Saving 20% of paycheck isn't enough

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Marjimmy
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Saving 20% of paycheck isn't enough

Post by Marjimmy » Fri Jul 13, 2018 7:56 am

Ladies and Gentlemen,

Good Morning. After having been in deep thought last night after reviewing my finances, doing a couple math of checks and determining what percent of my paycheck I save, it now appears blatant to me that the average advice of "save 10% - 20% of your paycheck and live with the rest" is not quite sufficient in terms of the overall amount this savings percentage will accumulate 10-20-30 years down the road for retirement.

This statement comes with a few conditions:
1) Everyone's salary is different, someone making 40k saving 10% will not have nearly as much as someone with 200k income saving 10%. For the terms of this argument, I will assume the medium house hold income for 2018 as roughly 65k per individual.
2) Retirement goals vary across the board. Some people like what they do and don't plan to retire before 65. Others take a more mustachian point of view and wish to retire in their 40's or early 50's. For the sake of my argument, I will say we want to retire at 50.
3) Lastly, living cost fluctuate depending on where you live and I will qualify the above saying we live in an Low - Avg COL state.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......

Let me know what you think. :beer
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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luminous
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Re: Saving 20% of paycheck isn't enough

Post by luminous » Fri Jul 13, 2018 8:06 am

You seem to be mixing several things together. The standard rule of thumb to save 20% also assumes retiring at 65 and taking social security immediately. This scenario isn’t not uncommon for Americans overall.

It should be no surprise that the standard rule of thumb is overly simplistic and doesn’t work for everyone. Most financial standard rules of thumb are like this, like “age in bonds”.

And of course if you want to retire 15 years early then the standard advice no longer applies.
50/20/30 US stock/international stock/bonds. Hope to semi-retire in 2026.

bert09
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Re: Saving 20% of paycheck isn't enough

Post by bert09 » Fri Jul 13, 2018 8:07 am

Have you used a tool like FIRECalc before? You can pretty easily run through different scenarios like that to see what the likelihood of a given savings rate being sufficient would be.

Spewin
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Re: Saving 20% of paycheck isn't enough

Post by Spewin » Fri Jul 13, 2018 8:08 am

Your comment is based on many faulty and wandering assumptions. Why would you think that standard advice would be referring to retiring early (which it isn't), rather than a more standard plan like retiring at age 65 (which it is)?

Why do you mention saving for retirement in 10-20-30 years? Of course a plan that gets you to retirement in 30 years is unlikely to also get you to retirement in 10 years.

Also, I think you'll find that no posters here suggesting one save only 10% for retirement and very few who suggest saving 20%. I personally think that 20% is the minimum one should save specifically for retirement.

Another thing that you're missing is the existence of social security. Especially since SS is a progressive system, someone making $40k for their lifetime will probably be very happy with SS plus what they've accumulated by saving 10%. On the other hand someone making $200k will likely be very unhappy.

Three things that you did get right:

1) An appropriate savings rate will need to take income into account.
2) Because one's income may increase later in life, one should also save a higher proportion in those later years if they want to maintain the lifestyle they develop with that income.
3) If you save under 20% of your income, you are unlikely to be able to retire by most definitions of early.

SimplicityNow
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Re: Saving 20% of paycheck isn't enough

Post by SimplicityNow » Fri Jul 13, 2018 8:11 am

Percentage recommendations are guidelines and starting points. As you mentioned in the first post, everyone is different.
40% of 1 million is a lot easier done then 40% of 40K.

A better recommendation IMO opinion is to save as much as you can. For many, they don't, and therein lies one of the issues.

Crisium
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Re: Saving 20% of paycheck isn't enough

Post by Crisium » Fri Jul 13, 2018 8:12 am

The average US household makes approximate 59k. 15% is the rule of thumb. 40 years of saving 15% (age 25-65) is close to 1.8m (assuming 7% CAGR).

That's $72k a year at 4% SWR.

This is very simplistic and not covering inflation and other things of course admittantly, but it is enough to illustrate this rule of thumb is decent for the average American especially with Soc Sec on top of it.

il0kin
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Re: Saving 20% of paycheck isn't enough

Post by il0kin » Fri Jul 13, 2018 8:15 am

My wife and I save 15% + 3% match. We are 29. At Target age retirement of 59 we will have more income than we live on now with a paid off house. SS will make things really gravy whenever we take it.

Of course who wouldn’t love to save 40% but it is simply not a reality for young parents such as myself with childcare expenses and a mortgage (and yes, we bought a reasonable house under 2x gross income). We will most definitely tick up above 20% + match once we are done with daycare, though.

jrbdmb
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Re: Saving 20% of paycheck isn't enough

Post by jrbdmb » Fri Jul 13, 2018 8:16 am

You may also consider that a 20% rule of thumb is being used for many who currently save little to nothing for their retirement. 20% may not be adequate in all situations, but it is certainly better than 0%.

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TheTimeLord
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Re: Saving 20% of paycheck isn't enough

Post by TheTimeLord » Fri Jul 13, 2018 8:21 am

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
The amount you need to save out of your paycheck will of course be affected by the amount of time you have to save and those savings have to compound, the amount you want to accumulate and the length of your planned retirement. But yes to retire early you have to save more because you will be saving for shorter period of time and benefit less from compounding and you will be making withdrawals for a longer period of time.
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Shackleton
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Re: Saving 20% of paycheck isn't enough

Post by Shackleton » Fri Jul 13, 2018 8:27 am

And to add to what others have said, the 20% savings rate as I understand it is meant to be 20% of your gross salary. Obviously, saving 20% of your net (your paycheck amount) would be a lot less. And wouldn't take into account the fact that your 401k contributions were already taken out of the paycheck. Much better to focus on the gross amount IMO.
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Re: Saving 20% of paycheck isn't enough

Post by Call_Me_Op » Fri Jul 13, 2018 8:33 am

A guideline such as "save 10% -20% of your paycheck for retirement" is meaningless. What you need to save is an amount of money that is a certain multiple of your initial annual living expenses. This could translate to savings of less than 10% of your salary or greater than 100%.
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Re: Saving 20% of paycheck isn't enough

Post by AlohaJoe » Fri Jul 13, 2018 8:38 am

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
Is someone arguing with you about this?

You've set up massive strawman that no one is world actually supports. "If you save 10% you can retire early." Who says that? No one. :oops:

Of course you need to save more if you want to retire early. :sharebeer

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Re: Saving 20% of paycheck isn't enough

Post by ChinchillaWhiplash » Fri Jul 13, 2018 8:49 am

I feel that it is best to just save as much as you can without sacrificing too much of your life. Obviously, the higher your rate of saving, the easier it is to retire earlier. Start as early as possible too. Too many variables involved to really be able to put a set %. Everyone needs to figure out their own personal savings amount that works to fulfill their own goals.

niners9088
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Re: Saving 20% of paycheck isn't enough

Post by niners9088 » Fri Jul 13, 2018 9:01 am

I ran some numbers for a single individual and it seems reasonable if they plan to retire at 65. I tried to be conservative but here are the numbers per year.
10% in 401k $6500
3% Match $1950
Deductions $4800 - $400 per month
before taxes $53700
FICA $4972.50
State 2% $1074
Federal $5113.38
Take Home $42,540.12

Average SS Payment is $1413 per month or $16,956 per year. Subtracting that would leave $25,584 per year needed. Using the 4% rule that is $639,603.

If you take the above 401k amount and use a 3% return they would end up with $637,140 after 40 year. It would assume $65k is the avg income over their 40 year work life form 25-65.

Pretty close and this assumes no decrease in spending during retirement which is often mentioned.

Again a lot of assumptions, especially around the future of social security, but I tried to be conservative in the estimates and they seem to work at least directionally.

bradshaw1965
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Re: Saving 20% of paycheck isn't enough

Post by bradshaw1965 » Fri Jul 13, 2018 9:10 am

ChinchillaWhiplash wrote:
Fri Jul 13, 2018 8:49 am
I feel that it is best to just save as much as you can without sacrificing too much of your life. Obviously, the higher your rate of saving, the easier it is to retire earlier. Start as early as possible too. Too many variables involved to really be able to put a set %. Everyone needs to figure out their own personal savings amount that works to fulfill their own goals.
Seems right to me, I've been paycheck to paycheck, 15-20%, 40%, hoarding cash for houses, spooked by recessions and thoughts of job loss. Just do the best you can and scrape some of the fat to the side during the good times to survive the lean times.

FoolMeOnce
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Re: Saving 20% of paycheck isn't enough

Post by FoolMeOnce » Fri Jul 13, 2018 9:14 am

The 20% savings rate recommendation is not aimed at allowing people to retire in their 40s. I don't find it misleading. It is a fine, easy to understand target to get people to save enough for a traditional retirement after working 40ish years.

And yes, people saving 20% will have different account balances based on their respective incomes, but that difference says less about one's ability to retire than I think you are assuming. One's savings rate says a lot about one's annual spending. Regardless of income, is you are spending X%/year, you'll need a multiple of that number to retire. Saving and investing Y%/year can get you there in Z years. This is why you can have a chart like the one here about how many years you need to work to be able to retire with a 4% withdrawal rate, regardless of the actual number values:

https://www.mrmoneymustache.com/2012/01 ... etirement/

This assumes one continues their working lifestyle/spending after retirement. (And, yes, he calls 5% real return "conservative," but that does not change the takeaway here)

Random Walker
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Re: Saving 20% of paycheck isn't enough

Post by Random Walker » Fri Jul 13, 2018 9:25 am

When people talk about saving a certain %, do they generally refer to % of gross paycheck or net after taxes, Medicare, SSC?

Dave

Crisium
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Re: Saving 20% of paycheck isn't enough

Post by Crisium » Fri Jul 13, 2018 9:30 am

That MMM article linked 2 posts above uses net.

I find it far simpler to use gross. Afterall, I set my 401k to 17% and it definitely is 17% of gross.

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Cyclesafe
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Re: Saving 20% of paycheck isn't enough

Post by Cyclesafe » Fri Jul 13, 2018 9:34 am

OP

The widest blinder to accomplish FIRE or a comfortable "normal" retirement, for that matter, is the lack of realization that one must take one's own responsibility for one's future financial situation. Your employer (probably) and your government (likely) will NOT do this for you. That leaves an inheritance, winning the lottery, or saving and investing. You seem to already know this.

The problem for all of us is that we don't like what we see. We don't want to make the sacrifices necessary now - especially when we see people around us spending their paychecks and borrowing more to live an unsustainable lifestyle. We think we are missing something and that we are cheating our families of a better life.

Watching one's elderly relative's cope with retirement is instructive. Conversations with them in private about finances ought to be very informative. Ask them what they wish they would have done differently. They ought to be eager to help...

I think the answers would likely be 1) take better control of your health; 2) don't sweat the small stuff; 3) consume only what you need; 4) support your children; and then 5) save and invest as much money as possible - regardless of the percentage of income.

If the amount of money saved seems too little - as exemplified by one's own spreadsheet (preferred) or some black box model or some set of arbitrary, general heuristics (not recommended), then one must figure out how to earn more money. If one is young enough, retraining might be a good investment; or a side gig now might be better than working in one's '70's and beyond to make ends meet.

Nevertheless, the first step is the realization early enough that there is a problem.

TL;DR Forget about the heuristics. Build and run a spreadsheet to see where you'll be when you want to retire.

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Re: Saving 20% of paycheck isn't enough

Post by Spirit Rider » Fri Jul 13, 2018 10:06 am

Crisium wrote:
Fri Jul 13, 2018 8:12 am
The average US household makes approximate 59k. 15% is the rule of thumb. 40 years of saving 15% (age 25-65) is close to 1.8m (assuming 7% CAGR). That's $72k a year at 4% SWR.

This is very simplistic and not covering inflation and other things of course admittedly, but it is enough to illustrate this rule of thumb is decent for the average American especially with Soc Sec on top of it.
Spewin wrote:
Fri Jul 13, 2018 8:08 am
Your comment is based on many faulty and wandering assumptions. Why would you think that standard advice would be referring to retiring early (which it isn't), rather than a more standard plan like retiring at age 65 (which it is)?

Another thing that you're missing is the existence of social security. Especially since SS is a progressive system, someone making $40k for their lifetime will probably be very happy with SS plus what they've accumulated by saving 10%. On the other hand someone making $200k will likely be very unhappy.
These two replies combined demonstrate a key point.

That $59K median income if representative of their AIME (35 highest wage indexed monthly earnings) is within the SS 2nd bend point. Because of the progressive nature of SS benefits, that individual's Primary Insurance Amount (PIA )would be ~42.5% of that AIME. Where someone above the SS maximum wage base (2018 = $128,400) might receive < 10%.

Dottie57
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Re: Saving 20% of paycheck isn't enough

Post by Dottie57 » Fri Jul 13, 2018 10:08 am

luminous wrote:
Fri Jul 13, 2018 8:06 am
You seem to be mixing several things together. The standard rule of thumb to save 20% also assumes retiring at 65 and taking social security immediately. This scenario isn’t not uncommon for Americans overall.

It should be no surprise that the standard rule of thumb is overly simplistic and doesn’t work for everyone. Most financial standard rules of thumb are like this, like “age in bonds”.

And of course if you want to retire 15 years early then the standard advice no longer applies.
Agree. 15% was the most I could afford until the end of my career. The last 10 years I really ramped up the savings and investments.

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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 10:09 am

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
Ladies and Gentlemen,

Good Morning. After having been in deep thought last night after reviewing my finances, doing a couple math of checks and determining what percent of my paycheck I save, it now appears blatant to me that the average advice of "save 10% - 20% of your paycheck and live with the rest" is not quite sufficient in terms of the overall amount this savings percentage will accumulate 10-20-30 years down the road for retirement.

This statement comes with a few conditions:
1) Everyone's salary is different, someone making 40k saving 10% will not have nearly as much as someone with 200k income saving 10%. For the terms of this argument, I will assume the medium house hold income for 2018 as roughly 65k per individual.
2) Retirement goals vary across the board. Some people like what they do and don't plan to retire before 65. Others take a more mustachian point of view and wish to retire in their 40's or early 50's. For the sake of my argument, I will say we want to retire at 50.
3) Lastly, living cost fluctuate depending on where you live and I will qualify the above saying we live in an Low - Avg COL state.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......

Let me know what you think. :beer
No - if you plan on $65K year income and 15-20% savings and want to comfortably retire at 50 years of age in a MCOL area with no pension or windfalls it is not enough.
You can vary your earnings , savings, retirement age or a combination of each to solve for that equation.

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willthrill81
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Re: Saving 20% of paycheck isn't enough

Post by willthrill81 » Fri Jul 13, 2018 10:22 am

Even for discussing early retirement, there is no 'set' savings rate needed. Some might consider retiring at age 60 to be 'early', while others would think of it as retiring at age 35. The savings rates needed to achieve that would be very different from each other.

I think that those who don't plan on retiring before they are eligible for Social Security and Medicare will do fine with a 20% savings rate if they do so. This will likely be helped further if they own a home free and clear by retirement age.

Here's a very easy 'back of the envelope' calculator for seeing the link between savings rate and time to financial independence. You can adjust some of its assumptions as well; its default is a 5% real return and 4% withdrawals. Prior analysis with this calculator has determined that the 'savings' used should be after-tax. With these assumptions, it says that a 20% savings rate will lead to financial independence in 36.7 years. That would not include Social Security or other income sources. Even if a person didn't start that saving until age 30, they would still be FI by age 67 with no reliance on Social Security. That would put such a person far ahead of the norm today, where the median net worth inclusive of home equity among those age 65-69 is just about $210k.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

jimmyrules712
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Re: Saving 20% of paycheck isn't enough

Post by jimmyrules712 » Fri Jul 13, 2018 10:30 am

The "save 10%-20%" guideline is for standard retirement at 65-67. It was never meant to get you an early retirement. Obviously it would not be sufficient for that but for most people it should work fine for a normal retirement at 65-67.

smitcat
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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 10:33 am

willthrill81 wrote:
Fri Jul 13, 2018 10:22 am
Even for discussing early retirement, there is no 'set' savings rate needed. Some might consider retiring at age 60 to be 'early', while others would think of it as retiring at age 35. The savings rates needed to achieve that would be very different from each other.

I think that those who don't plan on retiring before they are eligible for Social Security and Medicare will do fine with a 20% savings rate if they do so. This will likely be helped further if they own a home free and clear by retirement age.

Here's a very easy 'back of the envelope' calculator for seeing the link between savings rate and time to financial independence. You can adjust some of its assumptions as well; its default is a 5% real return and 4% withdrawals. Prior analysis with this calculator has determined that the 'savings' used should be after-tax. With these assumptions, it says that a 20% savings rate will lead to financial independence in 36.7 years. That would not include Social Security or other income sources. Even if a person didn't start that saving until age 30, they would still be FI by age 67 with no reliance on Social Security. That would put such a person far ahead of the norm today, where the median net worth inclusive of home equity among those age 65-69 is just about $210k.
I guess that calculator uses income as net after taxes as opposed to gross income?

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willthrill81
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Re: Saving 20% of paycheck isn't enough

Post by willthrill81 » Fri Jul 13, 2018 10:38 am

smitcat wrote:
Fri Jul 13, 2018 10:33 am
willthrill81 wrote:
Fri Jul 13, 2018 10:22 am
Even for discussing early retirement, there is no 'set' savings rate needed. Some might consider retiring at age 60 to be 'early', while others would think of it as retiring at age 35. The savings rates needed to achieve that would be very different from each other.

I think that those who don't plan on retiring before they are eligible for Social Security and Medicare will do fine with a 20% savings rate if they do so. This will likely be helped further if they own a home free and clear by retirement age.

Here's a very easy 'back of the envelope' calculator for seeing the link between savings rate and time to financial independence. You can adjust some of its assumptions as well; its default is a 5% real return and 4% withdrawals. Prior analysis with this calculator has determined that the 'savings' used should be after-tax. With these assumptions, it says that a 20% savings rate will lead to financial independence in 36.7 years. That would not include Social Security or other income sources. Even if a person didn't start that saving until age 30, they would still be FI by age 67 with no reliance on Social Security. That would put such a person far ahead of the norm today, where the median net worth inclusive of home equity among those age 65-69 is just about $210k.
I guess that calculator uses income as net after taxes as opposed to gross income?
It seems so. #Cruncher did an analysis of it not long ago and came to that conclusion. You could find his analysis if desired.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

smitcat
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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 10:40 am

willthrill81 wrote:
Fri Jul 13, 2018 10:38 am
smitcat wrote:
Fri Jul 13, 2018 10:33 am
willthrill81 wrote:
Fri Jul 13, 2018 10:22 am
Even for discussing early retirement, there is no 'set' savings rate needed. Some might consider retiring at age 60 to be 'early', while others would think of it as retiring at age 35. The savings rates needed to achieve that would be very different from each other.

I think that those who don't plan on retiring before they are eligible for Social Security and Medicare will do fine with a 20% savings rate if they do so. This will likely be helped further if they own a home free and clear by retirement age.

Here's a very easy 'back of the envelope' calculator for seeing the link between savings rate and time to financial independence. You can adjust some of its assumptions as well; its default is a 5% real return and 4% withdrawals. Prior analysis with this calculator has determined that the 'savings' used should be after-tax. With these assumptions, it says that a 20% savings rate will lead to financial independence in 36.7 years. That would not include Social Security or other income sources. Even if a person didn't start that saving until age 30, they would still be FI by age 67 with no reliance on Social Security. That would put such a person far ahead of the norm today, where the median net worth inclusive of home equity among those age 65-69 is just about $210k.
I guess that calculator uses income as net after taxes as opposed to gross income?
It seems so. #Cruncher did an analysis of it not long ago and came to that conclusion. You could find his analysis if desired.
Thanks - that makes sense as it is appears really far off with higher taxed incomes.

davidsorensen32
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Re: Saving 20% of paycheck isn't enough

Post by davidsorensen32 » Fri Jul 13, 2018 11:07 am

Just Ignore it. Most people are laid off before 50 if not earlier and never get back to good jobs. Plan accordingly.
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
Ladies and Gentlemen,

Good Morning. After having been in deep thought last night after reviewing my finances, doing a couple math of checks and determining what percent of my paycheck I save, it now appears blatant to me that the average advice of "save 10% - 20% of your paycheck and live with the rest" is not quite sufficient in terms of the overall amount this savings percentage will accumulate 10-20-30 years down the road for retirement.

This statement comes with a few conditions:
1) Everyone's salary is different, someone making 40k saving 10% will not have nearly as much as someone with 200k income saving 10%. For the terms of this argument, I will assume the medium house hold income for 2018 as roughly 65k per individual.
2) Retirement goals vary across the board. Some people like what they do and don't plan to retire before 65. Others take a more mustachian point of view and wish to retire in their 40's or early 50's. For the sake of my argument, I will say we want to retire at 50.
3) Lastly, living cost fluctuate depending on where you live and I will qualify the above saying we live in an Low - Avg COL state.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......

Let me know what you think. :beer

smitcat
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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 11:45 am

davidsorensen32 wrote:
Fri Jul 13, 2018 11:07 am
Just Ignore it. Most people are laid off before 50 if not earlier and never get back to good jobs. Plan accordingly.
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
Ladies and Gentlemen,

Good Morning. After having been in deep thought last night after reviewing my finances, doing a couple math of checks and determining what percent of my paycheck I save, it now appears blatant to me that the average advice of "save 10% - 20% of your paycheck and live with the rest" is not quite sufficient in terms of the overall amount this savings percentage will accumulate 10-20-30 years down the road for retirement.

This statement comes with a few conditions:
1) Everyone's salary is different, someone making 40k saving 10% will not have nearly as much as someone with 200k income saving 10%. For the terms of this argument, I will assume the medium house hold income for 2018 as roughly 65k per individual.
2) Retirement goals vary across the board. Some people like what they do and don't plan to retire before 65. Others take a more mustachian point of view and wish to retire in their 40's or early 50's. For the sake of my argument, I will say we want to retire at 50.
3) Lastly, living cost fluctuate depending on where you live and I will qualify the above saying we live in an Low - Avg COL state.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......

Let me know what you think. :beer
Sorry you feel that way David.

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David Jay
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Re: Saving 20% of paycheck isn't enough

Post by David Jay » Fri Jul 13, 2018 1:07 pm

As others have said regarding your chosen scenario: 20% savings rate != retire @50
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PFInterest
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Re: Saving 20% of paycheck isn't enough

Post by PFInterest » Fri Jul 13, 2018 1:10 pm

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
Ladies and Gentlemen,

Good Morning. After having been in deep thought last night after reviewing my finances, doing a couple math of checks and determining what percent of my paycheck I save, it now appears blatant to me that the average advice of "save 10% - 20% of your paycheck and live with the rest" is not quite sufficient in terms of the overall amount this savings percentage will accumulate 10-20-30 years down the road for retirement.

This statement comes with a few conditions:
1) Everyone's salary is different, someone making 40k saving 10% will not have nearly as much as someone with 200k income saving 10%. For the terms of this argument, I will assume the medium house hold income for 2018 as roughly 65k per individual.
2) Retirement goals vary across the board. Some people like what they do and don't plan to retire before 65. Others take a more mustachian point of view and wish to retire in their 40's or early 50's. For the sake of my argument, I will say we want to retire at 50.
3) Lastly, living cost fluctuate depending on where you live and I will qualify the above saying we live in an Low - Avg COL state.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......

Let me know what you think. :beer
so early retirement requires a much higher savings rate. so yes. 10% will not cut it [OT comment removed by admin LadyGeek].....
20% is my default go to when discussing with other people. i think anyone can start there.

no one in the FIRE area talks about savings rate at 10%. i dont know where you got that premise.

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JoMoney
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Re: Saving 20% of paycheck isn't enough

Post by JoMoney » Fri Jul 13, 2018 1:17 pm

Maybe... If you saved 20% of your paycheck for 30 years and it compounded at 6% annually you'd have about 20x the 80% of your paycheck you were otherwise living on (after saving 20%).

Save more, live on less, hope for higher returns, and social security...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Saving 20% of paycheck isn't enough

Post by Spirit Rider » Fri Jul 13, 2018 2:21 pm

smitcat wrote:
Fri Jul 13, 2018 11:45 am
davidsorensen32 wrote:
Fri Jul 13, 2018 11:07 am
Just Ignore it. Most people are laid off before 50 if not earlier and never get back to good jobs. Plan accordingly.
Sorry you feel that way David.
While he may have an overly pessimistic view. His larger point is valid.

Especially in some fields, if you are planing to retire 60+, it would be wise to have a minimum contingency plan. I was laid off twice in my 50's. The second time four years prior to my planned retirement date. Luckily, I had a five year contingency in my plan and my returns had greatly exceeded my projection. My job search after the latter was half-hearted at best. When you have reached FI, there is a the freedom to say; "nah I'm done!"

JoeRetire
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Re: Saving 20% of paycheck isn't enough

Post by JoeRetire » Fri Jul 13, 2018 2:39 pm

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal. This goes with no inheritance, windfalls of gambling or the what not. I understand this 40% goal is not possible for many, but nor is retiring early.......
The general rule of thumb suggesting that you save 10-20% comes with a lot of assumptions
- you can live comfortably on 80-90% of your salary
- you start when you start your career (in your 20s for example)
- you continue until common retirement age (65 or so)
- you invest in a diversified portfolio of around 60% equities and 40% bonds

Do all of that and 10-20% would be fine.

Where it wouldn't be fine includes retiring early.

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Re: Saving 20% of paycheck isn't enough

Post by willthrill81 » Fri Jul 13, 2018 3:06 pm

Spirit Rider wrote:
Fri Jul 13, 2018 2:21 pm
smitcat wrote:
Fri Jul 13, 2018 11:45 am
davidsorensen32 wrote:
Fri Jul 13, 2018 11:07 am
Just Ignore it. Most people are laid off before 50 if not earlier and never get back to good jobs. Plan accordingly.
Sorry you feel that way David.
While he may have an overly pessimistic view. His larger point is valid.

Especially in some fields, if you are planing to retire 60+, it would be wise to have a minimum contingency plan. I was laid off twice in my 50's. The second time four years prior to my planned retirement date. Luckily, I had a five year contingency in my plan and my returns had greatly exceeded my projection. My job search after the latter was half-hearted at best. When you have reached FI, there is a the freedom to say; "nah I'm done!"
I see both sides. It's demonstrably false that "most [i.e. over 50%] people are laid off at 50 and never get back to good jobs." But it's true that many over the age of 50 do get laid off at some point, and many of these people do have issues making lateral moves to other jobs.

That's part of the reason that I think that financially minded folks should aim to be financially independent (not necessarily retired) no later than age 55-60. There are other obvious advantages to doing so.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Saving 20% of paycheck isn't enough

Post by Spirit Rider » Fri Jul 13, 2018 3:34 pm

willthrill81 wrote:
Fri Jul 13, 2018 3:06 pm
I see both sides. It's demonstrably false that "most [i.e. over 50%] people are laid off at 50 and never get back to good jobs." But it's true that many over the age of 50 do get laid off at some point, and many of these people do have issues making lateral moves to other jobs.

That's part of the reason that I think that financially minded folks should aim to be financially independent (not necessarily retired) no later than age 55-60. There are other obvious advantages to doing so.
I agree with everything you said.

My original plan was to retire at age 63 1/2 and use COBRA until Medicare. I was laid off at 55 and was marginally FI, so I stuck to my original plan and got a job paying me substantially more than I was making before. So career death at 50 is not the norm, but it was real difficult to get gainfully employed at 55. It was in fact not due to my best efforts, but rather a former colleague at a prior employer who though a friend of a friend was directed to my linkedn profile. When I got laid off at 59 1/2 the second time, I used a very low cost COBRA of a great medical plan until 61. In the five intervening years, my portfolio had grown substantially. Sure the luck of the post crash bull market has helped, but it was on top of a sound plan that had me FI at 55 safely well before necessary.

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willthrill81
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Re: Saving 20% of paycheck isn't enough

Post by willthrill81 » Fri Jul 13, 2018 3:40 pm

Spirit Rider wrote:
Fri Jul 13, 2018 3:34 pm
willthrill81 wrote:
Fri Jul 13, 2018 3:06 pm
I see both sides. It's demonstrably false that "most [i.e. over 50%] people are laid off at 50 and never get back to good jobs." But it's true that many over the age of 50 do get laid off at some point, and many of these people do have issues making lateral moves to other jobs.

That's part of the reason that I think that financially minded folks should aim to be financially independent (not necessarily retired) no later than age 55-60. There are other obvious advantages to doing so.
I agree with everything you said.

My original plan was to retire at age 63 1/2 and use COBRA until Medicare. I was laid off at 55 and was marginally FI, so I stuck to my original plan and got a job paying me substantially more than I was making before. When I got laid off at 59 1/2 the second time, I used a very low cost COBRA of a great medical plan until 61. In the five intervening years, my portfolio had grown substantially. Sure the luck of the post crash bull market has helped, but it was on top of a sound plan that had me FI at 55 safely well before necessary.
I'm glad to hear that it worked out so well for you. My father too has really benefited from his last decade before retirement being a very strong bull market in stocks. It seems that COBRA really helped you out when you needed it.

My plan is to be FI between ages 50-55. I anticipate retiring no later than age 55, but that's still a ways off, and I know that my desires may change between now and then, not to mention the healthcare situation and the real elephant in the room, stock returns over the next ~15 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

LiterallyIronic
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Re: Saving 20% of paycheck isn't enough

Post by LiterallyIronic » Fri Jul 13, 2018 3:59 pm

Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
For the sake of my argument, I will say we want to retire at 50.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
I want to retire at 50. To calculate the percentage I need to save, I simply determined how much money I wanted to have when I'm 50, subtracted the amount I have now to determine how much I need to increase, and then applied a 7% growth across the number of years between now and when I'm 50 (16 years) to determine how much I need to save every month (in dollars) to reach that goal. It just so happens that the result was a little less than 25% of my gross income. So I save 25% of gross. Finishing university at 32 and wanting to retire at 50 absolutely means that saving 10-20% of net isn't enough.

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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 4:09 pm

Spirit Rider wrote:
Fri Jul 13, 2018 2:21 pm
smitcat wrote:
Fri Jul 13, 2018 11:45 am
davidsorensen32 wrote:
Fri Jul 13, 2018 11:07 am
Just Ignore it. Most people are laid off before 50 if not earlier and never get back to good jobs. Plan accordingly.
Sorry you feel that way David.
While he may have an overly pessimistic view. His larger point is valid.

Especially in some fields, if you are planing to retire 60+, it would be wise to have a minimum contingency plan. I was laid off twice in my 50's. The second time four years prior to my planned retirement date. Luckily, I had a five year contingency in my plan and my returns had greatly exceeded my projection. My job search after the latter was half-hearted at best. When you have reached FI, there is a the freedom to say; "nah I'm done!"
I have been laid off in industry wide reductions twice - once when I was late 30's and once just prior to after 50. At the time the entire industry I was in was in poor shape for many years after that. It was very disheartening and a tough problem - but there is always a way to make progress and move ahead if you choose (my opinion). So we did get back to 'good' jobs twice in different industries so it really can be done by most people if they want to (my opinion). Speaking from experience you can recover and be better than before - we are proof of that.

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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Fri Jul 13, 2018 4:13 pm

LiterallyIronic wrote:
Fri Jul 13, 2018 3:59 pm
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
For the sake of my argument, I will say we want to retire at 50.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
I want to retire at 50. To calculate the percentage I need to save, I simply determined how much money I wanted to have when I'm 50, subtracted the amount I have now to determine how much I need to increase, and then applied a 7% growth across the number of years between now and when I'm 50 (16 years) to determine how much I need to save every month (in dollars) to reach that goal. It just so happens that the result was a little less than 25% of my gross income. So I save 25% of gross. Finishing university at 32 and wanting to retire at 50 absolutely means that saving 10-20% of net isn't enough.
I wish you luck but perhaps adjust that 7% growth for both a future lower average and for a reasonable inflation.
In 20 years those dollars will be worth much less than today.

LiterallyIronic
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Re: Saving 20% of paycheck isn't enough

Post by LiterallyIronic » Fri Jul 13, 2018 4:42 pm

smitcat wrote:
Fri Jul 13, 2018 4:13 pm
LiterallyIronic wrote:
Fri Jul 13, 2018 3:59 pm
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
For the sake of my argument, I will say we want to retire at 50.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
I want to retire at 50. To calculate the percentage I need to save, I simply determined how much money I wanted to have when I'm 50, subtracted the amount I have now to determine how much I need to increase, and then applied a 7% growth across the number of years between now and when I'm 50 (16 years) to determine how much I need to save every month (in dollars) to reach that goal. It just so happens that the result was a little less than 25% of my gross income. So I save 25% of gross. Finishing university at 32 and wanting to retire at 50 absolutely means that saving 10-20% of net isn't enough.
I wish you luck but perhaps adjust that 7% growth for both a future lower average and for a reasonable inflation.
In 20 years those dollars will be worth much less than today.
Thanks. I will need luck. I ignore inflation but build in a buffer of the end amount. I want to have $600,000 by age 50, which will get me a 4% SWR of $24,000 or $2,000/month. With no mortgage (I also have to have the mortgage paid off before retirement), I should be able to get our expenses way under $2,000/month. I'm expecting something like (in 2018 dollars): $200 utilities, $200 groceries, $75 property taxes, $100 gasoline, $40 car insurance to be the basics (total $615/month). Throw in some house maintenance, car maintenance, clothes, personal care, and entertainment, and we should still come at no more than $1,000/month. I expect that our taxable income will be $0 every year (due to a combination of the standard deduction and most of our money being Roth) so we wouldn't be paying any taxes and we'd qualify for Medicaid until we were old enough to qualify for Medicare. I don't have dreams of a fancy retirement - I'd rather have an early humble retirement. Hopefully inflation isn't so much that it ruins that. And if Social Security happens to come through with any money, it'd just be gravy on top. :happy

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Re: Saving 20% of paycheck isn't enough

Post by Cop51 » Fri Jul 13, 2018 6:18 pm

il0kin wrote:
Fri Jul 13, 2018 8:15 am
My wife and I save 15% + 3% match. We are 29. At Target age retirement of 59 we will have more income than we live on now with a paid off house. SS will make things really gravy whenever we take it.

Of course who wouldn’t love to save 40% but it is simply not a reality for young parents such as myself with childcare expenses and a mortgage (and yes, we bought a reasonable house under 2x gross income). We will most definitely tick up above 20% + match once we are done with daycare, though.
Daycare is really holding us back $13,000 a year for 1 child.

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aspirit
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Re: Saving 20% of paycheck isn't enough

Post by aspirit » Fri Jul 13, 2018 6:40 pm

Its probably not enough, as with implementation of a VWRate during de-cumulation, saving all one can during accumulation seems prudent. :happy
Time & tides wait for no one. A man has to know his limitations.

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Re: Saving 20% of paycheck isn't enough

Post by smitcat » Sat Jul 14, 2018 6:10 am

LiterallyIronic wrote:
Fri Jul 13, 2018 4:42 pm
smitcat wrote:
Fri Jul 13, 2018 4:13 pm
LiterallyIronic wrote:
Fri Jul 13, 2018 3:59 pm
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
For the sake of my argument, I will say we want to retire at 50.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
I want to retire at 50. To calculate the percentage I need to save, I simply determined how much money I wanted to have when I'm 50, subtracted the amount I have now to determine how much I need to increase, and then applied a 7% growth across the number of years between now and when I'm 50 (16 years) to determine how much I need to save every month (in dollars) to reach that goal. It just so happens that the result was a little less than 25% of my gross income. So I save 25% of gross. Finishing university at 32 and wanting to retire at 50 absolutely means that saving 10-20% of net isn't enough.
I wish you luck but perhaps adjust that 7% growth for both a future lower average and for a reasonable inflation.
In 20 years those dollars will be worth much less than today.
Thanks. I will need luck. I ignore inflation but build in a buffer of the end amount. I want to have $600,000 by age 50, which will get me a 4% SWR of $24,000 or $2,000/month. With no mortgage (I also have to have the mortgage paid off before retirement), I should be able to get our expenses way under $2,000/month. I'm expecting something like (in 2018 dollars): $200 utilities, $200 groceries, $75 property taxes, $100 gasoline, $40 car insurance to be the basics (total $615/month). Throw in some house maintenance, car maintenance, clothes, personal care, and entertainment, and we should still come at no more than $1,000/month. I expect that our taxable income will be $0 every year (due to a combination of the standard deduction and most of our money being Roth) so we wouldn't be paying any taxes and we'd qualify for Medicaid until we were old enough to qualify for Medicare. I don't have dreams of a fancy retirement - I'd rather have an early humble retirement. Hopefully inflation isn't so much that it ruins that. And if Social Security happens to come through with any money, it'd just be gravy on top. :happy
Suggest you continue to research expenses/costs and refine your plan while saving. I have found that having goals that are much higher than where you want to end up to be extremely valuable.

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Re: Saving 20% of paycheck isn't enough

Post by GAAP » Sat Jul 14, 2018 9:53 am

smitcat wrote:
Sat Jul 14, 2018 6:10 am
Suggest you continue to research expenses/costs and refine your plan while saving. I have found that having goals that are much higher than where you want to end up to be extremely valuable.
+1

Stopping part way to your goal is much easier if you realize that's all you need instead of realizing that's all your going to get...

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Re: Saving 20% of paycheck isn't enough

Post by willthrill81 » Sat Jul 14, 2018 10:46 am

Cop51 wrote:
Fri Jul 13, 2018 6:18 pm
il0kin wrote:
Fri Jul 13, 2018 8:15 am
My wife and I save 15% + 3% match. We are 29. At Target age retirement of 59 we will have more income than we live on now with a paid off house. SS will make things really gravy whenever we take it.

Of course who wouldn’t love to save 40% but it is simply not a reality for young parents such as myself with childcare expenses and a mortgage (and yes, we bought a reasonable house under 2x gross income). We will most definitely tick up above 20% + match once we are done with daycare, though.
Daycare is really holding us back $13,000 a year for 1 child.
Ouch. That reminds me to be thankful that my DW can stay home with our daughter.

Are you planning on diverting that $13k to savings once your child begins school?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Saving 20% of paycheck isn't enough

Post by dharrythomas » Sat Jul 14, 2018 11:10 am

LiterallyIronic wrote:
Fri Jul 13, 2018 4:42 pm
smitcat wrote:
Fri Jul 13, 2018 4:13 pm
LiterallyIronic wrote:
Fri Jul 13, 2018 3:59 pm
Marjimmy wrote:
Fri Jul 13, 2018 7:56 am
For the sake of my argument, I will say we want to retire at 50.

This topic is open to discussion, I feel that 10-20% savings is simply not enough and should be aimed more at 40% to achieve an early retirement goal.
I want to retire at 50. To calculate the percentage I need to save, I simply determined how much money I wanted to have when I'm 50, subtracted the amount I have now to determine how much I need to increase, and then applied a 7% growth across the number of years between now and when I'm 50 (16 years) to determine how much I need to save every month (in dollars) to reach that goal. It just so happens that the result was a little less than 25% of my gross income. So I save 25% of gross. Finishing university at 32 and wanting to retire at 50 absolutely means that saving 10-20% of net isn't enough.
I wish you luck but perhaps adjust that 7% growth for both a future lower average and for a reasonable inflation.
In 20 years those dollars will be worth much less than today.
Thanks. I will need luck. I ignore inflation but build in a buffer of the end amount. I want to have $600,000 by age 50, which will get me a 4% SWR of $24,000 or $2,000/month. With no mortgage (I also have to have the mortgage paid off before retirement), I should be able to get our expenses way under $2,000/month. I'm expecting something like (in 2018 dollars): $200 utilities, $200 groceries, $75 property taxes, $100 gasoline, $40 car insurance to be the basics (total $615/month). Throw in some house maintenance, car maintenance, clothes, personal care, and entertainment, and we should still come at no more than $1,000/month. I expect that our taxable income will be $0 every year (due to a combination of the standard deduction and most of our money being Roth) so we wouldn't be paying any taxes and we'd qualify for Medicaid until we were old enough to qualify for Medicare. I don't have dreams of a fancy retirement - I'd rather have an early humble retirement. Hopefully inflation isn't so much that it ruins that. And if Social Security happens to come through with any money, it'd just be gravy on top. :happy
Good luck. A 4% safe withdrawal rate combined with retiring at 50 is aggressive and contains plenty of sequence of return risk.

Hope34
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Re: Saving 20% of paycheck isn't enough

Post by Hope34 » Sat Jul 14, 2018 1:17 pm

I personally shoot to save 50% of my income for retirement. I am much more interested in increasing investments than having the latest gadget or automobile. That being said I agree with previous people that you have to enjoy your life as well. Balance is key in my opinion.

mptfan
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Re: Saving 20% of paycheck isn't enough

Post by mptfan » Sat Jul 14, 2018 1:32 pm

LiterallyIronic wrote:
Fri Jul 13, 2018 4:42 pm
I want to have $600,000 by age 50, which will get me a 4% SWR of $24,000 or $2,000/month. With no mortgage (I also have to have the mortgage paid off before retirement), I should be able to get our expenses way under $2,000/month. I'm expecting something like (in 2018 dollars): $200 utilities, $200 groceries, $75 property taxes, $100 gasoline, $40 car insurance to be the basics (total $615/month). Throw in some house maintenance, car maintenance, clothes, personal care, and entertainment, and we should still come at no more than $1,000/month. I expect that our taxable income will be $0 every year (due to a combination of the standard deduction and most of our money being Roth) so we wouldn't be paying any taxes and we'd qualify for Medicaid until we were old enough to qualify for Medicare. I don't have dreams of a fancy retirement - I'd rather have an early humble retirement. Hopefully inflation isn't so much that it ruins that. And if Social Security happens to come through with any money, it'd just be gravy on top. :happy
There is a reasonable chance you could live to 85-90 years old. There is no way I would want to live for 35 or more years on $24,000 a year, even if it were inflation adjusted, I don't see the point of early retirement from gainful employment if I have to live at or near the poverty level for the rest of my life. The federal poverty level for a family of 4 is $25,100, but if you have 2 people it is $16,000, but still, there is no way. To each his own.

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Re: Saving 20% of paycheck isn't enough

Post by davidsorensen32 » Sat Jul 14, 2018 2:02 pm

mptfan wrote:
Sat Jul 14, 2018 1:32 pm
LiterallyIronic wrote:
Fri Jul 13, 2018 4:42 pm
I want to have $600,000 by age 50, which will get me a 4% SWR of $24,000 or $2,000/month. With no mortgage (I also have to have the mortgage paid off before retirement), I should be able to get our expenses way under $2,000/month. I'm expecting something like (in 2018 dollars): $200 utilities, $200 groceries, $75 property taxes, $100 gasoline, $40 car insurance to be the basics (total $615/month). Throw in some house maintenance, car maintenance, clothes, personal care, and entertainment, and we should still come at no more than $1,000/month. I expect that our taxable income will be $0 every year (due to a combination of the standard deduction and most of our money being Roth) so we wouldn't be paying any taxes and we'd qualify for Medicaid until we were old enough to qualify for Medicare. I don't have dreams of a fancy retirement - I'd rather have an early humble retirement. Hopefully inflation isn't so much that it ruins that. And if Social Security happens to come through with any money, it'd just be gravy on top. :happy
There is a reasonable chance you could live to 85-90 years old. There is no way I would want to live for 35 or more years on $24,000 a year, even if it were inflation adjusted, I don't see the point of early retirement from gainful employment if I have to live at or near the poverty level for the rest of my life. The federal poverty level for a family of 4 is $25,100, but if you have 2 people it is $16,000, but still, there is no way. To each his own.
$117,000 is the low income level for SF Bay Area. Just saying. And plan for unemployment after 50. Ignore all conventional wisdom. Plan for your situation. You are the only person who can plan for yourself. No one else

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