for pension. About 9.5% of my income is taken out for Texas Teacher Retirement pension plan.
One risk that no one knows in advance is the timing of the next bear market or financial crisis. That can have a direct correlation to retirement plans on a positive or negative manner.
John C. Bogle: "Simplicity is the master key to financial success."

smitcat
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Re: How much to save?

Post by smitcat » Sat Jul 27, 2019 11:52 am

abuss368 wrote:
Sat Jul 27, 2019 11:35 am
Save and invest until it hurts! Then find a way to increase over time.
Saving a good proportion for tomorrow is a great idea.
Living enough for today is also a great idea.
Having balance in life is the best idea.

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abuss368
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Re: How much to save?

Post by abuss368 » Sat Jul 27, 2019 12:38 pm

smitcat wrote:
Sat Jul 27, 2019 11:52 am
abuss368 wrote:
Sat Jul 27, 2019 11:35 am
Save and invest until it hurts! Then find a way to increase over time.
Saving a good proportion for tomorrow is a great idea.
Living enough for today is also a great idea.
Having balance in life is the best idea.
Agreed. Love for today and dream about tomorrow!
John C. Bogle: "Simplicity is the master key to financial success."

shell921
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Re: How much to save?

Post by shell921 » Sat Jul 27, 2019 12:58 pm

The 50/20/30 Rule (or 50/20/30 Budget) tells you to do the following:

50% of your income should go to essentials like food and shelter
20% of your income should go directly to savings or investment accounts
30% of your income is left over to spend on whatever you want

This is a general rule and will need to be adjusted based on your personal situation.

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Re: How much to save?

Post by JGoneRiding » Sat Jul 27, 2019 1:24 pm

bada bing wrote:
Sat Jul 27, 2019 5:19 am
Increasing your retirement savings percentage of gross salary is a double whammy as far as accelerating your progress to retirement. Each additional dollar saved is also a dollar reduction in current budget spending. Your nestegg grows faster and the budget it will fund in the future is reduced.

Image

I would shoot for at least 20% of gross savings rate - not including any pension contributions, mortgage principal reductions, etc.
While harder to calculate this chart wasn't intended as GROSS savings rate but rather take home post taxes and fica and I would argue health care (generally taken out of paychecks)

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