Sunday, November 25, 2007

Have I saved enough?

https://ww3.janus.com/Janus/Retail/StaticPage?jsp=/jsp/RetirementCenter/IRALanding.jsp&WT.mc_id=5027

On a board I visit, I was surprised that someone posted hating saving for retirement. They did not want to save 15% for retirement. Instead they preferred paying off their home. This couple was 33/35 and made $165k/year. However they had saved about $50k for retirement.

A poster on the board put up this link for a nifty retirement savings calculator. Assuming the average age of the couple to be 34, they should have saved at least $94k to have $1M @ age 65. This should generate $40k/year.

However this couple didn't want to save 15% of their income. Instead they preferred to try saving 15% of $40k, or the average family's income. They felt that if the average person saved that much they should be okay. WRONG thinking.

They aren't living on $40k now, so I don't understand why they would expect to live on $40k in retirement. I wonder if people don't justify saving less by saying they'll scale back their lifestyle in retirement? Which might be a problem if you consider rising health care costs and longer life expectancies.

Anyway I apparently need to have saved $57k, which I do. However DH needs to have $67k, which we also have. However we assume we'll need $3M, so we should have 3x that amount. I think we're moving in the right direction because it appears that between 26-27 the amount saved is only $4k. We're saving about 5-6x that much for retirement. But we have a long way to go.

So to that couple, I wish you would rethink you're priorities. I understand it's nice to be debt free, but it's even nicer to be able to even retire. If you place saving for retiement so far down on the list what will you live on in retirement?

4 comments:

frugal zeitgeist said...

I'm all for paying off the mortgage early, but it's nuts to do that at the expense of one's retirement. If it's not possible to fund both, retirement is more important.

Jim said...

I think people forget that retirement is a whole different game. Kids should hopefully be grown up, past college, and on their own by this time. If they lived on 40k as a family, could two people do it in their golden years? A paid for home and no retirement savings is a bad plan because they will resort to selling the home as their retirement. Letting saved money build over time with the power of compound interest is the best way to handle retirement.

I checked out that link and it suggests that I need 46k in retirement which I am not even close at this point in my life being 25. My retirement investments are aggressive and high risk. As I get into my 30s and break six figures I will slow down a little bit and let things grow steady over time. I don't know if this will be a good strategy or not, but I think I'm better off than a lot of people in their 30-40s who haven't even thought of saving for retirement until now. I want to get my debts paid off first so I can put buckets of money into other things like college savings, paying off my house, or boosting retirement savings.

Living Almost Large said...

It depends on many factors. Some 20-somethings may have a pension. Most will not. Same thing with 30 and 40 year olds. But as a guideline you should try to save for retirement instead of paying off the home and not saving for retirement.

Unfortunately the couple on the message board literally said they don't like saving for retirement.

Debt Dieter said...

I've based my retirement calculations on my current salary as I don't even have a mortgage as yet (I'm 38) and want to live well in retirement.

I'm currently putting away 10% of my pretax income and will increase that percentage as I receive pay increases until it's at least 15% over the next few years.