How much should one have saved up for Retirement?

[DTM Brian]

A million it is.

[conn-e-rot]

I would say bare minimum is a million

[shittygsxr]

A million it is.

You need to take an honest look at your expenses. For many people retiring comes with having a paid off house and often a downsizing of residence. It means no longer paying life insurance. No more supporting children. A paid off car less gas usage. Eating in more often. Ect..

For many you need considerably less income.

[Bubba]

What would you say is a good number to have saved up for retirement?

Wow! Million dollar question right there...literally. Take something as complex as retirement income for 30+ years and reduce it down to one number? I think not. I'm not gonna claim to be a financial wizard or have a crystal ball any better at predicting the future than your average carny fortune teller, but I'll throw my $0.02 worth in just for shits 'n giggles.

First, there is a myriad of free financial tools available on the internet for planning retirement. Check out the tools on MarketWatch.com or on the Vanguard or Fidelity web sites for more info. Nearly all of them rely on statistics, past market performance, future inflation projections, longevity/mortality tables and probability calculations to come up with a scenario. These are called Monte Carlo simulations, and yeah, that means were talking gambling here. What they do is use your input about your financial situation to compute the likelihood of whether you will outlive your money....or not. These tools CANNOT give you a hard and fast number of how much you need; they can only give you the percent chance of the successful scenario of having sufficient funds for life. If you're a risk taker and can deal with a 50:50 chance of outliving your funds until you die in a fiery Moto-GP crash at the age of 75, you will obviously require far less money than someone who's conservative and wants a 99:1 chance they will have enough to live on until they're 101.

The other big issue is what the outlook for the investment environment will be for the next 40-50 years. Historic returns on the market (we're talking DOW 500 here) have been 11-12 percent, maybe a bit higher with dividend reinvestment. Bond returns historically, maybe 4-6 percent. So, with a diversified portfolio, you could have realized around 7-8% return over the last 50-75 years. The big cautionary tale here is what every investment guru will tell you: "Past performance is not a guarantee of future returns!" As a matter of fact (or maybe more accurately, "in my humble opinion") the broad stock/bond market isn't likely to return anywhere near historic levels going forward, and I think that trend will hold true for the next 20+ years. The current inflation numbers are at a never-before-seen historic low, and this is also likely to bump higher over the next several decades.

If I was gonna give you my best advice from where I sit, I would tell you to figure out how much you're gonna WANT as a yearly income to both pay your bills--don't forget property tax, auto/house/health insurance, food, home/auto repair, free-time activities--and do the things you want to do. BE REALISTIC!!! You're not gonna want to sit in your house on your ass and pick your nose for 40-50 years. Traditional wisdom suggests you will need 70% of your current annual income in retirement, but if you're healthy and looking to have just a little bit of fun, I'd suggest the target of 100-125% to be safe. Now, divide your estimated annual income need by maybe 0.03 to 0.05, depending on things like your risk proclivity, your current health and genetic heritage (i.e., how long did your grandparents/parents/siblings live). This is gonna give a pretty conservative estimate of what you need as savings to live for the next 4-5 decades. Of course, Social Security will play a role at some point, but if you plan on early retirement in your 50s (i.e., before your full retirement age of 66-67) you're gonna need to generate income without SS for at least 7-10 years.

I retired--not by choice but by force--at 56, 6 years ago. I had planned on working until I was 62ish, but my job went bye-bye in the big push to downsize back in 2005-7. My company didn't offer a guaranteed pension, so my retirement income was 100% dependent on what I had saved from investments in my 401-K and IRAs. When I looked at my pot of money, my overall debt situation with long-term debt (mortgage) and short-term debt (auto loans, credit cards, etc) and ran the numbers, it was obvious I was gonna have to give up the dream of the yacht on the Riviera and settle for cheap beer on the back deck. My options were to try to find another job and continue to save, or scale back my lifestyle to live within my means. Once I had it worked out, I dropped out of the rat race, enjoyed the hell out'a my free time, walked the dog at the park, rode my MC when and where I wanted, went skiing mid-week without the crowds, and NEVER looked back with regret on my choice.

Good luck with your decision. Make the most out of your time here--this ain't no dress rehearsal; this is a "live feed" and you only get one take.

Edited January 17, 2013 by Bubba

[redkow97]

You need to take an honest look at your expenses. For many people retiring comes with having a paid off house and often a downsizing of residence. It means no longer paying life insurance. No more supporting children. A paid off car less gas usage. Eating in more often. Ect..

For many you need considerably less income.

Health problems stand to offset most or all of those reduced expenses.

Plus some people are accustomed to a higher standard of living. That's why I advised calculating current expenses and then multiplying, rather than a simple $x/year you plan to live.

My wife and I live off $40k a year right now. Have for at least a year while I finished school. By the time I retire, I plan to have enough to live a lot better than I do now.

[ReconRat]

If you bought precious metals how would they know?

Where to spend gold and silver is the problem. If you sell some, it's not likely to give back what you paid for it. Exception would be if you bought 20+ years ago. There are ways around a loss. Certificates or mining stocks etc.

About 10% max savings in precious metals would be ok. It's a just in case theworldgoestohell type thing.

[imaposer]

Between dividends and option sales I pull a consistent 1.5-2% a month. What kind of investments are you doing that you are not getting the return you need?

If you generating a consistent 1.5-2% per month, you are one of the greatest money managers of all time. That's more than double what is considered a good return for any reasonably solid investment choice. I'd be happy if my 401k would consistently get above 7% a year.

[madcat6183]

A million dollars?

Lots to factor' date=' but location, location, location. My retirement involves a house on a hill, in the woods/mountains, a garden, a bike shop and a hunting rifle/shotgun. I may/may not bring my wife. That's really the only part that isn't set in stone.[/quote']

I think this is key along with what Shitty said earlier too. It's definitely dependant on lifestyle, health, and where you're located.

My wife and I plan to build once in our lifetime, most likely in the next few years, with everything we want and would need already in the house. We figure we will get whatever we want early in life, new cars, bikes, campers, etc. so that by the time we are early 50's we will be debt free, minus living expenses, taxes, and insurance.

So much of it is also out of our control, but starting to set yourself up early will only help.

I do not believe there is any magic number, even with those stupid commercials on TV about the magic number etc. Too many variables along the way.

Just save and invest smart and one should easily be able to life off their interest earned, still live their normal lifestyle, and still have plenty for their kids or spouse, or animals, etc.

[madcat6183]

If you generating a consistent 1.5-2% per month, you are one of the greatest money managers of all time. That's more than double what is considered a good return for any reasonably solid investment choice. I'd be happy if my 401k would consistently get above 7% a year.

No offense, but you're definitely doing it wrong if you aren't getting better than 7% a year. Heck my wife's IRA is getting close to 20% last year. Granted it's brand new, and she just started investing, but her final numbers we something like 18% earned, she'll be doubling her invested amount this month and hope to have another good year.

Granted, we know we will lose money at some point(s), but in the end, it's a win.

My 401K did really well last year, no idea how well because I really don't watch it as much as my other stuff, but I don't think Shitty is far off on what real investments should be.

Edit; 401K return 22.85% last year.

Edited January 17, 2013 by madcat6183

[shittygsxr]

If you generating a consistent 1.5-2% per month, you are one of the greatest money managers of all time. That's more than double what is considered a good return for any reasonably solid investment choice. I'd be happy if my 401k would consistently get above 7% a year.

Reinvested dividends and covered calls. It's all about fixed income!

Money managers have a hard time making large returns because their funds are large enough to move the market. I sell a couple thousand shares and the stock price stays flat. Can't do that with hundreds of thousands of shares. Do your slept a favor and invest some time in learning about finance, it is worth it.

Ok back to reading my public finance and policy book

[Bubba]

C'mon, guys. You can talk all you want about your returns from month-to-month or year-to-year, but that has little to do with what is realistic over a span of 30-50 years. Last year's market returns--or for that matter, the annual returns since the crash of 2007-2008--have been double digit just about everywhere, even including bonds. My advice....don't count on it being as robust averaged out over the next 20 years or so.

Cautionary tale!

When I first started investing WAY BACK in the early 70s, I watched my money go nowhere for almost 10 years. The company stock that I was buying in my 401-K actually went down in per-share value from 1972 - 1982 by about 0.5%. Yikes, I thought. That year, I had the opportunity to convert my 401-K stock into a GIC--Guaranteed Investment Contract (similar but not exactly like a CD)--that had an annual return of 14.6% guaranteed for 9 years. Can't go wrong with that, now can ya? Converted 100% of my stock into the GIC. Guess what...at the end of 9 years, the company stock had outpaced my GIC, not by a lot, but I still ended up with less money...at 14.6% annual return!

Bottom line: When the market is going up, it's easy to make money. Even a chimp with darts can do it. Sooner or later, essentially 100% of the day traders WILL BE PLAYED FOR A FOOL BY THE MARKET. And that's guaranteed!!!

[imaposer]

No offense, but you're definitely doing it wrong if you aren't getting better than 7% a year. Heck my wife's IRA is getting close to 20% last year. Granted it's brand new, and she just started investing, but her final numbers we something like 18% earned, she'll be doubling her invested amount this month and hope to have another good year.

Granted, we know we will lose money at some point(s), but in the end, it's a win.

My 401K did really well last year, no idea how well because I really don't watch it as much as my other stuff, but I don't think Shitty is far off on what real investments should be.

Edit; 401K return 22.85% last year.

Sure, mine did over 20 last year as well. When I say averaging 7, I'm talking over the last fifteen years. I count on being retired for 30 plus years. A long outlook is needed, bit how did it do this year.

[madcat6183]

Oh I know I will lose money, I even stated that already, key is damage control. My parents lost 1/4 of their investments towards the end of their working career. Dad worked 2 more years, than planned, but at that point they didn't have any bills except me, joke.

I have no unrealistic expectations about what's going to happen with my money, but I do know that if my wife and I can follow even a bit of our plan we will be in the same shoes my parents are, retired by 60, no bills, and do whatever they want, whenever they want. We actually started 5+ years before they even considered it.

Like I said, when the market does crash, which it will, it's damage control time. Not everything we have is investments either, lots of physical assets too.

Heck I could probably sell my AR and mags and retire another year early if I wanted

[madcat6183]

Sure, mine did over 20 last year as well. When I say averaging 7, I'm talking over the last fifteen years. I count on being retired for 30 plus years. A long outlook is needed, bit how did it do this year.

Gotcha, I haven't been working long enough to measure that

[imaposer]

Gotcha, I haven't been working long enough to measure that

Ah, then you haven't had one of those rethink everything periods yet. It really sucks to stuff ten to twelve thousand a year in to a retirement account only to have it worth less at the end of the year. Then do it three years in a row.

That's how it went in 2000 through 2002.

[madcat6183]

Haha, yeah, just parents experience, the 00-02 was when they lost a lot, and dad decided to keep working instead of retiring. I know it's going to happen, and I know I will handle it better than my wife. She hate's the idea of investing and would rather let $$ sit in a savings account earning nothing, then play the game. But she does listen to our guy when it comes down to go time, and that's all that matters.