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Millennials want to retire by 61, but most have nothing saved


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Who do you blame it on?  

121 members have voted

  1. 1. Who do you blame it on?

    • The sunshine
      2
    • The moonlight
      2
    • The good times
      2
    • The boogie
      6
    • No one
      4
    • Rio
      9
    • The rain
      17
    • Boomers
      36
    • Boomer Sooners
      24
    • Themselves
      41


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5 minutes ago, Okie State said:

So on the baseline expenses number, are you using today's expenses (adjusted for inflation or no?) or what you project your retirement expenses to be? I assume the latter because the former isn't really relevant. I plan to have no car or house payments, but also assume medical will increase dramatically. Just seems impossible to estimate something that far out.

I just use 80% of my current income as the guide for my future expenses.   It's probably too low and its more flawed the younger you are. And if you're young, don't worry about retirement expenses, think about growing your income and saving.

However you should plan on a car payment in retirement assuming we still own cars at that point.  But regardless you will have transportation costs whether it's monthly car payments, pay cash for a car, uber everywhere, whatever.   

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I grew up lower middle class in the Texas panhandle.  Then when my parents divorced we were below poverty level as my mother was a teacher making 19k a year in small town Texas raising 3 boys.  Now I do quite well for myself as does my wife . The great thing about growing up the way I did is that I know how to live poor .

 

I still drive a 2006 Toyota Corolla and have no use to spend on myself . My joy comes from saving and investing . I max out my 401k every year and transfer about 50 percent of my net paycheck amount to my vanguard account monthly . I also pay extra in principle every month for our house payment. I chide myself if I miss my target amount to either. We purposefully bought a house way under what we could afford and made a pact years ago our expenses would only be at a level where ONE income could comfortably maintain in case one of us lost a job.  

 

My wife has a much harder time saving but I have gently persuaded her to save more over the years. She finally opened a vanguard account last month and will start putting in about 10 percent of her paychecks per month in addition to her 401k. We have a 7 year old boy. 

 

Staying on our current track and assuming 6 percent average return before retirement and  3.5 percent return after retirement our plan is for both of us to go part time at age 50. We should be able to fully retire at 55. If the government lowers Medicare age to  50-55 we will retire even earlier as our biggest expenditure will be health insurance from 50-65 provided the laws stay the way they are. House will be paid off at 55 given our current payment plan. We also may move to a smaller house at age 50 and pay cash . That has not been decided but I think we are both for it. 

 

I do want to make note that for the entirety of my 20s I played in a rock band in Austin and fucked around . It was the best decade of my life and I deferred my 50k student loans until age 29. I say this because you don’t have to start saving at age 20 or whatever they say in order to retire early. It is a mindset . You can fuck around early and often and still be ok in the end. 

 

My wife and I are both 44 years old. 

 

 

 

 

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5 hours ago, pearlandhorn said:

I’m 30, wife is as well. We max our Roth IRAs out every year, I contribute to my 401k (employer doesn’t match), contribute to my son’s 529, have a few investment accounts with institutional funds, etc. I’m doing well regarding saving. 

One problem millennials and people in general have is they live their lifestyle based off their income regardless of if they get a raise. Live like your poor or even frugal and you can save money. It ain’t hard people.

The problem obviously has a lot of layers. I usually think the "societal/cultural issue" explanation is the easy way out, but it is pretty applicable here. Young people have been bombarded with targeted ads since they were toddlers. They were raised by the generation who set a new bar in terms of consumerism/materialism - a generation who themselves were not so subtly guided to such a lifestyle. Living well within your means is not exactly normal in our society. Parents don't often teach/exemplify it and we don't teach it in schools. Of course people aren't going to do it in large numbers - we've basically setup the perfect society to make sure people live far beyond what's necessary/what they can afford. It's absolutely a big a problem in this generation.

There is also an economic factor. Entry level wages, in a relative sense, are shit compared to what they were for previous generations. Education is exponentially more expensive. Same story for housing, healthcare, etc. If you live in a high COL population center it compounds further. There is the tired "vote with your feet" line but it is rarely that simple. When day to day life is significantly more expensive and incomes haven't kept pace, of course you are going to see a decline in savings rates. It is definitely still possible to build a solid financial footing even if you aren't rolling in it early in your career, particularly if you don't live in the NY, SF, LA, etc. of the world. But for a large portion of the population it is nowhere close to easy. 

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I agree with everything you said other than that we do teach it in schools now. Financial literacy starts in 3rd grade where they are taught about credit, debit, savings, interest, debt, etc. Obviously that is only for Texas and the kids that started the program aren’t in the workforce yet, but it’s now happening. The lege is proposing a new graduation requirement for a specific financial course in high school this session.

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That one won't work for me, I need less then 40% of my current income in retirement (thankfully my wife is not a big spender). 

I put my stuff in Personal Capitol and like the way it runs scenarios, I don't like the way they cold call you to try and sell financial services. 

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4 minutes ago, hornbri said:

That one won't work for me, I need less then 40% of my current income in retirement (thankfully my wife is not a big spender). 

I put my stuff in Personal Capitol and like the way it runs scenarios, I don't like the way they cold call you to try and sell financial services. 

Initially none of them worked for me either for that exact reason. To get around it lower your household income to get to the level of your estimated retirement expenses and then bump up your savings percent to what you actually are saving per month. That will get you where you want to go. 

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On retirement, I get a free 6% match. 

On saving, I was surprised when I got into the workforce as I taught to live below my means how little people save. I remember a gen Xer who was probably 8 plus years older than me that he lived paycheck to paycheck. Dude was single and no kids and we were in a higher compensated field.  

Without the girlfriend, I estimate conservatively that if I stay at my same role and pay that I could have $4m - $6m in retirement. I debate a lot with the girlfriend if it is enough to retire in ~20 years. She believes that we will need closer to $20m. 

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17 hours ago, Okie State said:

Thought I'd bump this thread as I already posted in it and the topic was relevant. I've always been what I feel like is pretty aggressive in my retirement savings, but I never really had a set plan or goal other than dumping money into my 401k. Recently, however, I got more serious about our household budget and built a file from scratch that essentially shows me our household Income Statement, Balance Sheet, and Cash Flow by month projected out five years and I'll add a year as one rolls off. One portion of that is tracking net worth my month so I can see when I should reach certain milestones. My question is, how does everyone here define 'millionaire' as it seems like there is no consensus. Based on what I've read, I have basically come up with four 'levels' that I'll use as personal goals.

Level 1 - $1MM in Assets
Level 2 - $1MM in Net Worth including property (House, Cars, etc.)
Level 3 - $1MM in Net Worth excluding property
Level 4 - $1MM in liquid Net Worth excluding property and retirement accounts (401k, IRA's, etc.)

Personally, I feel like levels 1-3 are all attainable relatively soon assuming no unexpected disasters in my career or the market. Not sure I'll ever reach level 4 though as that's much more difficult to achieve.

What say Surly? Any personal goals you've set for yourself and if so, how do you track your progress?

2 is the definition, 4 should be the goal. I have gone the opposite of 4 and have very little liquidity. I can easily access funds when needed, but I keep a very low cash balance. It’s all in real estate, investments in operating businesses, etc. I’ll keep maxing out my 401k but I pretty well avoid the market outside of that and stick with assets I can drive by and see although they are geographically diverse and asset class diverse.

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28 minutes ago, tucker said:

On retirement, I get a free 6% match. 

On saving, I was surprised when I got into the workforce as I taught to live below my means how little people save. I remember a gen Xer who was probably 8 plus years older than me that he lived paycheck to paycheck. Dude was single and no kids and we were in a higher compensated field.  

Without the girlfriend, I estimate conservatively that if I stay at my same role and pay that I could have $4m - $6m in retirement. I debate a lot with the girlfriend if it is enough to retire in ~20 years. She believes that we will need closer to $20m. 

What are you planning on doing in retirement that she needs $20M? I have a high annual comp in a low cost state, a wife and two kids that spends money like they are printing it, and I’m not worried about getting anywhere close to that number.

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2 minutes ago, Brew said:

What are you planning on doing in retirement that she needs $20M? I have a high annual comp in a low cost state, a wife and two kids that spends money like they are printing it, and I’m not worried about getting anywhere close to that number.

I keep wondering myself!

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On retirement, I get a free 6% match. 
On saving, I was surprised when I got into the workforce as I taught to live below my means how little people save. I remember a gen Xer who was probably 8 plus years older than me that he lived paycheck to paycheck. Dude was single and no kids and we were in a higher compensated field.  
Without the girlfriend, I estimate conservatively that if I stay at my same role and pay that I could have $4m - $6m in retirement. I debate a lot with the girlfriend if it is enough to retire in ~20 years. She believes that we will need closer to $20m. 
Sounds like you need a new girlfriend.
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3 minutes ago, Brew said:

What are you planning on doing in retirement that she needs $20M? I have a high annual comp in a low cost state, a wife and two kids that spends money like they are printing it, and I’m not worried about getting anywhere close to that number.

Yup. For our family, 1.5-2 million should easily be enough . The best advice is to pay off your mortgage and be completely debt free before you even sniff retirement . 

 

Our family plan will have an estimated 45-60 k a year from interest / market returns alone plus drawing down our 401k and IRAs at the minimum distribution amount plus about 25-30k a year from social security. Our estimated expenses in retirement are about 20k a year in bills/cash cars/food, 10k a year in travel and 20-40k a year in health expenses even though my wife and I are both considered healthy. 

 

It is the principle in our money market accounts that we never hope to touch . That account however will be our emergency fund basically for state of the art cancer treatments only . Medicare does not pay for those until you have exhausted all other options and we will not wait that long . We see no other really reason to ever use that money as everything else should be covered in some form or fashion with Medicare and secondary commercial  insurance . 

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34 minutes ago, Brew said:

2 is the definition, 4 should be the goal. I have gone the opposite of 4 and have very little liquidity. I can easily access funds when needed, but I keep a very low cash balance. It’s all in real estate, investments in operating businesses, etc. I’ll keep maxing out my 401k but I pretty well avoid the market outside of that and stick with assets I can drive by and see although they are geographically diverse and asset class diverse.

One other thought on this, you have to be careful on using 2/3 as the definition. I’m in a pretty solid place using 2 as the definition. However, one of my partners gets my firm sued and I could watch 7 figures disappear in an instant just like the Arthur Anderson guys. If another real estate crash hits, I could watch a significant number disappear in an instant. It’s no different than most people with a market crash, but 4 in a liquid state is the only secure measuring stick. The returns aren’t great but the loss potential is virtually zero outside of the apocalypse and then who cares.

I have a client that sold a business a number of years ago. He took $20M and put it in CD’s only and has no other investments. He has it spread across the country in banks at $250k in each bank. He collects his 2% a year and is perfectly happy and still has exactly $20M in those CD’s. He has several checking accounts now also where he keeps the money he doesn’t spend annually.

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2 minutes ago, Brew said:

One other thought on this, you have to be careful on using 2/3 as the definition. I’m in a pretty solid place using 2 as the definition. However, one of my partners gets my firm sued and I could watch 7 figures disappear in an instant just like the Arthur Anderson guys. If another real estate crash hits, I could watch a significant number disappear in an instant. It’s no different than most people with a market crash, but 4 in a liquid state is the only secure measuring stick. The returns aren’t great but the loss potential is virtually zero outside of the apocalypse and then who cares.

I have a client that sold a business a number of years ago. He took $20M and put it in CD’s only and has no other investments. He has it spread across the country in banks at $250k in each bank. He collects his 2% a year and is perfectly happy and still has exactly $20M in those CD’s. He has several checking accounts now also where he keeps the money he doesn’t spend annually.

Your friend shares my brain. That is an awesome story and even better way to live. 

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One other thought on this, you have to be careful on using 2/3 as the definition. I’m in a pretty solid place using 2 as the definition. However, one of my partners gets my firm sued and I could watch 7 figures disappear in an instant just like the Arthur Anderson guys. If another real estate crash hits, I could watch a significant number disappear in an instant. It’s no different than most people with a market crash, but 4 in a liquid state is the only secure measuring stick. The returns aren’t great but the loss potential is virtually zero outside of the apocalypse and then who cares.

I have a client that sold a business a number of years ago. He took $20M and put it in CD’s only and has no other investments. He has it spread across the country in banks at $250k in each bank. He collects his 2% a year and is perfectly happy and still has exactly $20M in those CD’s. He has several checking accounts now also where he keeps the money he doesn’t spend annually.

This is why I ultimately want to reach a level 4 with significant liquid wealth, but it's definitely not part of my five year plan. The other three are.
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4 hours ago, tucker said:

On retirement, I get a free 6% match. 

On saving, I was surprised when I got into the workforce as I taught to live below my means how little people save. I remember a gen Xer who was probably 8 plus years older than me that he lived paycheck to paycheck. Dude was single and no kids and we were in a higher compensated field.  

Without the girlfriend, I estimate conservatively that if I stay at my same role and pay that I could have $4m - $6m in retirement. I debate a lot with the girlfriend if it is enough to retire in ~20 years. She believes that we will need closer to $20m. 

I don't know how someone can get to 20M without building significant equity in a company or speculating in other assets.  Then you're taking some risk as well.  good luck with that.  

On a related note, I recall early in my career sitting in 401k intro sessions, where you had a guide that showed decent contributions starting at 23, growing at the average market return, results in a very very large number.  The flaw in that thinking is that most of the growth is in the final years of those calculations when you should actually start to lower your risk by moving funds away from the stock market.  OR if you leave them in there hoping to catch the average or higher-than-average market, you get destroyed if its a bad couple of years.

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40 minutes ago, Nice Guy Eddie said:

I don't know how someone can get to 20M without building significant equity in a company or speculating in other assets.  Then you're taking some risk as well.  good luck with that.  

On a related note, I recall early in my career sitting in 401k intro sessions, where you had a guide that showed decent contributions starting at 23, growing at the average market return, results in a very very large number.  The flaw in that thinking is that most of the growth is in the final years of those calculations when you should actually start to lower your risk by moving funds away from the stock market.  OR if you leave them in there hoping to catch the average or higher-than-average market, you get destroyed if its a bad couple of years.

We live fairly frugally and as of right now don’t plan to have kids.  I could see that changing hence same pay/ job for next 20 yrs. 

I’d assume that either I would make a run for a company that could give me equity or start my own company. I have a fairly senior role at a young age so could see either if I played my cards right or got lucky. 

I haven’t accounted for her income as of right now as she is trying to start her own company so burning through her savings on that effort. 

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21 hours ago, SuingToGetAMessageBoard? said:

Good work.  It’s likely Roth isn’t mathematically smartest at 30 but I think it ensures you are living a little cheaper than you otherwise would.  

It's also good to have at least some money in a Roth account so that you can access it without penalties in the event of an emergency before retirement. Or if you plan on retiring before 59 1/2 (or 55 if that rule applies to your situation).

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41 minutes ago, NotActuallyALonghorn said:

It's also good to have at least some money in a Roth account so that you can access it without penalties in the event of an emergency before retirement. Or if you plan on retiring before 59 1/2 (or 55 if that rule applies to your situation).

Yeah I think all of one or the other is not optimizing.  You want to be able to tax plan on the withdrawals.  If you have are close to 100% of either you don’t really have any options. 

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23 hours ago, pearlandhorn said:

I’m 30, wife is as well. We max our Roth IRAs out every year, I contribute to my 401k (employer doesn’t match), contribute to my son’s 529, have a few investment accounts with institutional funds, etc. I’m doing well regarding saving. 

One problem millennials and people in general have is they live their lifestyle based off their income regardless of if they get a raise. Live like your poor or even frugal and you can save money. It ain’t hard people.

I'm 53 and I've done this. I'm already at Level 3 with zero debt for the last 15 years. Doubt I will get to level because I want to retire early.

You are 100% correct. THIS is how you do it. Live like you are poor, dump all you can into matching retirement programs, and stay out of debt.

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23 hours ago, TwiceHorn said:

Based on the assumption that your tax bracket will be lower in retirement than when you invest in a Roth.

It's not just that -- it's also time value.  You could have 99% tax brackets, but if that's in 35 years, the present value of those taxes you'd save with a Roth is still extremely small.

It's never a bad idea to put money in a Roth, but it's less valuable relative to a traditional the younger you are.  

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I think it depends on how well the previous owners took care of maintenance and also luck of the draw. But theres also the option of paying off your family raising house so you can sell it and downgrade to a smaller newer house and still have some money left over from the equity from your family raising house without worrying as much about maintenance during retirement. 

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21 hours ago, Nice Guy Eddie said:

I've also played around with measurements of the 25x retirement rule: save 25x your annual expenses, you can then withdrawal 4% per year in retirement which covers said expenses.  And if you can earn 4% on your balance, you effectively never touch the principal.

Based on that 25x need, my current balances and estimates of non-retirement fund income stream, I can calc my current shortfall.  Add in how many years/month I have until retirement and I end up with the saving/earning per month to meet that goal.  Sounds more complicated than it is.  Once again, I only have to enter monthly balances, and the rest is calculated.

Very cool. Thanks for sharing. Once question though-- is 4% a reasonable assumption? 

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12 hours ago, tucker said:

We live fairly frugally and as of right now don’t plan to have kids.  I could see that changing hence same pay/ job for next 20 yrs. 

I’d assume that either I would make a run for a company that could give me equity or start my own company. I have a fairly senior role at a young age so could see either if I played my cards right or got lucky. 

I haven’t accounted for her income as of right now as she is trying to start her own company so burning through her savings on that effort. 

As stated, it is impossible to get to the $10MM level without some sort of equity boost via inheritance, company equity conversion, investment that paid off in spades, lottery, etc...

I'm 57 and nearing the end of the work party.  Been an entrepreneur my whole career and have started/sold 3 businesses as well as venture capital exposure in 4 software companies.  There is a tremendous amount of luck having it all go correctly.  I planned for the possibility of each venture failing and lived as frugal as possible.  It helps having grown up in a small town  with poor parents who never had anything.

At my age now, it is time to go conservative.  I don't have the time to start over.  I have. very little stock market exposure(only dividend stocks),ladders of tax free municipal bonds and tranches of private equity exposure.  

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I think it depends on how well the previous owners took care of maintenance and also luck of the draw. But theres also the option of paying off your family raising house so you can sell it and downgrade to a smaller newer house and still have some money left over from the equity from your family raising house without worrying as much about maintenance during retirement. 

 

This is my plan, kind of. I want to have our family home paid off before retirement so I can sell and use that equity to build/remodel our retirement home with cash. Of course there will be ongoing maintenance to consider, but I'd rather that than retire to an apartment.

 

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It's not just that -- it's also time value.  You could have 99% tax brackets, but if that's in 35 years, the present value of those taxes you'd save with a Roth is still extremely small.
It's never a bad idea to put money in a Roth, but it's less valuable relative to a traditional the younger you are.  
Can you give an example of the math on this? My understanding is that assuming tax rates stay flat, the end result is exactly the same between the two. I'm not following how a huge increase in future tax rates would not significantly help someone who has a Roth though.

Since I have no idea what rates will do, the only reasons I do both is so I have options and for the potential to pass along the Roth balance as inheritance.
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I don't see how a country with a growing retirement class, with some of the lowest income tax compared to global peers, with chronic federal overspending, can keep its personal income tax rate steady or flat over the scale of decades.

Good thing (maybe...) that I'm already conditioned to taxation elsewhere, but I dont see how the US rates  can go anywhere but up

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If you only have say $100 a month to save for retirement, you can put all of it in a traditional 401k, or put $80 or whatever is left after taxes in a Roth 401k. You have more principle to grow early on with the traditional.


Right, but whether you pay taxes on the front end or back end, it should be the same. Assuming equal growth and tax rates.
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14 minutes ago, Okie State said:

Can you give an example of the math on this? My understanding is that assuming tax rates stay flat, the end result is exactly the same between the two. I'm not following how a huge increase in future tax rates would not significantly help someone who has a Roth though.

Since I have no idea what rates will do, the only reasons I do both is so I have options and for the potential to pass along the Roth balance as inheritance.

This is my understanding too.

 

Money at retirement = Money in now * growth rate.

 

Roth.  Money in now = amount after taxes (say, .7) * income.      Money at retirement = .7 * income * growth rate.

Traditional.  Money in now = income.  Money at retirement = income * growth rate.   Withdraw and it is taxed = .7 * income * growth rate.  

 

The only thing that can change is that assumed tax rate.  If you think you are paying a higher percentage now than later, you should  pay later.  If you are thinking you are in a higher bracket later, you should pay now.  

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1 minute ago, NotActuallyALonghorn said:

That additional $20 gets compounding growth, so it's worth much more than the $20 you pay in taxes to withdraw $100 at retirement. So you still have money left over.

That growth is taxed, right?

If your investment will grow 10x by the time you retire, your $100 will be $1000.

Your already-taxed $80 will be $800.

Pay 20% tax on the former when you withdraw and you get $800.  Pay 0% tax on the latter you get $800.  

Your only job is to guess what that tax rate will actually be compared to what it is now in each instance.  Commutative property, yo.

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On 2/9/2019 at 9:34 PM, Okie State said:

Thought I'd bump this thread as I already posted in it and the topic was relevant. I've always been what I feel like is pretty aggressive in my retirement savings, but I never really had a set plan or goal other than dumping money into my 401k. Recently, however, I got more serious about our household budget and built a file from scratch that essentially shows me our household Income Statement, Balance Sheet, and Cash Flow by month projected out five years and I'll add a year as one rolls off. One portion of that is tracking net worth my month so I can see when I should reach certain milestones. My question is, how does everyone here define 'millionaire' as it seems like there is no consensus. Based on what I've read, I have basically come up with four 'levels' that I'll use as personal goals.

Level 1 - $1MM in Assets
Level 2 - $1MM in Net Worth including property (House, Cars, etc.)
Level 3 - $1MM in Net Worth excluding property
Level 4 - $1MM in liquid Net Worth excluding property and retirement accounts (401k, IRA's, etc.)

Personally, I feel like levels 1-3 are all attainable relatively soon assuming no unexpected disasters in my career or the market. Not sure I'll ever reach level 4 though as that's much more difficult to achieve.

What say Surly? Any personal goals you've set for yourself and if so, how do you track your progress?

Way to hijack the thread.

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On 7/18/2018 at 11:51 AM, NotActuallyALonghorn said:

While states may have decreased funding, colleges have greatly expanded their bureaucracy and force students to pay for much more. In addition to much nicer dorms and stuff that cost much much more.

This right here needs to be a big focus by today's college students BEFORE they start screaming at Politicians at their local state legislature or Washington to give them more access to money via grants or increased loan borrowing limits with subsidized interest payments.  

Colleges have been bellyaching about the cut backs on state funding for years, but that doesn't keep them from building some pretty costly bling for which the funding is passed on to the students via tuition revenue bonds.  Why?  Because the administrations of these colleges know Washington or (fill in your state capital) is not going to touch student loans or grants because it's almost like Social Security for Seniors.  They know how the game is played and they increase tuition and fees (mostly fees now) to capture those increases in aid the Feds and States generously give to students because they know students and their families are a voting bloc they will not screw with when it comes to free or reduced cost money.  They also know the focus on the cost of the bureaucracy and bling is almost non existent, so they will continue to game students and their families until someone with a very loud microphone starts calling out these schools. 

I'd really like to see the State Comptroller exam  every public school district and university system in this state  and make them justify their current bureaucracy and costs for building projects.  I'm not saying today's students should be going to school in portable building like facilities or in ghetto like conditions.   But dammit there is some serious bullshit going on, IMO.

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Quote

My question is, how does everyone here define 'millionaire' as it seems like there is no consensus. Based on what I've read, I have basically come up with four 'levels' that I'll use as personal goals.

Level 1 - $1MM in Assets
Level 2 - $1MM in Net Worth including property (House, Cars, etc.)
Level 3 - $1MM in Net Worth excluding property
Level 4 - $1MM in liquid Net Worth excluding property and retirement accounts (401k, IRA's, etc.)

I always assumed a millionaire was someone who made a million or more a year. I never knew it based on wealth. 

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That growth is taxed, right?
If your investment will grow 10x by the time you retire, your $100 will be $1000.
Your already-taxed $80 will be $800.
Pay 20% tax on the former when you withdraw and you get $800.  Pay 0% tax on the latter you get $800.  
Your only job is to guess what that tax rate will actually be compared to what it is now in each instance.  Commutative property, yo.

Wrong, that’s why you can’t just compare the present and “assumed” future tax brackets
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My question is, how does everyone here define 'millionaire' as it seems like there is no consensus. Based on what I've read, I have basically come up with four 'levels' that I'll use as personal goals.

Level 1 - $1MM in Assets
Level 2 - $1MM in Net Worth including property (House, Cars, etc.)
Level 3 - $1MM in Net Worth excluding property
Level 4 - $1MM in liquid Net Worth excluding property and retirement accounts (401k, IRA's, etc.)

Yet another definition although one I'll never achieve so it's not relevant to me.

 

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32 minutes ago, Rusty Shackelford said:


Wrong, that’s why you can’t just compare the present and “assumed” future tax brackets

The growth is taxed as ordinary income in a traditional IRA.

https://www.thebalance.com/individual-retirement-accounts-3193216

Edited by SuingToGetAMessageBoard?
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4 hours ago, Cheeseweasel said:

Very cool. Thanks for sharing. Once question though-- is 4% a reasonable assumption? 

Thats the million dollar question.  How much do you need in retirement which is a factor of how long until you die, spending habits and inflation rates.  There's no way to easily answer that.

But let's walk through an example.  Say you're nearing retirement in a few years and earn 100K in salary.

Estimate that you need to replace 80% of your current income to maintain the same standard of living, so 80K annually.   Now the 25x rule = (25*80K) or

$2M saved.  Now if you believe that social security will pay you $3K/month, you can significantly back off the $2M.    3K/month changes the 25x to "only" $1.1M.   Even if the $1.1m made zero interest, you will get 80K for the next 25 years.  Actually more with SS increases.  And the $1.1m will earn something, like low interest, so it would last longer than 25 years.    And from what I understand people tend to spend less as they get even further in retirement especially as they lose mobility.

Unknowns:

  • how long you will live
  • The social security surplus will cease to exist in 2034.  At that point, it will be taking in less than it needs to pay out monthly.  what happens?
  • Housing and transportation costs.  As people pointed out here, you can't rely on a paid off house and car to last indefinitely.  You will still have some costs regardless.
  • healthcare costs / your health
  • other large, unexpected costs.  Some grandparents end up funding kids and grandkids.  Kills any budget.

Also if your lifestyle requires much more, say 240K/annually, 25x become $5M even with SS.   But you also have more room to learn to spend less.

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