Prefunding retirement

[B4Xt3r]

Hi all,

When can one reasonable consider retirement “prefunded” in the sense that the future value of your present savings are roughly equal to the expected future liability of retirement?

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

[Triple digit golfer]

I would say no, generally speaking.

1. You may be forced into retirement or lower wage work sooner than you would like.

2. What are you going to do with the money?

I said generally speaking. If you're still on track for retirement and want to live a little and still be responsible and save, then sure, go for it. But that has nothing to do with whether retirement is "fully funded" or not. If you are saving 40% and want to drop to 30%, I don't see a problem, but always realize that less savings means more working years. You are trading time later for time now.

It is a balance that only you can decide.

[JoeRetire]

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

You are assuming a consistent 6.5% compound interest rate over 30 years? Some would argue with that assumed rate of return. Are you imagining 100% stock allocation? Or do you have some other asset allocation that you assume would return 6.5% over the long term?

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

You can choose to assume that your investments will return 6.5% for 30 years if you choose.
And I suppose you could decide that you can live on $60,000 withdrawals for the next 30 or so years.

What are you imagining that the inflation rate will be over the next 30 years? That will tell you what the spending power of $1.5M will be in today's dollars.

Finally, you would need to take a guess at what your annual retirement expenses would be, 30 years or so down the road. Got a good handle on that?

Perhaps those will allow you to feel comfortable saving no more than than the company 401k match, after age 30. Not what I would do, but we each get to choose our own financial path and live with the results.

[B4Xt3r]

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

You are assuming a consistent 6.5% compound interest rate over 30 years? Some would argue with that assumed rate of return. Are you imagining 100% stock allocation? Or do you have some other asset allocation that you assume would return 6.5% over the long term?

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

You can choose to assume that your investments will return 6.5% for 30 years if you choose.
And I suppose you could decide that you can live on $60,000 withdrawals for the next 30 or so years.

What are you imagining that the inflation rate will be over the next 30 years? That will tell you what the spending power of $1.5M will be in today's dollars.

Finally, you would need to take a guess at what your annual retirement expenses would be, 30 years or so down the road. Got a good handle on that?

Perhaps those will allow you to feel comfortable saving no more than than the company 401k match, after age 30. Not what I would do, but we each get to choose our own financial path and live with the results.

5.5% real was the assumed CAGR, and therefore the 1.5 M for purposes of the discussion would be 2021 dollars.

[JoeRetire]

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

You are assuming a consistent 6.5% compound interest rate over 30 years? Some would argue with that assumed rate of return. Are you imagining 100% stock allocation? Or do you have some other asset allocation that you assume would return 6.5% over the long term?

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

You can choose to assume that your investments will return 6.5% for 30 years if you choose.
And I suppose you could decide that you can live on $60,000 withdrawals for the next 30 or so years.

What are you imagining that the inflation rate will be over the next 30 years? That will tell you what the spending power of $1.5M will be in today's dollars.

Finally, you would need to take a guess at what your annual retirement expenses would be, 30 years or so down the road. Got a good handle on that?

Perhaps those will allow you to feel comfortable saving no more than than the company 401k match, after age 30. Not what I would do, but we each get to choose our own financial path and live with the results.

5.5% real was the assumed CAGR, and therefore the 1.5 M for purposes of the discussion would be 2021 dollars.

Does $230,000 compounded annually at 5.5% interest rate over 30 years yield $1.5M? Seems like you would need either a higher rate or more years.

[jarjarM]

5.5% real was the assumed CAGR, and therefore the 1.5 M for purposes of the discussion would be 2021 dollars.

Does $230,000 compounded annually at 5.5% interest rate over 30 years yield $1.5M? Seems like you would need either a higher rate or more years.

Just punched into the calculator and got that 5.5% CAGR returns 5x, 230k turn to $1.15M. Also, given the high PE10, 5.5% real seems a bit high for planning purpose. Just a cursory check, 19070 - 2000, CAGR with dividends reinvested is 4.3% real, that included an amazing run of the market.

[JoeRetire]

5.5% real was the assumed CAGR, and therefore the 1.5 M for purposes of the discussion would be 2021 dollars.

Does $230,000 compounded annually at 5.5% interest rate over 30 years yield $1.5M? Seems like you would need either a higher rate or more years.

Just punched into the calculator and got that 5.5% CAGR returns 5x, 230k turn to $1.15M. Also, given the high PE10, 5.5% real seems a bit high for planning purpose. Just a cursory check, 19070 - 2000, CAGR with dividends reinvested is 4.3% real, that included an amazing run of the market.

Seems to me you would need about a 6.5% CAGR to turn $230k into $1.5M in 30 years.

Maybe that could happen. Maybe not.
You still need to decide if the purchasing power of the safe withdrawal amount from the eventual $1.5M would meet your needs in 30 years or not.

[bogcir]

Hi all,

When can one reasonable consider retirement “prefunded” in the sense that the future value of your present savings are roughly equal to the expected future liability of retirement?

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

This is the premise behind "coastFIRE", so you should search for that term specifically. There are people who advocate doing this and stop saving for retirement at a certain age when their retirement funding is seemingly assured. Of course, there's risk, but you can always shift gears along the way.

[B4Xt3r]

1.055^(65-30)=6.5.
https://www.wolframalpha.com/input/?i=1 ... 2865-30%29

0.230M*6.5x=1.5M

1.5M seems "playing the right game" for retirement. Further thoughts?

[BernardShakey]

There is so much uncertainty over a 25-40 year timeframe that I would feel uncomfortable coasting with a lump sum of 230k and a modest savings rate. I don't know your situation and circumstances, but these kinds of generic questions come to mind:

1) what will inflation look like, what will taxes be, will social security be reduced
2) will I continue to earn what I'm making now, and see my salary increase
3) will I adequately keep up my skills in my field even after 20-25 years
4) what happens if my industry changes and I end up earning less in later years,
5) will I become disabled
6) am I married, or will I get married, what happens if I get divorced
7) will I have kids, if so how many, will those kids go to college (and grad school), and will I help them fund it

And on and on come the questions.

Here's a lesson learned from a friend. Worked in big megacorp since graduating college at 22, saved modestly as you have proposed partly because the company offered a nice defined benefit pension. At 49 the company froze the pension, meaning she would get only what she had earned to date and would miss out on the more lucrative service credits in her later, higher earning years. So, at 60, instead of receiving what would have been a handsome $80k annual pension it will be more like $45k. She's now scrambling to save as much as she can in her 50's to make up the shortfall, all the while she has a mortgage payment, kids heading to college, and a husband who recently lost his job. And that shortfall is significant when you translate into the required savings to generate that missing $35k of annual income ($875,000).

Keep saving! At least 20 cents of every dollar, 30 cents if you can.

[B4Xt3r]

...
Keep saving! At least 20 cents of every dollar, 30 cents if you can.

Thanks for the post. I guess I kinda view savings for savings sake as a risk. At some point, haven’t you funded the reasonably forseeable liabilities?

[Jags4186]

The problem is that if you slow down savings you are by definition increasing spending. This requires you to have more money to maintain that spending level when you stop working. And as you get older you presumably would be earning more and spending more, further requiring additional savings to augment your additional spending.

The argument against “save less to live now” is that if one truly saves a high % of their income (30%+) from age 22 on, you should be able to retire well before 65. I mean, I’d rather retire at 55 than splurge a little more on stuff when I’m 30 and work until 65+. If you keep yourself in good shape, 55 is still very young and you could have many many years of exciting travel, sports, etc. if thats what you want.

[KlangFool]

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

B4Xt3r,

https://www.madfientist.com/how-to-acce ... nds-early/

1) I do not consider a contribution to 401K as "retirement savings". I can withdraw from 401K tax-free and penalty-free before 59 1/2 years old.

2) I am using the 401K as a tax-management tool.


<<For example, potentially just down to a company match in a 401k?>>


3) Then, the question becomes why would I choose to pay more tax by reducing my contribution the 401K? How does this make any sense?

4) I have a choice of

A) pay more taxes

or

B) keep more of my own money in my own pocket and spend it.

Why would I choose (A)?


1) I can max up my 401K and put the tax savings into the Roth IRAs. Then, I can spend the Roth IRA contribution on anything that I want.

Or,

2) I do not max up my 401K. I pay an additional 20+% to 30+% taxes on all my additional spending.


Why would I do (2)? Which one would let me spend more money instead of paying more taxes?


KlangFool

[KlangFool]

OP,

If you are rich enough, what is there to stop you to spend money on anything? Why you must consider that portfolio as "retirement savings"?


You can use the 401K as a tax management tool. Use the 20+% to 30+% tax savings to build up your portfolio quickly. And, you can spend some of the tax savings. If and when your portfolio is big enough, besides your salary, you can spend some of your portfolio growth too. When you are rich enough, you have the flexibility.

This is not impossible. It is a mathematical certainty for someone with a 30+% or higher gross saving rate.


KlangFool

[Exchme]

So 5.5% return on top of inflation could happen, or not. Realize that some of that money belongs to Uncle Sam, you are just holding it for him. But I think the biggest issue is unexpected spending needs in the decades between now and then. Health issues, family needs, job loss are just a few of the risks that are all too real. It wouldn't take too many bumps in the road to derail that train.

[dboeger1]

There are too many variables and unknowns for there to be a universal answer. It would be very different for 2 people, only 1 of whom has built up side sources of income or has an easy pathway back to work in case of a shortfall. The longer you make the time horizon, the more unknowns there are with regulation, tax rates, prolonged market crashes, black swan events, unforeseen medical expenses, inflation, etc. I just don't think this is a good way to plan for retirement. I know coastFIRE people do this, but I suspect most actual practitioners of this have marketable skills and sufficient energy and motivation to increase income or reduce expenses going forward should they need.

Personally, I think the best way to do FIRE is to reach their number in current dollars and then do whatever you want. This gives you a lot of peace of mind, and I don't think most people approaching retirement regret having more than they need. Part of the joy of spending is knowing you can comfortably afford whatever you're buying. Buying things you can barely afford can actually cause a lot of stress, especially if they get lost or broken. If your reason for stopping retirement savings is to give yourself permission to spend, hitting your full number early is the ultimate permission to spend.

[dboeger1]

The problem is that if you slow down savings you are by definition increasing spending. This requires you to have more money to maintain that spending level when you stop working. And as you get older you presumably would be earning more and spending more, further requiring additional savings to augment your additional spending.

The argument against “save less to live now” is that if one truly saves a high % of their income (30%+) from age 22 on, you should be able to retire well before 65. I mean, I’d rather retire at 55 than splurge a little more on stuff when I’m 30 and work until 65+. If you keep yourself in good shape, 55 is still very young and you could have many many years of exciting travel, sports, etc. if thats what you want.

I think the premise is that some might value earlier spending greater than spending in retirement. For example, you won't necessarily get to take your kids on vacation or send them to expensive private schools or live in a big house with multiple floors when you're older in retirement. I think it makes sense. Early retirement is a fairly new craze. It used to be common (and quite frankly still is, even among people with minimal savings) to just spend whatever's left over, and having a higher-paying job meant you go to enjoy the finer things in life, rather than retiring early. I suspect over the years, the emphasis on the RE part of FIRE will largely be replaced by advice on delaying spending to a particular decade, or perhaps milestones in one's life, based on subjective value. Early retirement sounds great to a lot of younger people in soul-sucking corporate jobs, but what many of them would probably actually prefer in the long run is finding meaningful work and getting to spend money on enjoyable luxuries and valuable experiences with family and friends.

[protagonist]

Hi all,

When can one reasonable consider retirement “prefunded” in the sense that the future value of your present savings are roughly equal to the expected future liability of retirement?

Never. Life is an eternal gamble and anything, good or bad, can (and often does) happen. If you retire too soon you might run out of money. If you retire too late you might get sick or die before you get to enjoy the fruits of a lifetime of labor. So no matter what you do , you are taking a risk one way or the other. Accept that fact, retire when it feels right to you, hope you are making a wise decision and be happy with it.

I know people who quit work with almost nothing saved, live frugally and are VERY happy in their retirement. I know others who are very wealthy, have everything anybody could hope for, and are miserable. Contrary to the old cliche, what is good for the goose is not necessarily good for the gander.
As much as you wish you could, you cannot create certainty in a chaotic universe.

(And another point : Does the hypothetical 30 y.o. with $230K saved have any clue how much $1.5M will be worth in the year 2056? According to the first hit on Google, the median salary in the US when I graduated college in 1972 was $7133.80, and typically there was only one working member of a couple. You could have lived reasonably well on that I suppose. Today the median household income is close to $90K.)

[protagonist]

1.055^(65-30)=6.5.
https://www.wolframalpha.com/input/?i=1 ... 2865-30%29

0.230M*6.5x=1.5M

1.5M seems "playing the right game" for retirement. Further thoughts?

So people who have not saved 1.5M, and never hope to save that much (like the vast majority of people), should never retire and are doomed to work until they die?

I'll have to tell that to most of my neighbors.

[Jags4186]

The problem is that if you slow down savings you are by definition increasing spending. This requires you to have more money to maintain that spending level when you stop working. And as you get older you presumably would be earning more and spending more, further requiring additional savings to augment your additional spending.

The argument against “save less to live now” is that if one truly saves a high % of their income (30%+) from age 22 on, you should be able to retire well before 65. I mean, I’d rather retire at 55 than splurge a little more on stuff when I’m 30 and work until 65+. If you keep yourself in good shape, 55 is still very young and you could have many many years of exciting travel, sports, etc. if thats what you want.

I think the premise is that some might value earlier spending greater than spending in retirement. For example, you won't necessarily get to take your kids on vacation or send them to expensive private schools or live in a big house with multiple floors when you're older in retirement. I think it makes sense. Early retirement is a fairly new craze. It used to be common (and quite frankly still is, even among people with minimal savings) to just spend whatever's left over, and having a higher-paying job meant you go to enjoy the finer things in life, rather than retiring early. I suspect over the years, the emphasis on the RE part of FIRE will largely be replaced by advice on delaying spending to a particular decade, or perhaps milestones in one's life, based on subjective value. Early retirement sounds great to a lot of younger people in soul-sucking corporate jobs, but what many of them would probably actually prefer in the long run is finding meaningful work and getting to spend money on enjoyable luxuries and valuable experiences with family and friends.

That may be reasonable if:

1) You are steadily employed and never need to dip into your assets
2) You are able to ratchet down your spending in retirement

I think people underestimate the chance of neither these happening. Most people become involuntarily retired. What if you become involuntarily retired before your carefully selected retirement age? And let’s pretend you plan for a $60k/yr retirement but have been living a $120k/yr lifestyle. I don’t think it’s so easy to just cut 50% of your spending.

I think for most people, your time is better spent looking for higher income opportunities instead of looking for excuses to save less and spend more. After all, if you’re a $100k household income saving say 5% you have $95k expendable income you’re way worse off than if you increase your income to $150k you can save 30% and spend $105k. And of course, once you get to a certain income level the excuse of “better house, vacations with the kids” goes away and it becomes more of a conversation around “do I want to drive a Toyota or a Tesla” or “do I want to vacation in the south of France or Florida”.

[Normchad]

Time in the market, and investing early is so vitally important. Trying to prefund retirement is a good idea.

I had a similar plan. In my 20s and 30s, I saved until it hurt. I figured if I got it in early, then I could cut it back or stop all together in my 40s, when college expenses would start up, etc.

I still heartily endorse that plan.

When I got to that age though, my saving had become habitual, and I just kept it up. As a result, I accumulated my “retirement number at 65”, a whole lot earlier than I planned.

[CurlyDave]

...As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

If a 30 year old wants to retire at 65, today we would project that he should plan for a 30 year retirement. 35 years in the future he might need to plan for 35 or even 40 years.

So you are taking someone who is 30, with probably 5-8 years of work experience and projecting between 65 and 75 years into the future.

To me this sounds crazy. 50 years ago telephones had cords and rotary dials on them, TVs were mostly black and white, and computers were all mainframes which existed in a few specially air conditioned rooms in big businesses and university computing centers. And you are going to project further than that into the future.

[BernardShakey]

...
Keep saving! At least 20 cents of every dollar, 30 cents if you can.

Thanks for the post. I guess I kinda view savings for savings sake as a risk. At some point, haven’t you funded the reasonably forseeable liabilities?

Yep, it's just that "reasonably foreseeable" is really hard to define when you are talking about 30, 40, 50 years in the future. I'm nearing retirement at 59 now and could never have foreseen all that's happened since I was 29. Had I dialed back the savings in my 30's, I'd be working to at least 65.

[brian91480]

If your savings goal is $1.5 million... save and invest at a rate that projects $1.75 million. Give yourself a margin for error. If 20 years from now the end result of your investments is not enough money... you get no do over. But if you have more money than you expected... even better.

[mnsportsgeek]

I’m in a similar boat. We’ve been very fortunate to have the ability (and also learned the value) to save a good chunk of our income since graduating college. There is a decent probability that we could not save another dollar and have enough to retire at retirement age.

The approach I’ve decided to take is to continue to save aggressively for however long we have two incomes. The end result will either be early retirement if we both work full careers, or we become a 1 income household without the pressure to save 20+% of 1 income while still having a good chance of early retirement.

But to answer your question, I do think it’s reasonable to relax savings. I wouldn’t stop, but you can slow down if you’ve already saved that much by 30 and focus on other financial goals. You’re in a position where you can afford to pay for your kids college, splurge on a vacation or two, buy a fun car, etc. and appreciate what you’ve accomplished to date. Just be careful about too much lifestyle creep. It can get out of hand quickly.

[JoeRetire]

So people who have not saved 1.5M, and never hope to save that much (like the vast majority of people), should never retire and are doomed to work until they die?

Of course it depends on how much (if anything) they have actually saved, and what other sources of income (social security, pensions, etc) they have.

Some will indeed need to work until they die.
Others will need to live frugally in retirement.

There's nothing magic about $1.5M.

[Olemiss540]

1.055^(65-30)=6.5.
https://www.wolframalpha.com/input/?i=1 ... 2865-30%29

0.230M*6.5x=1.5M

1.5M seems "playing the right game" for retirement. Further thoughts?

I personally plan for a retirement at 55 (to have some buffer in car of layoff or low investment returns with a nest egg large enough to cover my CURRENT expenses when back checking my progress towards FI. I run these numbers with 2%,4%,6% rates of return top have an idea of variance.

What is you current spending and savings rates? What upcoming expenses do you feel are under funded necessitating cutting back on retirement?

[getthatmarshmallow]

I think it's reasonable to adjust your savings rate to your needs, and preloading your retirement, and backing off can make sense if (say) you're trying to ensure a good quality of life for your kids or you're saving for a down payment for a house.

The challenge is figuring out an exit strategy - there's a real risk of inflating your lifestyle to the point where your preload means a lower standard of living than you want in retirement. (Bogleheads overstate this risk, I think. Many people downsize or cut back spending as they age.). And it's good not to assume you'll never be unemployed or ill, etc. So if by preloading you mean "I never need to save again", no. If you mean, "is it OK to back off to 15% while I'm trying to save for a house?", sure. 50/30/20 works well for me as a rule of thumb.

[protagonist]

So people who have not saved 1.5M, and never hope to save that much (like the vast majority of people), should never retire and are doomed to work until they die?

Of course it depends on how much (if anything) they have actually saved, and what other sources of income (social security, pensions, etc) they have.

Some will indeed need to work until they die.
Others will need to live frugally in retirement.

There's nothing magic about $1.5M.

My mom and her husband never had more than about 20K-30K saved. They retired in 1980 to Boynton Beach FL in a moderately priced, nice gated community with tennis court, swimming pool, clubhouse, cafe etc....paid for her home when it was built in 1980 in full with $80K cash from the sale of her home in NJ. It was a 2 br 2 ba villa, 1363 sq ft with a nice garden on a lagoon. She lived quite well on a small pension until she died in 2005. She stayed out of debt. When she died in 2005 I inherited her cherry 1993 Toyota Camry with about 50K miles on it. She didn't travel much but she had everything she needed. She went out to eat not infrequently but could not afford luxuries.

She had $12K in the bank when she died.

I think my mom was the typical US retiree. Those with 1.5M in the bank are a rare breed.

[JoeRetire]

So people who have not saved 1.5M, and never hope to save that much (like the vast majority of people), should never retire and are doomed to work until they die?

Of course it depends on how much (if anything) they have actually saved, and what other sources of income (social security, pensions, etc) they have.

Some will indeed need to work until they die.
Others will need to live frugally in retirement.

There's nothing magic about $1.5M.

My mom and her husband never had more than about 20K-30K saved. They retired in 1980 to Boynton Beach FL in a moderately priced, nice gated community with tennis court, swimming pool, clubhouse, cafe etc....paid for her home when it was built in 1980 in full with $80K cash from the sale of her home in NJ. It was a 2 br 2 ba villa, 1363 sq ft with a nice garden on a lagoon. She lived quite well on a small pension until she died in 2005. She stayed out of debt. When she died in 2005 I inherited her cherry 1993 Toyota Camry with about 50K miles on it. She didn't travel much but she had everything she needed. She went out to eat not infrequently but could not afford luxuries.

She had $12K in the bank when she died.

I think my mom was the typical US retiree. Those with 1.5M in the bank are a rare breed.

Yup. Living beneath your means in retirement is all that is required.
If you have $1.5M your means are more significant. If you have $30k and a small pension, you must live on less.
Either way is doable.

For those that have $30k (or nothing at all) and no pension, they must live on even less. For some, that means they are better off working.

[02nz]

I've seen several threads along the same lines as this one recently. Could just be my memory, but I definitely don't recall such threads back in March. OP, any idea why that might be?

[michaeljc70]

I agree with Klangfool and wouldn't want to miss out on the tax savings from the 401k contributions. If you think you have enough (or close) saved I'd still max out the 401k unless you are really struggling to make ends meet. As others pointed out that will also help with future uncertainty with regard to job/income stability and market returns.

[qwertyjazz]

OP search coast fire on this board and internet
That is what you are talking about

As to a subtle point - you may want to net no longer save for retirement but if you can shift taxable funds to tax deferred it might still be a good idea - free money

[protagonist]

So people who have not saved 1.5M, and never hope to save that much (like the vast majority of people), should never retire and are doomed to work until they die?

Of course it depends on how much (if anything) they have actually saved, and what other sources of income (social security, pensions, etc) they have.

Some will indeed need to work until they die.
Others will need to live frugally in retirement.

There's nothing magic about $1.5M.

My mom and her husband never had more than about 20K-30K saved. They retired in 1980 to Boynton Beach FL in a moderately priced, nice gated community with tennis court, swimming pool, clubhouse, cafe etc....paid for her home when it was built in 1980 in full with $80K cash from the sale of her home in NJ. It was a 2 br 2 ba villa, 1363 sq ft with a nice garden on a lagoon. She lived quite well on a small pension until she died in 2005. She stayed out of debt. When she died in 2005 I inherited her cherry 1993 Toyota Camry with about 50K miles on it. She didn't travel much but she had everything she needed. She went out to eat not infrequently but could not afford luxuries.

She had $12K in the bank when she died.

I think my mom was the typical US retiree. Those with 1.5M in the bank are a rare breed.

Yup. Living beneath your means in retirement is all that is required.
If you have $1.5M your means are more significant. If you have $30k and a small pension, you must live on less.
Either way is doable.

For those that have $30k (or nothing at all) and no pension, they must live on even less. For some, that means they are better off working.

Yes, I agree.

But one thing I think some posters on Bogleheads need to realize is that, as a group, we are probably quite a bit more affluent than most Americans (thus our interest in an investment forum).

So when people post things like the need for $1.5M saved to be comfortable in retirement (in the past I think I recall seeing posts requiring $3M), or "you can't live in NYC/SF/etc on less than a $250K salary" , you are doing many a disservice by superimposing your set-point for "comfort" on the general population. When people come here looking for advice, comments like the above are , in my humble opinion, not at all helpful or realistic, and can be destructive, to most Americans who live happily with a lot less (including the vast majority of fellow retirees that I know and many people I know who live in NYC, where I also live part-time).

I see this so often here that I think it may be a good idea to have a discussion around this issue. Am I alone in feeling this way about such posts? Do others feel the same way? If so I may start a thread.

[JoeRetire]

But one thing I think some posters on Bogleheads need to realize is that, as a group, we are probably quite a bit more affluent than most Americans (thus our interest in an investment forum).

There's no doubt that most folks here are in a different place financially than the average American.
And there's no doubt that many folks here write answers that fit their own experience far more than the experience the average American faces.

So when people post things like the need for $1.5M saved to be comfortable in retirement (in the past I think I recall seeing posts requiring $3M), or "you can't live in NYC/SF/etc on less than a $250K salary" , you are doing many a disservice by superimposing your set-point for "comfort" on the general population. When people come here looking for advice, comments like the above are , in my humble opinion, not at all helpful or realistic, and can be destructive, to most Americans who live happily with a lot less (including the vast majority of fellow retirees that I know and many people I know who live in NYC, where I also live part-time).

I try to make sure I only answer in the context of the specific question. And if the question doesn't include things like "expenses" and "goals", then it's hard to give a number answer.

"You can live solely on social security" will work for some, but not for others, depending on their expenses and goals.
"You need $1.5M" makes sense for some, but obviously not for others.

I see this so often here that I think it may be a good idea to have a discussion around this issue. Am I alone in feeling this way about such posts? Do others feel the same way? If so I may start a thread.

I'm not sure it would do any good. People do what they do.

[Elsebet]

I work for a company that offers both a nice 401k match and pension. I will have 15 years in and be fully vested in 2035 when I'm 58 and plan to retire then. The pension alone would likely cover our basic living expenses.

However, the matching is not guaranteed to continue. Nor is the pension guaranteed to be there in 15 years. The company may go under or be acquired before then too. One (or both) of us might become disabled, get laid off, or have to take pay cuts. Thus I still max my 401k and HSA, both mine and my husband's Roth IRA, and automatically contribute to my taxable account each month. Make hay while the sun shines.

We use our bonuses as splurge money and enjoy spending it, usually on a vacation or something for the house. However spending a lot of money just never did anything for us. Ironically I was a big spender in my 20', went into debt, and spent years paying off credit cards. That pain really changed my mind on spending.

[protagonist]

But one thing I think some posters on Bogleheads need to realize is that, as a group, we are probably quite a bit more affluent than most Americans (thus our interest in an investment forum).

There's no doubt that most folks here are in a different place financially than the average American.
And there's no doubt that many folks here write answers that fit their own experience far more than the experience the average American faces.

So when people post things like the need for $1.5M saved to be comfortable in retirement (in the past I think I recall seeing posts requiring $3M), or "you can't live in NYC/SF/etc on less than a $250K salary" , you are doing many a disservice by superimposing your set-point for "comfort" on the general population. When people come here looking for advice, comments like the above are , in my humble opinion, not at all helpful or realistic, and can be destructive, to most Americans who live happily with a lot less (including the vast majority of fellow retirees that I know and many people I know who live in NYC, where I also live part-time).

I try to make sure I only answer in the context of the specific question. And if the question doesn't include things like "expenses" and "goals", then it's hard to give a number answer.

"You can live solely on social security" will work for some, but not for others, depending on their expenses and goals.
"You need $1.5M" makes sense for some, but obviously not for others.

I see this so often here that I think it may be a good idea to have a discussion around this issue. Am I alone in feeling this way about such posts? Do others feel the same way? If so I may start a thread.

I'm not sure it would do any good. People do what they do.

You make a lot of good points here, Joe.

But would it not do any good? The people who come seeking advice are often not as wealthy as the regular posters (thus concerned about whether they can afford to live somewhere, afford to retire, etc), and the advice must sometimes seem like it is coming out of left field. IMHO when posting, people need to be made aware of that. Though they are well-meaning and earnestly trying to help they may be causing more damage than help.

eg....According to the first google hit, the median household income in the wealthiest zip code in San Francisco (94127) is about 95K.
http://zipatlas.com/us/ca/san-francisco ... income.htm
So is it helpful to tell a young person that they cannot afford to live in SF unless they have a 6 figure income?

The median retirement savings in the US at 65 is probably around $200K, maybe a bit less. https://www.synchronybank.com/blog/medi ... gs-by-age/ Is it helpful to tell people they need $1.5M to retire? My guess is that not more than 10% of Americans , and very possibly less, have that much money. Should 90% of Americans work until they die? Are 90% of retirees desperate?

[wrongfunds]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

[SnowBog]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

The concept of "enough" is hard for some...

Especially when "the math" seems so obvious. For example, was playing with my plan to retire in decal years in Parlana Gold. And looked at One More Year (OMY) beyond the current plan. I was shocked to see just how much of a difference it made. Nearly 20% of our current portfolio extra for each year delayed. I started thinking to myself "well, one more year just to be safe... maybe two more years, then you could buy XYZ...". But I had to remind myself at some point we have "enough".

[jarjarM]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

Part of it depends on age, there's several contributors outright said that for those under the age of 45, anything short of $10-20 millions are not enough. I don't agree with that view but it's a view of not so small minority.

[SnowBog]

To OP, I think the key is to find balance.

If you live too much for today, you don't save/plan enough for tomorrow. (And maybe that's fine, as that's what a lot of people do, and they make it work somehow.)

If you focus too much on tomorrow, you miss out on some great years and risk never seeing the payoff (if you die young, have a change in family status, change in health, etc.).

[SnowBog]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

Part of it depends on age, there's several contributors outright said that for those under the age of 45, anything short of $10-20 millions are not enough. I don't agree with that view but it's a view of not so small minority.

Really?? Assuming they live to 100, with 0% growth over their remaining 55 years, with expenses of $60k.

$60k * 55 = $3.3M

With $6M, they can absorb a lot of inflation, underestimated expenses, etc.

Why would they ever need $10 - 20M? IMHO that's insane...

[sailaway]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

Part of it depends on age, there's several contributors outright said that for those under the age of 45, anything short of $10-20 millions are not enough. I don't agree with that view but it's a view of not so small minority.

Really?? Assuming they live to 100, with 0% growth over their remaining 55 years, with expenses of $60k.

$60k * 55 = $3.3M

With $6M, they can absorb a lot of inflation, underestimated expenses, etc.

Why would they ever need $10 - 20M? IMHO that's insane...

And just about every time someone posts some such blanket number, or even the 1% or 2% SWR, there are plenty of responses pointing out that it is a megaconservative and unrealistic option for most of the population. It isn't like these things are posted without criticism.

Just like when someone compares $60k to poverty living. Hopefully, someone who only makes $60k isn't going to see that as a justification to forego savings altogether. They are going to realize that the poster is living in a different economic reality than they are and seek out information that is relevant to them.

[jarjarM]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

Part of it depends on age, there's several contributors outright said that for those under the age of 45, anything short of $10-20 millions are not enough. I don't agree with that view but it's a view of not so small minority.

Really?? Assuming they live to 100, with 0% growth over their remaining 55 years, with expenses of $60k.

$60k * 55 = $3.3M

With $6M, they can absorb a lot of inflation, underestimated expenses, etc.

Why would they ever need $10 - 20M? IMHO that's insane...

I agree, but many think that $60k now as a let say 35yr old may not translate to $60k later in life (inflation adjusted). I sort of understand that reasoning, addition to family, unforeseen medical events and etc could significantly affect expense later in life. It's not so much $60k spending in real term can't last 55 years, it's that $60k may ballon up depending on one's situation. Of course, this is personal part of the personal finance, everyone is different.

[LeftCoastIV]

Personally, I would save more and retire earlier. I think your future self will thank your present self for giving your future self more freedom, earlier.

[SnowBog]

You probably have missed the topics where the poster says she has $6M in assets and her expenses are $60K and can she retire?

Many contributors then tell her she should make sure about the healthcare expenses and may be if she were to wait for another year, she will be in much better condition to evaluate her position.

Part of it depends on age, there's several contributors outright said that for those under the age of 45, anything short of $10-20 millions are not enough. I don't agree with that view but it's a view of not so small minority.

Really?? Assuming they live to 100, with 0% growth over their remaining 55 years, with expenses of $60k.

$60k * 55 = $3.3M

With $6M, they can absorb a lot of inflation, underestimated expenses, etc.

Why would they ever need $10 - 20M? IMHO that's insane...

I agree, but many think that $60k now as a let say 35yr old may not translate to $60k later in life (inflation adjusted). I sort of understand that reasoning, addition to family, unforeseen medical events and etc could significantly affect expense later in life. It's not so much $60k spending in real term can't last 55 years, it's that $60k may ballon up depending on one's situation. Of course, this is personal part of the personal finance, everyone is different.

Wow...

[wrongfunds]

Sometimes one never knows if we are being trolled or not. May be I should have changed my example to have her $60M instead of $6M? By the way, we have enough recent new posts with $9M and $20M asking if they can retire safely. Sometimes I do wonder if some numbers are just made up or what but then I realize that for lot of people, my numbers would feel like made up numbers so, it is possible there are other real numbers which even though I feel like made up number are actually real.

[vtjon02]

As an example, if a 30 year old expects to retire at 65, they have potentially a 6.5x multiplier just by compounding interest. Therefore if they want to retire with 1.5 M, then they would have roughly speaking funded that 1.5 M liability with ~230k.

You are assuming a consistent 6.5% compound interest rate over 30 years? Some would argue with that assumed rate of return. Are you imagining 100% stock allocation? Or do you have some other asset allocation that you assume would return 6.5% over the long term?

Using the logic above, do you think it’s reasonable to relax retirement savings some in such a situation? For example, potentially just down to a company match in a 401k?

You can choose to assume that your investments will return 6.5% for 30 years if you choose.
And I suppose you could decide that you can live on $60,000 withdrawals for the next 30 or so years.

What are you imagining that the inflation rate will be over the next 30 years? That will tell you what the spending power of $1.5M will be in today's dollars.

Finally, you would need to take a guess at what your annual retirement expenses would be, 30 years or so down the road. Got a good handle on that?

Perhaps those will allow you to feel comfortable saving no more than than the company 401k match, after age 30. Not what I would do, but we each get to choose our own financial path and live with the results.

5.5% real was the assumed CAGR, and therefore the 1.5 M for purposes of the discussion would be 2021 dollars.

Forecasting a real return of 5.5% for 30 years is lunacy.

[JoeRetire]

But would it not do any good? The people who come seeking advice are often not as wealthy as the regular posters (thus concerned about whether they can afford to live somewhere, afford to retire, etc), and the advice must sometimes seem like it is coming out of left field. IMHO when posting, people need to be made aware of that. Though they are well-meaning and earnestly trying to help they may be causing more damage than help.

eg....According to the first google hit, the median household income in the wealthiest zip code in San Francisco (94127) is about 95K.
http://zipatlas.com/us/ca/san-francisco ... income.htm
So is it helpful to tell a young person that they cannot afford to live in SF unless they have a 6 figure income?

The median retirement savings in the US at 65 is probably around $200K, maybe a bit less. https://www.synchronybank.com/blog/medi ... gs-by-age/ Is it helpful to tell people they need $1.5M to retire? My guess is that not more than 10% of Americans , and very possibly less, have that much money. Should 90% of Americans work until they die? Are 90% of retirees desperate?

People usually try to give useful answers. But unless the OP gives enough specifics, folks tend to answer based on their own background or similar assumptions. Otherwise, the only real answer would always be "It depends...". Someone may indeed need $1.5M or more to retire, or may be able to retire with $0-200k - it depends on what they require to live the lifestyle they want.

Best is to encourage the OP to give enough details for the answer to be useful. I try to ask "What are your anticipated expenses in retirement?" and "What are your goals?" when they aren't provided. I don't know how anyone can provide useful financial advice without at least some answers to those two questions.

And best is to encourage responders to say "for my desired lifestyle, I'd want to save..." as part of their answer. Perhaps that would avoid some confusion.

[B4Xt3r]

So it's been a couple of years and I was revisiting this topic in my mind, and thought of another way to view the topic at hand. Current savings*(1.055)^(anticipated retirement age less by current age)/(current annual spend rate). How does that compare to 25x rule?

Example calculation link https://www.wolframalpha.com/input?i=34 ... 30%29%2F75: 340k*(1.055)^(62-30)/(75k) = 25x.

Seems like for such an individual, it might be at-least not wrong to temporarily cut back on retirement savings to pursue other financial priorities (ex., kids college). Of course, it's not a set and forget it type thing but a few years later it seems reasonable.