## How much do I need to save for early retirement? (math problem)

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Topic Author
Trying2learn
Posts: 48
Joined: Sat Apr 08, 2017 4:12 pm

### How much do I need to save for early retirement? (math problem)

I've calculated this a few different ways. I'm just not sure what parameters to use. My spouse and I have the following assets, want to achieve FI in 17 years and looking to see how much we need to contribute every year until then.

Assets:
401k: 360,000
rIRA: 100,000
HSA: 8,000
Taxable: 45,000
House: 820,000
529: 62,000
Cash: 200,000

Annual contributions:
401k: 38,000 with employer contributions of anywhere between 7,500 to 25,000
rIRA: 12,000 (backdoor)
HSA: 0 (not until it makes sense to have a HDHP again)
Cash: 0 (keeping this at 200,000 max, will cash flow to replenish if necessary)
529: 24,000
Taxable: part of my question

I want for us to be able to NET \$150,000 per year, in today's dollars, BEFORE paying for health insurance which I don't know how to estimate the cost for two people. In 17 years, we will be 51 and 57. Let's say life expectancy is 100 (very conservative number). No pensions or access to employer health insurance if we quit. Will want to downsize home. How much do I need to save every year until then? What confuses me is the mix of pre- and post-tax investments, cost of health insurance in the future and looking to sell the house at that time.

Asking another way, if we aim to contribute 100,000 per year (plus a separate 24,000 per year into 529, for a total of 124,000 per year), across the 401k (counting employer contributions), IRA, HSA and taxable brokerage account, what could I expect in 17 years? What would be my monthly net? I'm in CA, but what if I moved to a no income tax state at that time?
fourwheelcycle
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Joined: Sun May 25, 2014 5:55 pm

### Re: How much do I need to save for early retirement? (math problem)

Once the whole spreadsheet is set-up and working you can play with your fixed reference cells and answer your questions better than anyone on this forum can guess at it. Of course, anyone on this forum who gives you answers for your questions will tell you it all depends on the assumptions you include for your fixed reference cells, like CPI, how the stock market and bonds will do, etc., etc.

You should put all your savings, in every account, into just a two or three fund portfolio built around broad, low ER equity and bond funds - that's extra free advice that you did not ask for.

Finally, once you come up with some total savings and required annual expenditure (withdrawal) numbers to be achieved at your target retirement date you can test them at the FIRECalc web site to see how they might do over your remaining years to age 100.
Jack FFR1846
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Location: 26 miles, 385 yards west of Copley Square

### Re: How much do I need to save for early retirement? (math problem)

I agree that this is a perfect place for annual columns in a spread sheet. Start with what you have now. Include what you plan to add to savings. Include present spending. When you get to retirement time, you simply change the numbers to match. I've done this for years with annual % gain over inflation and I over write the predicted numbers when the year ends. This makes it easier to include big things like college expenses and such.

Doing this kind of task also will bring you down to reality. Maybe you can't retire at 50 something. Maybe you need to live on less money when you retire. Or perhaps you realize that maybe you're saving more than needed and at retirement, you get yourself a nice, practical car like a Porsche 911 GT-3 because rear passenger space is no longer your concern.
Bogle: Smart Beta is stupid
Tourne
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Joined: Mon Jul 17, 2017 1:42 pm

### Re: How much do I need to save for early retirement? (math problem)

When I was first starting out, I found "The Bogleheads Guide to Investing", Chapter 6 ('How Much Do You Need to Save?') really helpful in approaching this problem. That gave me the foundation that I needed to start building my spreadsheet.
Plans are nothing; planning is everything - Dwight D. Eisenhower
Grt2bOutdoors
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Location: New York

### Re: How much do I need to save for early retirement? (math problem)

Eliminate the 529 - you aren’t living off that money in retirement, unless in your \$150k number you are anticipating paying out for education from years 51-100. That doesn’t make sense to pay for that extended period of time.

With \$380k today and \$100k today, you have 3x spend but 75% if that will be subject to tax. You have the house but can you assume that it will be worth at least \$820k in 17 years? Best approach is to haircut it, that is assign a value that is probable-is it 50%, 75% of the value guaranteed - that is the conservative way of valuation. Since the bulk of your asset value is in the house, you bet wrong and there goes a big chunk of the portfolio, bet conservatively and you know you will have at least that amount. You want to calculate the minimum, not the “that would be great to have” amount.

I don’t see how you are going to get to \$150k net based on your savings. A drawdown at your ages should be in the 3% range per year. You’ll need somewhere between \$4-6 million. You don’t know what future tax rates will be and you don’t know what returns will be either. Any of those two could sink you.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Trying2learn
Posts: 48
Joined: Sat Apr 08, 2017 4:12 pm

### Re: How much do I need to save for early retirement? (math problem)

Once the whole spreadsheet is set-up and working you can play with your fixed reference cells and answer your questions better than anyone on this forum can guess at it. Of course, anyone on this forum who gives you answers for your questions will tell you it all depends on the assumptions you include for your fixed reference cells, like CPI, how the stock market and bonds will do, etc., etc.

You should put all your savings, in every account, into just a two or three fund portfolio built around broad, low ER equity and bond funds - that's extra free advice that you did not ask for.

Finally, once you come up with some total savings and required annual expenditure (withdrawal) numbers to be achieved at your target retirement date you can test them at the FIRECalc web site to see how they might do over your remaining years to age 100.
Thanks! I do track our net worth in a spreadsheet every 3-6 months, to make sure our asset allocation is still as I desire. We are doing the three-fund approach, with some company stock for my megacorp at < 5% of portfolio, and try to follow the rules for tax efficient fund placement. IRA and taxable accounts are with VG, admiral shares. I usually run everything on firecalc to make sure we're on track and it says we are with 100% success rate using some general assumptions. But we have pre and post-tax investments, some is cash that grows less than inflation, the house won't be liquidated for while, and what does everyone estimate for the price of health insurance?
texasdiver
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Location: Vancouver WA

### Re: How much do I need to save for early retirement? (math problem)

If you want \$150,000 in today's dollars you need to figure out what that will be in 17 years. No one really knows what the inflation rate will be going forward, so I just took the historic inflation rate for the 17 years from 2003 to 2020 and plugged \$150,000 into the inflation calculator here: https://www.calculator.net/inflation-calculator.html and found out that we have had 42% inflation in the past 17 years and that your \$150,000 in 2003 is now equal to \$213,278.29 in 2020.

To be conservative, round that up to \$220,000 annual income as what you will need in 17 years to equal \$150,000 in today's dollars. Using the 4% rule, that level of annual income would require a nest-egg of \$5.5 million.

So how to do you get to \$5.5 million?

You can plug your numbers into an investment returns calculator and see what kind of annual contributions you will need to make to get there under various market returns. Say 5%, 7%, and 9% (or whatever future returns you want to use) and that will tell you what you need to save under each scenario. Here is one such calculator:

https://www.bankrate.com/calculators/re ... lator.aspx

Your current assets minus the house are about \$500,000 so I plugged that in as your starting balance. According to this calculator you will need to save the following amounts each year to get there

5% future returns requires annual savings of about \$161,000 to reach \$5.5 million in 17 years
7% future returns requires annual savings of about \$119,000 to reach \$5.5 million in 17 years
9% future returns requires annual savings of \$83,000 to reach \$5.5 million in 17 years
10% future returns requires annual savings of \$67,000 to reach \$5.5 million in 17 years.
Last edited by texasdiver on Mon Jun 15, 2020 2:04 pm, edited 1 time in total.
Perkunas
Posts: 291
Joined: Tue May 10, 2016 7:24 pm

### Re: How much do I need to save for early retirement? (math problem)

Future Value Calculator is a great way to do simple "napkin math." https://www.calculator.net/future-value-calculator.html. A spreadsheet would be more robust but this would be easier/quicker.

When will your mortgage be paid off?
Will your 529 cover 100% of college? How many years til you will use it?
Even with employer match of \$25k, it does not look like you are contributing the \$100k/year that you mentioned.
Does \$200k cash earn any interest?

You can do a future value calculation 17 years into the future, enter any rate of return you choose, and enter your current net worth, and it'll give you the future value of your net worth....Assuming the future value is ~25-30x your desired annual income, then you're roughly on track.
Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

### Re: How much do I need to save for early retirement? (math problem)

Trying2learn wrote: Mon Jun 15, 2020 1:52 pm what does everyone estimate for the price of health insurance?
I put in \$20k starting next year (assumed retirement year) and go up 5% annually. I'll be 64 next year, so maybe medicare will be cheaper. I don't know. DW may continue to work and carry the family insurance, which would be half that area. That number includes all premiums, copays, denials for flex spending, non-covered things.

I picked that out of the air to a large extent. I'm big on being conservative and my plan calls for a 2% withdrawal rate.
Bogle: Smart Beta is stupid
FiveK
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### Re: How much do I need to save for early retirement? (math problem)

Trying2learn wrote: Mon Jun 15, 2020 11:43 am I want for us to be able to NET \$150,000 per year, in today's dollars, BEFORE paying for health insurance which I don't know how to estimate the cost for two people. In 17 years....
In 17 years a lot can happen, so don't worry about making precise calculations now. Some rough estimates follow.

\$150000/yr / 4%/yr = \$3.75 million. The 4%/yr is an estimated safe withdrawal rate. This assumes the \$150000/yr includes all expenses, including taxes. If you want that \$150K to be after taxes, more guesswork on your effective tax rate in 17 years is needed.
Will want to downsize home. How much do I need to save every year until then? What confuses me is the mix of pre- and post-tax investments, cost of health insurance in the future and looking to sell the house at that time.
Yes, you need to make assumptions about many things, including investment rates of return, net income from selling one house and buying (or renting) another, etc. You have ~\$500K invested now. Using a 3.5% real return, you need to invest ~\$120K/yr over the next 17 years to reach \$3.75 million. This ignores the 529 and the house.
Asking another way, if we aim to contribute 100,000 per year...across the 401k (counting employer contributions), IRA, HSA and taxable brokerage account, what could I expect in 17 years? What would be my monthly net?
With the same assumptions as above, that gets you ~\$3.25 million. \$3.25 million * 4%/yr * 1 yr/12 mo = \$10.8K/mo.

See FV Function - Examples, How to Use FV Function Excel Formula or similar for details on the calculations.
jjface
Posts: 3100
Joined: Thu Mar 19, 2015 6:18 pm

### Re: How much do I need to save for early retirement? (math problem)

\$100k a year sounds about right for your goals. Lots of variables over 17 years so start with that and adjust as time goes by. You can't really be that precise right now.
tibbitts
Posts: 12549
Joined: Tue Feb 27, 2007 6:50 pm

### Re: How much do I need to save for early retirement? (math problem)

These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
dandinsac
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### Re: How much do I need to save for early retirement? (math problem)

I’d recommend looking at the Maxifi Planner software. There is a yearly cost, but I’m guessing it would be better than building a spreadsheet from scratch. I use it extensively to better understand the tradeoffs in financial decisions, such as buying a new house, relocating to another state, changing my retirement age, etc.
Dottie57
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### Re: How much do I need to save for early retirement? (math problem)

tibbitts wrote: Mon Jun 15, 2020 2:27 pm These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
+1 - not amused exactly but perplexed.

My strategy was to max out 401k, then Roth, the add to savings account and brokerage account. In other words I did my best while still having enough spending to enjoy my life. I couldn’t max things at first, but worked at increasing every year.

In addition to savings, you needs to keep track of spending as you need to match to retirement savings/income.
Topic Author
Trying2learn
Posts: 48
Joined: Sat Apr 08, 2017 4:12 pm

### Re: How much do I need to save for early retirement? (math problem)

tibbitts wrote: Mon Jun 15, 2020 2:27 pm These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
I know. I'm not going to beat myself up if we don't achieve it every single year. Who knows? Maybe one of us will be laid off tomorrow or decide to be a SAHP. But I'd still like to know. It will be tweaked as we go and as things change. My reasoning for posting is not that I have a big desire to retire in 17 years but so we have permission to spend the rest while desiring FI at a level we choose.
Topic Author
Trying2learn
Posts: 48
Joined: Sat Apr 08, 2017 4:12 pm

### Re: How much do I need to save for early retirement? (math problem)

Dottie57 wrote: Mon Jun 15, 2020 2:39 pm
tibbitts wrote: Mon Jun 15, 2020 2:27 pm These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
+1 - not amused exactly but perplexed.

My strategy was to max out 401k, then Roth, the add to savings account and brokerage account. In other words I did my best while still having enough spending to enjoy my life. I couldn’t max things at first, but worked at increasing every year.

In addition to savings, you needs to keep track of spending as you need to match to retirement savings/income.
This wouldn't work for my personality. I tend to save first, spend second. If I followed the 'max everything' strategy, including taxable accounts, I would live like a peasant and die as royalty.
geerhardusvos
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### Re: How much do I need to save for early retirement? (math problem)

Trying2learn wrote: Mon Jun 15, 2020 11:43 am I've calculated this a few different ways. I'm just not sure what parameters to use. My spouse and I have the following assets, want to achieve FI in 17 years and looking to see how much we need to contribute every year until then.

Assets:
401k: 360,000
rIRA: 100,000
HSA: 8,000
Taxable: 45,000
House: 820,000
529: 62,000
Cash: 200,000

Annual contributions:
401k: 38,000 with employer contributions of anywhere between 7,500 to 25,000
rIRA: 12,000 (backdoor)
HSA: 0 (not until it makes sense to have a HDHP again)
Cash: 0 (keeping this at 200,000 max, will cash flow to replenish if necessary)
529: 24,000
Taxable: part of my question

I want for us to be able to NET \$150,000 per year, in today's dollars, BEFORE paying for health insurance which I don't know how to estimate the cost for two people. In 17 years, we will be 51 and 57. Let's say life expectancy is 100 (very conservative number). No pensions or access to employer health insurance if we quit. Will want to downsize home. How much do I need to save every year until then? What confuses me is the mix of pre- and post-tax investments, cost of health insurance in the future and looking to sell the house at that time.

Asking another way, if we aim to contribute 100,000 per year (plus a separate 24,000 per year into 529, for a total of 124,000 per year), across the 401k (counting employer contributions), IRA, HSA and taxable brokerage account, what could I expect in 17 years? What would be my monthly net? I'm in CA, but what if I moved to a no income tax state at that time?
I recommend you use Personal Capital for an initial calculation. I sent you a DM.
VTSAX and chill
smitcat
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### Re: How much do I need to save for early retirement? (math problem)

Trying2learn wrote: Mon Jun 15, 2020 2:51 pm
tibbitts wrote: Mon Jun 15, 2020 2:27 pm These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
I know. I'm not going to beat myself up if we don't achieve it every single year. Who knows? Maybe one of us will be laid off tomorrow or decide to be a SAHP. But I'd still like to know. It will be tweaked as we go and as things change. My reasoning for posting is not that I have a big desire to retire in 17 years but so we have permission to spend the rest while desiring FI at a level we choose.
Have you tried out any calculators like the extended IORP?
You can play with them and vary contributions, SS, portfolio type and performance, etc and get a feel for what makes larger changes in outcome.
Topic Author
Trying2learn
Posts: 48
Joined: Sat Apr 08, 2017 4:12 pm

### Re: How much do I need to save for early retirement? (math problem)

Perkunas wrote: Mon Jun 15, 2020 2:00 pm Future Value Calculator is a great way to do simple "napkin math." https://www.calculator.net/future-value-calculator.html. A spreadsheet would be more robust but this would be easier/quicker.

When will your mortgage be paid off?
Will your 529 cover 100% of college? How many years til you will use it?
Even with employer match of \$25k, it does not look like you are contributing the \$100k/year that you mentioned.
Does \$200k cash earn any interest?

You can do a future value calculation 17 years into the future, enter any rate of return you choose, and enter your current net worth, and it'll give you the future value of your net worth....Assuming the future value is ~25-30x your desired annual income, then you're roughly on track.
- No mortgage.
- I hope the 529 will cover 100% of college. My child is 1 year old so in 17 years. We've been doing \$1000/month and plan to do the same for a second child too.
- We actually did contribute over \$100,000 in the last 12 months but I'm including building back the Efund since we dipped from it for the house and renovations.
- I believe it earns something like 1% at the moment. Less than inflation.
Grt2bOutdoors
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### Re: How much do I need to save for early retirement? (math problem)

Trying2learn wrote: Mon Jun 15, 2020 2:55 pm
Dottie57 wrote: Mon Jun 15, 2020 2:39 pm
tibbitts wrote: Mon Jun 15, 2020 2:27 pm These discussions of far-off retirement always amuse me. There are just too many intervening events that are completely unexpected that will come along to change everything. You just do the best you can and hope for the best. When I look back at my own career, nothing turned out the way I'd thought.
+1 - not amused exactly but perplexed.

My strategy was to max out 401k, then Roth, the add to savings account and brokerage account. In other words I did my best while still having enough spending to enjoy my life. I couldn’t max things at first, but worked at increasing every year.

In addition to savings, you needs to keep track of spending as you need to match to retirement savings/income.
This wouldn't work for my personality. I tend to save first, spend second. If I followed the 'max everything' strategy, including taxable accounts, I would live like a peasant and die as royalty.
Don’t you mean the opposite? You are a spend first, save what’s left over letting you live like royalty now? That is what you are saying above.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
HomeStretch
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### Re: How much do I need to save for early retirement? (math problem)

Will you and spouse be eligible for social security benefits? If yes, calculate your estimated annual income at your expected claiming age (between ages 62 and 70) at SSA.gov.

You can go onto the national or state healthcare exchange to get an estimate of medical premiums today. Your cost can be reduced by subsidies if you can manage income. The ACA plans in my state have (much) higher deductibles so be sure to take that out-of-pocket (OOP) expense into account if true for your state. If you and spouse will be eligible for Medicare at age 65, your healthcare costs starting at age 65 may be significantly less than your ACA costs. You can do an internet search on current Medicare premiums.

Your net \$150k spending would be reduced by SS income after claiming age and increased by healthcare costs (ACA/Medicare + OOP dental/vision/hearing), income taxes and lumpy expenses like car purchases/major home repairs.