Comments on: Are you Saving Enough for Retirement? Check Out This Rule of Thumb

By: How To Secure Retirement Income

How To Secure Retirement Income — Thu, 01 Sep 2011 10:01:25 +0000

[...] your income is going to be and how much it will cost you to live. It’s relatively easy to project your retirement income but it’s not so easy to forecast your spending. Of course things are going to change. Perhaps [...]

By: Keep My IP » How Much Dough Does A Roller Need to Retire?

Keep My IP » How Much Dough Does A Roller Need to Retire? — Thu, 12 Aug 2010 16:31:56 +0000

[...] A simple question, with such a complicated answer. Just how much money do you need to retire? The short answer is that you should certainly have enough in savings to bridge the gap between your retirement income and expenditures. [...]

By: DR

DR — Sat, 05 Apr 2008 00:45:13 +0000

Mark, great questions. Here’s how it works. The 4% withdrawal rate in retirement assumes that your investments will earn about 8%. You’ll take out 4% and leave 4% to cover inflation. The next year you’ll still take out 4%, but it will be of a slightly higher amount (assuming no market declines) due to the 4% you left in from the prior year. As for current savings, it assumes you get pay increases that match inflation, so the amount you save goes up each year, even if your savings rate stays the same.

By: Mark

Mark — Fri, 04 Apr 2008 15:41:07 +0000

How do these calculations account for inflation? Unless I have a fundamental misunderstanding of how money works my annual income needs will double every 23 years. That is based on 3.1% inflation and the rule of 72. That means that the total I need to save increases dramatically. Since I reach 67 in 30 years I figure I will need 130% more total in savings than your calulations predict. Also that means that I will need to take out a slightly higher percentage of the total each year once I do retire. Is there a way to account for this?

By: FIRE Finance

FIRE Finance — Mon, 25 Feb 2008 02:34:19 +0000

Fantastic post. We cited it in our Sunday Review as one of our favorites.
Keep up the excellent blogging.
Cheers,
FIRE Finance

By: Adfecto

Adfecto — Sun, 17 Feb 2008 22:01:12 +0000

If I follow those tables I save too much. Instead I’d say save as much and as early as possible. If you are saving “too much” but are still happy with your quality of life then there is no harm and lots of future gain. I also want to replace 100% of my income and not depend on Social Security either. My proposed rule of thumb, save till it hurts when you are young and hold that percentage as you get older. For me that is 20% of my gross (not including the 401(k) match). In a few years that will be enough to max a 401(k) at $15,500 and a Roth IRA at $5,000.

By: DR

DR — Sat, 16 Feb 2008 11:32:31 +0000

Daizy, I agree that not everybody needs 80% of pre-retirement income. I know I don’t. If you know how much you’ll need before taxes, multiply that number by 25 for a somewhat conservative estimate of the retirement savings you need. I’ve excluded social security, which I don’t rely on in my planning, but you may want to.

By: Daizy

Daizy — Sat, 16 Feb 2008 03:49:32 +0000

Can’t I just figure out my monthly budget, add some fun money, factor in inflation and use that as a target for my retirement income? 80% of my income would be more than I live on now. Should I expect to need more when I am older in case I have health or other issues? I am 35 and I have 70k in my 401k, I feel like I can slack off on my retirement savings a little. Maybe I am under-estimating?

By: DR

DR — Thu, 14 Feb 2008 11:58:49 +0000

Stephen, great question. According to the chart in the original paper, at 30 you need a savings to income ratio at .1. So at 24 the savings to ratio would near 0. Of course, beginning to save in your 20s is probably the single most important factor in determining how well off you’ll be years later. I’m working on a second article that tackles the “how much do I need to save retirement” question from a different angle, which may help better answer your question.

By: DR

DR — Thu, 14 Feb 2008 11:54:28 +0000

Rob, the giant thumb is in Paris.