I've thought a lot about this, the problem is I'm not sure what we really need because I'm not working and earning an income so our living is based mostly on one income. Will we scale up our lifestyle later? Will we have more income use to save? Or will our needs change with kids? This is too difficult to predict. So I just picked a number and decided to use the 4% rule.
What's the 4% rule? It's where you withdraw 4% a year from your portfolio and you approximate how much you need. So for example I decided $100k/year in todays dollars would be adequate. I then though why not 30 years until retirement at 58 and 60. So using a 3.5% inflation rate, I calculated that I will need $280680/year in order to match $100k in today's dollars.
This number multiplied by 25 gave me the amount I would need at retirement to live off of 4%. I will need 7.0 million dollars in 30 years in order to maintain a lifestyle of $100k. That is a lot of money.
According to my current savings rate for retirement of $23k/year @ 8% rate of return I will only have $3.3M. This is a bit worrisome. So what do I need to be saving? I should be saving $54k/year. That's probably a bit much right now and possibly even later.
So what should I do? Well I guess it might be easier later to save more as our income increases. I don't know what else to do. Well I guess I'm better off shooting for the moon and hoping to land on a star than not trying at all. After all if a ton of people are saving nothing for retirement then why am I worried? Something is better than nothing.
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2 comments:
$3.3M might not be the amount you'd like but, it is far and above what we'd like to have.
Definitely, we're starting in our 20s and I still don't get how saving only 15% will get us to a comfortable retirement. But maybe I'm wrong. I could be way off base but even for people in their 20s, I think 15% is low because I'm not counting on any SS. If I did count on SS, then perhaps my savings rate could be substantially lower. Or if I had a pension, but since I don't, I didn't use either in my calculations.
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