What should the savings be for an average professional

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Admiral
Posts: 854
Joined: Mon Oct 27, 2014 12:35 pm

Re: What should the savings be for an average professional

Post by Admiral » Thu Aug 31, 2017 9:30 am

davidsorensen32 wrote:
Wed Aug 30, 2017 8:46 pm
Average rule of thumb that my mentor told me when I was starting my career: Target for $1M by 40. That's savings+investment gains. For someone starting their career now I'd say $2M by 40. But don't forget to live a little. Remember everybody dies, but not everyone lives.
This strikes me as totally ridiculous not to mention overkill for most, even high earners. 2 million by 40? If you look at the stats I posted above you will see that the vast, vast majority of U.S. earners aren't even close to $250k (and that's net worth, not liquid savings) at that age.

Most people (I'd venture 90% at least) could retire to a life of leisure with $1m in the bank by age 70. That would mean that they had saved well, had fortuitous market conditions, and had reasonably high incomes and thus would get a decent SS payout. They'd get $40k per year from investments and (to lowball it) another $20k in SS. So, $5k per month without touching their principle.

I work in higher ed and, while there is no forced retirement, the rule of thumb I've heard is that members of the faculty will retire (or at least consider retiring) when they have $1m in the bank. And these are people with high incomes and a generous retirement plan.

Texanbybirth
Posts: 587
Joined: Tue Apr 14, 2015 12:07 pm

Re: What should the savings be for an average professional

Post by Texanbybirth » Thu Aug 31, 2017 9:42 am

emoore wrote:
Wed Aug 30, 2017 10:02 pm
GoldenFinch wrote:
Wed Aug 30, 2017 9:02 pm
davidsorensen32 wrote:
Wed Aug 30, 2017 8:46 pm
Average rule of thumb that my mentor told me when I was starting my career: Target for $1M by 40. That's savings+investment gains. For someone starting their career now I'd say $2M by 40. But don't forget to live a little. Remember everybody dies, but not everyone lives.
Two million by forty, assuming you have a life, would be very difficult to attain without a very high salary, high savings rate and forgiving stock market.
+1. I think this is why this forum feels unwelcoming sometimes. I think I'm doing pretty well but have $1M let alone 2M by 40. Not even close. You'd have to save a huge % of your income or have a very high salary to achieve that. It's great that a small percentage can do that but the average professional will be no where near that.
I'm 32, and we probably won't have $1MM by retirement, let alone 40. Don't let these kinds of outlandish things dissuade you from finding value in this forum. You just have to learn to be more discerning about the posts you read, maybe a little less comparing yourself to others. However, if you ever need a pick me up I'm happy to post my family's financial picture so you can get a boost. (I'm joking, of course.) :D

delamer
Posts: 3087
Joined: Tue Feb 08, 2011 6:13 pm

Re: What should the savings be for an average professional

Post by delamer » Thu Aug 31, 2017 11:09 am

Texanbybirth wrote:
Thu Aug 31, 2017 9:42 am
emoore wrote:
Wed Aug 30, 2017 10:02 pm
GoldenFinch wrote:
Wed Aug 30, 2017 9:02 pm
davidsorensen32 wrote:
Wed Aug 30, 2017 8:46 pm
Average rule of thumb that my mentor told me when I was starting my career: Target for $1M by 40. That's savings+investment gains. For someone starting their career now I'd say $2M by 40. But don't forget to live a little. Remember everybody dies, but not everyone lives.
Two million by forty, assuming you have a life, would be very difficult to attain without a very high salary, high savings rate and forgiving stock market.
+1. I think this is why this forum feels unwelcoming sometimes. I think I'm doing pretty well but have $1M let alone 2M by 40. Not even close. You'd have to save a huge % of your income or have a very high salary to achieve that. It's great that a small percentage can do that but the average professional will be no where near that.
I'm 32, and we probably won't have $1MM by retirement, let alone 40. Don't let these kinds of outlandish things dissuade you from finding value in this forum. You just have to learn to be more discerning about the posts you read, maybe a little less comparing yourself to others. However, if you ever need a pick me up I'm happy to post my family's financial picture so you can get a boost. (I'm joking, of course.) :D

There is value in seeing other people's perspective on savings, prioritizing, asset management, and other aspects of finances. If you have been reading the Bogleheads forum for awhile and not changed your position on something or at least come to appreciate the argument for a different perspective, then you aren't getting the most out of the forum.

You have to be well-informed enough and confident enough to apply the opinions expressed here and figure out how they fit into your own life. For instance, it is common for posters to say that you should always max out your retirement plan contributions. But we never have. Didn't have the money when we were a one-income family then later both had secure jobs with traditional pensions and saving for our kids' college educations became very important to us. Would we have made different decisions if our jobs were less secure and 401(k)s and IRAs were our only retirement plans? I certainly hope so.

thangngo
Posts: 345
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 31, 2017 12:06 pm

Nevertheless, a good benchmark is very helpful. I support both sides of the argument: whether to live your life or to save for later. To some extent, benchmark helps me to know where I am so that I can adjust accordingly. I'm not going to live up my life in a blindfold financially, nor do I save everything I earn.

My benchmark:
Low end: $1M at 60 for one individual. A married couple should have $2M.
Average: $2M at 60 for one individual. A married couple should have $4M.

So it raises a red flag if my conservative projection does not reach $1M at 60. I would increase my saving rate.

skor99
Posts: 84
Joined: Mon Jun 26, 2017 5:51 pm

Re: What should the savings be for an average professional

Post by skor99 » Thu Aug 31, 2017 12:21 pm

thangngo wrote:
Thu Aug 31, 2017 12:06 pm
Nevertheless, a good benchmark is very helpful. I support both sides of the argument: whether to live your life or to save for later. To some extent, benchmark helps me to know where I am so that I can adjust accordingly. I'm not going to live up my life in a blindfold financially, nor do I save everything I earn.

My benchmark:
Low end: $1M at 60 for one individual. A married couple should have $2M.
Average: $2M at 60 for one individual. A married couple should have $4M.

So it raises a red flag if my conservative projection does not reach $1M at 60. I would increase my saving rate.

I would say 2MM by 60 is pretty high end for a individual professional even with high income and savings and a kind stock market, but 4MM is like shooting for the stars for a couple. In most cases, one spouse has to scale down or stop their work for many years if they have the typical 2 kids . Add to that the difficulty of getting back in the job market to a high earning position after a long gap. If the spouse chooses not to scale down, then there are significant child care and other expenses that will drag the savings down, not to mention the emotional and mental toll of such a busy life. People try and mitigate that mental toll by taking expensive vacations and buying expensive toys for themselves and their kids, which obviously means lesser savings
In short, unless a working professional couple is very lucky, 4MM by 60 is difficult to achieve

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: What should the savings be for an average professional

Post by Admiral » Thu Aug 31, 2017 12:43 pm

thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?

Texanbybirth
Posts: 587
Joined: Tue Apr 14, 2015 12:07 pm

Re: What should the savings be for an average professional

Post by Texanbybirth » Thu Aug 31, 2017 12:45 pm

delamer wrote:
Thu Aug 31, 2017 11:09 am
Texanbybirth wrote:
Thu Aug 31, 2017 9:42 am
emoore wrote:
Wed Aug 30, 2017 10:02 pm
GoldenFinch wrote:
Wed Aug 30, 2017 9:02 pm
davidsorensen32 wrote:
Wed Aug 30, 2017 8:46 pm
Average rule of thumb that my mentor told me when I was starting my career: Target for $1M by 40. That's savings+investment gains. For someone starting their career now I'd say $2M by 40. But don't forget to live a little. Remember everybody dies, but not everyone lives.
Two million by forty, assuming you have a life, would be very difficult to attain without a very high salary, high savings rate and forgiving stock market.
+1. I think this is why this forum feels unwelcoming sometimes. I think I'm doing pretty well but have $1M let alone 2M by 40. Not even close. You'd have to save a huge % of your income or have a very high salary to achieve that. It's great that a small percentage can do that but the average professional will be no where near that.
I'm 32, and we probably won't have $1MM by retirement, let alone 40. Don't let these kinds of outlandish things dissuade you from finding value in this forum. You just have to learn to be more discerning about the posts you read, maybe a little less comparing yourself to others. However, if you ever need a pick me up I'm happy to post my family's financial picture so you can get a boost. (I'm joking, of course.) :D

There is value in seeing other people's perspective on savings, prioritizing, asset management, and other aspects of finances. If you have been reading the Bogleheads forum for awhile and not changed your position on something or at least come to appreciate the argument for a different perspective, then you aren't getting the most out of the forum.
Well said, I don't disagree or find anything in my post that does either.

thangngo
Posts: 345
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 31, 2017 12:59 pm

Admiral wrote:
Thu Aug 31, 2017 12:43 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?
I'm just a tax accountant.

Your math above assumes that I stop saving at age 30 after reaching $1M - which is incorrect.

Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.

thangngo
Posts: 345
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 31, 2017 1:08 pm

skor99 wrote:
Thu Aug 31, 2017 12:21 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm
Nevertheless, a good benchmark is very helpful. I support both sides of the argument: whether to live your life or to save for later. To some extent, benchmark helps me to know where I am so that I can adjust accordingly. I'm not going to live up my life in a blindfold financially, nor do I save everything I earn.

My benchmark:
Low end: $1M at 60 for one individual. A married couple should have $2M.
Average: $2M at 60 for one individual. A married couple should have $4M.

So it raises a red flag if my conservative projection does not reach $1M at 60. I would increase my saving rate.

I would say 2MM by 60 is pretty high end for a individual professional even with high income and savings and a kind stock market, but 4MM is like shooting for the stars for a couple. In most cases, one spouse has to scale down or stop their work for many years if they have the typical 2 kids . Add to that the difficulty of getting back in the job market to a high earning position after a long gap. If the spouse chooses not to scale down, then there are significant child care and other expenses that will drag the savings down, not to mention the emotional and mental toll of such a busy life. People try and mitigate that mental toll by taking expensive vacations and buying expensive toys for themselves and their kids, which obviously means lesser savings
In short, unless a working professional couple is very lucky, 4MM by 60 is difficult to achieve
I agree with you that it's tough to get a high saving rate as a married couple raising a family. My wife and I share similar principles in personal finance. When we planned for our first kid, we increased our saving rate in couple years leading up to it. We move budgeting baskets around (i.e. cutting back traveling, big ticket purchases etc.). But I agree with you that it's tough to maintain saving rate at 15-20%. Nonetheless, we trust that with our principles to live below our means, we'll get back to 30% saving rate sooner or later.

Slacker
Posts: 383
Joined: Thu May 26, 2016 8:40 am

Re: What should the savings be for an average professional

Post by Slacker » Thu Aug 31, 2017 1:12 pm

thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
Not very "simple" to make $70K to $200K over your working life...

My first "real Engineering" position paid me $40k in 2005 living in a HCOL area. Saving $20,000 in the early years was not realistic. By the time I left my first company after 7 years I was still only making $55K. Now, I make over $100K and live in a LCOL area - but I still started my current job at $68K. At $100K it is child's play to max out all retirement accounts, HSA acct, and put $13k into an after tax acct each year, but not so much before (it was all I could do just to make sure I received the full match on my 401K).

thangngo
Posts: 345
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 31, 2017 1:21 pm

Slacker wrote:
Thu Aug 31, 2017 1:12 pm
thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
Not very "simple" to make $70K to $200K over your working life...

My first "real Engineering" position paid me $40k in 2005 living in a HCOL area. Saving $20,000 in the early years was not realistic. By the time I left my first company after 7 years I was still only making $55K. Now, I make over $100K and live in a LCOL area - but I still started my current job at $68K. At $100K it is child's play to max out all retirement accounts, HSA acct, and put $13k into an after tax acct each year, but not so much before (it was all I could do just to make sure I received the full match on my 401K).
So you're saving 40k (?) a year now. If you keep your saving habit until you retire at 60, I'm pretty confident that over the span of 40 working years, you'd save at least 20,000 a year on average.

Everyone has to start somewhere. It can only go up :beer

Admiral
Posts: 854
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Re: What should the savings be for an average professional

Post by Admiral » Thu Aug 31, 2017 1:25 pm

thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Admiral wrote:
Thu Aug 31, 2017 12:43 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?
I'm just a tax accountant.

Your math above assumes that I stop saving at age 30 after reaching $1M - which is incorrect.

Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
So you make 70k and net 56k and manage to save 20k? Seriously? And do you know how few people (even professionals) earn 200k? Also the average starting salary for a 2017 college graduate is not 70k, it is $50k.

Your math might work for a very highly paid professional, just not for the average professional.

thangngo
Posts: 345
Joined: Sun Feb 26, 2017 2:08 pm

Re: What should the savings be for an average professional

Post by thangngo » Thu Aug 31, 2017 1:39 pm

Admiral wrote:
Thu Aug 31, 2017 1:25 pm
thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Admiral wrote:
Thu Aug 31, 2017 12:43 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?
I'm just a tax accountant.

Your math above assumes that I stop saving at age 30 after reaching $1M - which is incorrect.

Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
So you make 70k and net 56k and manage to save 20k? Seriously? And do you know how few people (even professionals) earn 200k? Also the average starting salary for a 2017 college graduate is not 70k, it is $50k.

Your math might work for a very highly paid professional, just not for the average professional.

Yes, I do know several people in my profession making 150k-200k after 8-10 years experience. A few of them are my mentors.

Not everyone's situation is similar. I live in a LCOL so I can save 1/3 of my gross income. My wife and I travel a lot but live frugally otherwise (we cook for ourselves and don't pay for expensive cars).

I might be compensated in top 20% of my field. I made 80k after 2 years in the field. But other professionals (lawyers, college professors, engineers) might make a lot more than I do. Over 40 years of saving, I think the benchmark is fair to say that you can save 20k annually on average.
Last edited by thangngo on Thu Aug 31, 2017 1:41 pm, edited 1 time in total.

Bigbonds
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Re: What should the savings be for an average professional

Post by Bigbonds » Thu Aug 31, 2017 1:41 pm

It's always important when discussing a topic such as this to remember that bogleheads are an exclusive group and this place is in no way, shape, or form a representation of reality. 78% of Americans live paycheck to paycheck. Only 15% of Americans could fund even one year of retirement(meaning they have at least 10K saved) and over half have nothing saved at all. 6 in 10 Americans don't even have $500 to cover an emergency. It's easy to lose perspective in this place. The OP's friend is definitely the rule not the exception. Most Americans are severely financially illiterate which is why Dave Ramsey and his kids will always have a job.


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Admiral
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Re: What should the savings be for an average professional

Post by Admiral » Thu Aug 31, 2017 1:45 pm

thangngo wrote:
Thu Aug 31, 2017 1:39 pm
Admiral wrote:
Thu Aug 31, 2017 1:25 pm
thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Admiral wrote:
Thu Aug 31, 2017 12:43 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?
I'm just a tax accountant.

Your math above assumes that I stop saving at age 30 after reaching $1M - which is incorrect.

Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
So you make 70k and net 56k and manage to save 20k? Seriously? And do you know how few people (even professionals) earn 200k? Also the average starting salary for a 2017 college graduate is not 70k, it is $50k.

Your math might work for a very highly paid professional, just not for the average professional.

Yes, I do know several people in my profession making 150k-200k after 8-10 years experience. A few of them are my mentors.

Not everyone's situation is similar. I live in a LCOL so I can save 1/3 of my gross income. My wife and I travel a lot but live frugally otherwise (we cook for ourselves and don't pay for expensive cars).

I might be compensated in top 20% of my field. I made 80k after 2 years in the field. But other professionals (lawyers, college professors, engineers) might make a lot more than I do. Over 40 years of saving, I think the benchmark is fair to say that you can save 20k annually on average.
All well and good, nothing to dispute. The point is you represent approximately 2% of U.S. households (based on household income). The thread title is "average professional" not 1-2 percenters.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: What should the savings be for an average professional

Post by avalpert » Thu Aug 31, 2017 1:48 pm

thangngo wrote:
Thu Aug 31, 2017 1:39 pm
Admiral wrote:
Thu Aug 31, 2017 1:25 pm
thangngo wrote:
Thu Aug 31, 2017 12:59 pm
Admiral wrote:
Thu Aug 31, 2017 12:43 pm
thangngo wrote:
Thu Aug 31, 2017 12:06 pm

Average: $2M at 60 for one individual. A married couple should have $4M.
This is AVERAGE for you? You must live in San Francisco and work at Google. You can use any benchmark you like, and there's nothing wrong with being aspirational, but I'd temper it with realism.

Using the rule of 72 and assuming a 5% after tax return rate on investments and working backward, your $4M would have to be $2M at age 45 and $1M at age 30 (rounding).

How many 30 year olds do you know who have a million dollars?
I'm just a tax accountant.

Your math above assumes that I stop saving at age 30 after reaching $1M - which is incorrect.

Here is how simple it is:
- Assuming an average $20,000 annual savings. If you make 70k to 200k over your working life and you can't save 20k on average, I really don't know what to tell you. Even if your salary staying at 70k, 20k savings is roughly 28% of your gross income.
- 5% return
- 40 years of working
Projected portfolio = $2.5M.

Let's assume 2% rate of return, you will get $1.2M after 40 years of savings.
So you make 70k and net 56k and manage to save 20k? Seriously? And do you know how few people (even professionals) earn 200k? Also the average starting salary for a 2017 college graduate is not 70k, it is $50k.

Your math might work for a very highly paid professional, just not for the average professional.

Yes, I do know several people in my profession making 150k-200k after 8-10 years experience. A few of them are my mentors.

Not everyone's situation is similar. I live in a LCOL so I can save 1/3 of my gross income. My wife and I travel a lot but live frugally otherwise (we cook for ourselves and don't pay for expensive cars).

I might be compensated in top 20% of my field. I made 80k after 2 years in the field. But other professionals (lawyers, college professors, engineers) might make a lot more than I do. Over 40 years of saving, I think the benchmark is fair to say that you can save 20k annually on average.
How much did you save in your 20's? How much are you saving now to make up for it? Or does the 40 years start at 30?

Saving 20k on average isn't the same as saving 20k every year - you can't make up for 20k missed at 22 by saving 40k at 32 because of the missed compound returns.

Rainmaker41
Posts: 405
Joined: Tue Apr 26, 2016 11:34 am

Re: What should the savings be for an average professional

Post by Rainmaker41 » Thu Aug 31, 2017 4:42 pm

As of quite recently, we now make at most $75k annually between the two of us.

We've filled Roth IRAs for a couple years now, and are making strides in a 401k-type plan. The plan is to fill up that $29k space every year from 2018 onward, which is a savings rate somewhere around 40%. Assuming current investments neither grow nor crash, the projected additions will have us over 1 year's income in retirement accounts by age 28.

I have to confess that I struggle with wrapping my head around this topic of what savings 'should' be. We have neither children nor a mortgage, but we sure as heck are not 'high' earners (we're actually just *below* the median family income for our city). I can understand low-earners having little or no savings, or even a 'normal' family with kids and a mortgage not saving as much as they 'should'... but I'm at a loss to understand the thinking behind the balance sheets of high earners. Surely anyone making 'a lot' of money, adjusted for kids, should be able to use much of their 401k space? But, the statistics don't lie.

Our experience shows that a couple in a city can live in a decent non-luxury apartment with a total annual budget under $30k, including modest travel, clothes when needed, phones, etc. We have a given monthly budget that is quite frugal but decent, plus an annual allowance for 'non-essentials'. To our Boglehead way of thinking, the only sensible thing to do with 'surplus' income is to save it! Sure, we'll eventually have some lifestyle inflation, but only after our incomes increase and more importantly after we reach 30 with a healthy nest egg > 1.5 x annual income.

Admittedly, we have many things going for us, but the school debts we had have been paid off, and we're choosing to defer a mortgage/kid until if and when we feel more settled in our careers. Maybe we'll crest the $100k family income line in our 30s, but beyond that we really have no idea if we'll see much more increase. For us, the key is to hedge against career and life uncertainty by saving heavily relative to our means while we are young. Maybe it's a mistake to not have pursued Masters degrees and thus higher income yet, but not having the anvil of debt helps on several levels.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

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CyclingDuo
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Re: What should the savings be for an average professional

Post by CyclingDuo » Fri Sep 01, 2017 7:31 am

Rainmaker41 wrote:
Thu Aug 31, 2017 4:42 pm
As of quite recently, we now make at most $75k annually between the two of us.

We've filled Roth IRAs for a couple years now, and are making strides in a 401k-type plan. The plan is to fill up that $29k space every year from 2018 onward, which is a savings rate somewhere around 40%. Assuming current investments neither grow nor crash, the projected additions will have us over 1 year's income in retirement accounts by age 28.

I have to confess that I struggle with wrapping my head around this topic of what savings 'should' be. We have neither children nor a mortgage, but we sure as heck are not 'high' earners (we're actually just *below* the median family income for our city). I can understand low-earners having little or no savings, or even a 'normal' family with kids and a mortgage not saving as much as they 'should'... but I'm at a loss to understand the thinking behind the balance sheets of high earners. Surely anyone making 'a lot' of money, adjusted for kids, should be able to use much of their 401k space? But, the statistics don't lie.

Our experience shows that a couple in a city can live in a decent non-luxury apartment with a total annual budget under $30k, including modest travel, clothes when needed, phones, etc. We have a given monthly budget that is quite frugal but decent, plus an annual allowance for 'non-essentials'. To our Boglehead way of thinking, the only sensible thing to do with 'surplus' income is to save it! Sure, we'll eventually have some lifestyle inflation, but only after our incomes increase and more importantly after we reach 30 with a healthy nest egg > 1.5 x annual income.

Admittedly, we have many things going for us, but the school debts we had have been paid off, and we're choosing to defer a mortgage/kid until if and when we feel more settled in our careers. Maybe we'll crest the $100k family income line in our 30s, but beyond that we really have no idea if we'll see much more increase. For us, the key is to hedge against career and life uncertainty by saving heavily relative to our means while we are young. Maybe it's a mistake to not have pursued Masters degrees and thus higher income yet, but not having the anvil of debt helps on several levels.
No need to stress about the Master's.

We'd say keep the formula simple. 50/20/30 with the 20% being your savings.

Just save at least 20% a year (that would be $1250 a month using your $75K gross). As your combined income increases, even if you stay at 20%, what you sock away adjusts automatically. If you've got a year here and there along the way in your early career where you can save more than 20%, fine. Take advantage of it. If not, don't sweat it.

College Payoff is an excellent document in terms of lifetime earnings when it comes to education/degrees/gender/etc : https://www2.ed.gov/policy/highered/reg ... payoff.pdf

davidsorensen32
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Joined: Wed Jul 24, 2013 9:57 am

Re: What should the savings be for an average professional

Post by davidsorensen32 » Thu Oct 12, 2017 8:27 pm

Without a pension and health care coverage - which your tenured professors have - you’ll need far more than $2M
Admiral wrote:
Thu Aug 31, 2017 9:30 am
davidsorensen32 wrote:
Wed Aug 30, 2017 8:46 pm
Average rule of thumb that my mentor told me when I was starting my career: Target for $1M by 40. That's savings+investment gains. For someone starting their career now I'd say $2M by 40. But don't forget to live a little. Remember everybody dies, but not everyone lives.
This strikes me as totally ridiculous not to mention overkill for most, even high earners. 2 million by 40? If you look at the stats I posted above you will see that the vast, vast majority of U.S. earners aren't even close to $250k (and that's net worth, not liquid savings) at that age.

Most people (I'd venture 90% at least) could retire to a life of leisure with $1m in the bank by age 70. That would mean that they had saved well, had fortuitous market conditions, and had reasonably high incomes and thus would get a decent SS payout. They'd get $40k per year from investments and (to lowball it) another $20k in SS. So, $5k per month without touching their principle.

I work in higher ed and, while there is no forced retirement, the rule of thumb I've heard is that members of the faculty will retire (or at least consider retiring) when they have $1m in the bank. And these are people with high incomes and a generous retirement plan.

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