How much should I have saved for retirement by age 40?

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Erwin007
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Re: How much should I have saved for retirement by age 40?

Post by Erwin007 » Wed Jul 10, 2019 12:00 am

I just turned 40 this year and have right around $650k in retirement accounts. Home equity, which I don’t count, is right around $450-475k.

I also don’t believe in the amount x salary as a good way to calculate things. I didn’t finish fellowship until I was 35 years old, so I’ve really only been saving for retirement for the last 4.5 years. I did some Roth contributions for me and my spouse during residency and fellowship, and enough to get 403(b) match in residency, but that was it on a resident’s salary with 1, then 2, then 3 kids (one kid in medical school, one in year 1 of 5 of residency and the third in year 3 of 5).

Since graduating fellowship I’ve also paid off $340k in student loans, and finished those off over a year ago, so now all of that money is basically going to retirement contributions to the tune of $120k+ per year since I have a lot of catching up to do because of my late start. Seeing people with $1 million + and paid off homes at this age is amazing to me. Well done.

LFKB
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Re: How much should I have saved for retirement by age 40?

Post by LFKB » Wed Jul 10, 2019 12:17 am

$43 million

If you have saved less, you are behind

Next question

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TomatoTomahto
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Re: How much should I have saved for retirement by age 40?

Post by TomatoTomahto » Wed Jul 10, 2019 5:27 am

LFKB wrote:
Wed Jul 10, 2019 12:17 am
$43 million

If you have saved less, you are behind

Next question
Are you including home equity in that? I think it should be liquid assets.
Okay, I get it; I won't be political or controversial. The Earth is flat.

latesaver
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Joined: Thu Aug 03, 2017 3:35 pm

Re: How much should I have saved for retirement by age 40?

Post by latesaver » Wed Jul 10, 2019 2:36 pm

TomatoTomahto wrote:
Wed Jul 10, 2019 5:27 am
LFKB wrote:
Wed Jul 10, 2019 12:17 am
$43 million

If you have saved less, you are behind

Next question
Are you including home equity in that? I think it should be liquid assets.
Also, NPV of social security benefits? Rolexes? we need to know these things.

JGoneRiding
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Joined: Tue Jul 15, 2014 3:26 pm

Re: How much should I have saved for retirement by age 40?

Post by JGoneRiding » Wed Jul 10, 2019 4:18 pm

longinvest wrote:
Tue Jul 02, 2019 5:41 pm
JGoneRiding wrote:
Tue Jul 02, 2019 4:55 pm
longinvest wrote:
Tue Jul 02, 2019 4:50 pm
Has anyone tried the simple spreadsheet I linked to earlier that translates retirement age goals into retirement income projections, based on current portfolio and current salary, while also assessing the impact of unfavorable market returns? If yes, did it help you assess the robustness of your plan? Are you saving as much as the spreadsheet suggests?
I haven't for 2 reasons, just your example post it clearly projects a super high savings rate that I will never get to and have no reason to believe I need.
Thanks, JGoneRiding.

The savings rate is dependent, among other things, on the selected retirement age. If I change the retirement age from 55 to 65 and I use Neurosphere's nice Social Security Estimator to project Social Retirement payments at age 70 for both spouses with 10 additional years of work, I get a 5% savings rate that would become a 9% savings rate after a 50% stocks crash:

Image
JGoneRiding wrote:
Tue Jul 02, 2019 4:55 pm
2) it seems to be based off of salary and not expenses. But the spreadsheet is super impressive piece of work! I did look at it.
That's incorrect. The savings rate is based on a collection of input parameters (age, salary, portfolio balance, target retirement age, pension contributions, and projected pension payments) and it is calibrated on balancing accumulation spending and retirement spending by targeting an equal amount of money available to pay for taxes and expenses (but excluding retirement savings and pension contributions).

So, it's actually based on expenses.

It's really worth the exercise to learn to use the VPW Accumulation Worksheet and the Social Security Estimator. It's much better than chasing an ill-advised "retirement number" or, equivalently, a specific multiple of expenses (like 25 times expenses), which could inadvertently trigger retirement at the worst possible time, at the top of a bubble.

A 1966 retiree with an initial inflation-adjusted $1,000,000 portfolio had a poorer retirement experience than a 1982 retiree with an initial inflation-adjusted $430,000 portfolio. It would have been a mistake for the 1982 retiree to delay retirement until $1,000,000 was accumulated. I've illustrated this in this post and the few posts that followed.

I know that I'm challenging common beliefs. But, it's best to plan retirement using successive approximations and choose targets over which we have control (asset allocation, target retirement date), instead of letting markets dictate our retirement date. Markets can be misleading. Ask a 1966 retiree who felt wealthy on retirement day.
Ahh! I missed the age adjustment . Ok :) I am going to download it on the real computer and play with it because I definitely believe that vpw is a good plan and have played with that spread sheet.

I personally mess up assumptions as I have rental income that along with ss should more than meet.my needs but isnt currently fully available.

Edit: ok I have downloaded and still going to argue it does NOT adjust for expenses. It assumes taxes and savings but no where can you adjust for large present expenditures that are not future. For me that is daycare and debt repayment. These are very substantial. A better cell instead of income would be desires income in retirement or something that expresses ending costs. And also there is no other savings function for money saved outside of retirement
Last edited by JGoneRiding on Wed Jul 10, 2019 4:49 pm, edited 1 time in total.

CnC
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Re: How much should I have saved for retirement by age 40?

Post by CnC » Wed Jul 10, 2019 4:36 pm

miamivice wrote:
Sat Jun 29, 2019 8:53 am
Simple question, no easy answer.

How much should one have saved for retirement by age 40? I'm not interested in the financial house calculators of 5x income or whatnot, because I think those are designed to make everyone feel they are behind the curve.

What did you aim for? What worked well for you? What should I am for?

For reference, our expenses today are right around $110k per year. Probably all but $30k a year are for expenses we will not have in retirement (mortgage, daycare, home equity loan, gas to/from work), but of course, we will have other expenses for unknown things. I would project we might spend $50k to $100k a year in retirement.

Other than retirement savings, we will have two social security checks plus two pension checks each month coming in, providing maybe $40k - 50k a year in income. Maybe $15k a year in a side hustle income.

By 40 I hope to have at least 15x expenses. I'm 34 right now with 11x expenses saved.

I would say it completely depends on when you retire. I plan to retire early so 15x expenses by 40 puts me on a good path. I have kids in daycare too but I am planning for 150% expenses in retirement to cover insurance and long vacations.

If you are planning on retirement at age 67-70 you probably only need 3-4x expenses.

LFKB
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Re: How much should I have saved for retirement by age 40?

Post by LFKB » Wed Jul 10, 2019 6:15 pm

TomatoTomahto wrote:
Wed Jul 10, 2019 5:27 am
LFKB wrote:
Wed Jul 10, 2019 12:17 am
$43 million

If you have saved less, you are behind

Next question
Are you including home equity in that? I think it should be liquid assets.
Apologies for not being more specific...

Yes, liquid assets only. It excludes SS, home equity and even rolexes

EddyB
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Joined: Fri May 24, 2013 3:43 pm

Re: How much should I have saved for retirement by age 40?

Post by EddyB » Wed Jul 10, 2019 7:08 pm

LFKB wrote:
Wed Jul 10, 2019 6:15 pm
TomatoTomahto wrote:
Wed Jul 10, 2019 5:27 am
LFKB wrote:
Wed Jul 10, 2019 12:17 am
$43 million

If you have saved less, you are behind

Next question
Are you including home equity in that? I think it should be liquid assets.
Apologies for not being more specific...

Yes, liquid assets only. It excludes SS, home equity and even rolexes
Guyanaese dollars or Liberian dollars?

Strayshot
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Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: How much should I have saved for retirement by age 40?

Post by Strayshot » Thu Jul 11, 2019 7:40 am

I have never found a lot of value in the relationship between age and savings for retirement because there are far too many variables and individual circumstances to make them meaningful.

I think that (assuming the investor has determined a reasonable asset allocation for their risk tolerance and return requirements) a more meaningful “rule of thumb” is to save and invest at least XX% (15% is a good number) of your gross income each and every year because that is something clearly within individual control.

I like Fidelity’s 50/15/5 concept:
https://www.fidelity.com/viewpoints/per ... and-saving

I think that people can make effective decisions for money within a 1-year timeframe, but trying to plan for or judge against age-based metrics is nearly meaningless. The goal would be to save and invest regularly each and every year and stay the course with those investments.

Charon
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Re: How much should I have saved for retirement by age 40?

Post by Charon » Thu Jul 11, 2019 11:28 am

Strayshot wrote:
Thu Jul 11, 2019 7:40 am
I think that people can make effective decisions for money within a 1-year timeframe, but trying to plan for or judge against age-based metrics is nearly meaningless. The goal would be to save and invest regularly each and every year and stay the course with those investments.
It depends on your circumstances. For those who have a large change in income (e.g., PhD program to faculty, or even more dramatically med school to doctor), saving XX% a year is the meaningless goal. It's also not helpful for those who came later to the retirement savings game, and are starting to save around age 40 and need some targets.

If you start saving for retirement straight out of college, and have 2% real raises every year for your career, saving XX% a year is an excellent approach (although one that should parallel the age-based goals, given that this is how they're derived).

986racer
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Joined: Thu Aug 11, 2016 10:09 am

Re: How much should I have saved for retirement by age 40?

Post by 986racer » Thu Jul 11, 2019 7:25 pm

scubadiver wrote:
Sat Jul 06, 2019 2:01 pm
986racer wrote:
Sat Jul 06, 2019 12:58 pm
TravelforFun wrote:
Mon Jul 01, 2019 12:25 pm
Per 'The Millionaire Next Door' author, Thomas Stanley, your net worth should be at least equal to your age divided by 10 and multiplied by your annual income.

TravelforFun
Hmm, so if I take a job at Walmart right before retirement, I’ll only need 20000 * 65 / 10 = 130000. I love formulas based on salary rather than expenses.
I agree, expenses are a great number to work with. But what happens if I have a child in college for 8 years straight immediately prior to my retirement, as my wife and I likely will? There's a big difference in outflow when you are no longer footing a $27K annual bill for tuition / room / board, never mind the other expenses associated with still having a kid on mom and dad's ledger. Would you agree that like any proxy, using expenses as your key input has certain assumptions baked into it and if something happens that alters the applicability of those assumptions, said proxy may not be so reliable?
I agree that expenses are problematic as well. I’m saving like mad because I’m saving for retirement and will soon have three children in college simultaneously and so I’m saving for that too. Any extra income I get year over year goes into savings. So my annual income has very little to do with what I’ll need in retirement.

However, as you point out, there are lots of other expenses that come with supporting children so my current expenses are likely inflated as well. I’m hoping to get a sense of what is really needed when they start leaving the nest.

I think it might be possible to just live on SS if the house is fully paid off. However my current expenses are several multiples of that.

In the end, I feel a formula based on salary is meant for those who don’t follow a LBYM lifestyle. It probably is accurate for the bulk of Americans

longinvest
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Re: How much should I have saved for retirement by age 40?

Post by longinvest » Thu Jul 11, 2019 8:21 pm

JGoneRiding wrote:
Wed Jul 10, 2019 4:18 pm
Edit: ok I have downloaded and still going to argue it does NOT adjust for expenses. It assumes taxes and savings but no where can you adjust for large present expenditures that are not future. For me that is daycare and debt repayment. These are very substantial. A better cell instead of income would be desires income in retirement or something that expresses ending costs. And also there is no other savings function for money saved outside of retirement
JGoneRiding, thanks for the feedback. Here are some comments.

1) Debt repayment and mortgage repayment aren't retirement savings; for the VPW Accumulation Worksheet, they're considered as expenses.
2) Daycare, college, wedding, partial down payment for children houses, and gifts to grandchildren are expenses.
3) Savings for other things than retirement aren't retirement savings; for the VPW Accumulation Worksheet, they're considered as expenses.
4) Travelling and other retirement activities are expenses that can require lots of money.
5) Once the mortgage is paid off, the kitchen has to be remodeled, the roof has to be replaced, etc.
6) Healthcare expenses tend to increase with age.

Expenses that disappear (e.g. daycare) have a nasty habit of being replaced by new ones (private school tuition). Such is life.

We don't know future returns. We don't know, either, our exact future expenses. Aiming to balance accumulation and retirement money available for taxes and expenses is a conservative approach that will give financial leeway to enjoy a wealthy retirement.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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