How do you plan for retirement?

[Atty]

I'm only 21 but I've got a 401k with my current company. 5% of current bi-weekly pay, matched 50% but soon to be 100%. My old company had a similar set up but I was stupid at 17 when I got hired and opted out. I did have a free stock plan at my old company, every 100 hours I worked was a percentage of a share, after 4 years it ended up being a few hundred dollars of shares. I'm going to enroll in the ESPP at my current employer when I can.

Hopefully getting used to having money witheld now and getting started will help me out when I'm older and out of school. Luckily I got help setting up my 401k and advice on stock purchases through my girlfriends dad, who is a financial advisor. Woo.

 

[dullard]

I developed a similar spreadsheet 20 years ago for my 401K. All I can say is that I will have nothing near what I had hoped to have in the 401K if I ever retire.

You were investing over the worst possible time to invest (during and after the massive stock bubble in the 1990s). Of course you did worse than you expected. These bubbles happen every other generation and the stock market is stagnant for 10-20 years. Luckilly, we are approaching a time when buying stocks is a good idea again: http://pics.bbzzdd.com/users/dullard/DJIA2011.JPG

 

[child of wonder]

My wife is currently attending college so we're not contributing anything to 401k at the moment. Once she's done, we'll both be contributing the maximum to 401k. With an average 7% return per year, we should end up with about $5M when we retire at ages 62 and 59.

Hopefully that should be enough to retire with. I'm not assuming inflation will average 3% either. I wouldn't be surprised if it averages closer to 4-5% over the next 30 years. I'm also assuming Social Security is gone and I won't see a dime of it.

 

[96Firebird]

I should be contributing to my 401K when my company starts to match in a couple months, but I'd rather put that money into my student loans to pay that off as quick as possible.

 

[NoCreativity]

I should be contributing to my 401K when my company starts to match in a couple months, but I'd rather put that money into my student loans to pay that off as quick as possible.

The longer you wait to contribute the more you will have to contribute. Is X% of your salary (employer match) greater than the interest you pay on the loan? If so, go for the max employer match and then worry about the loan, assuming you can afford to.

 

[dullard]

I should be contributing to my 401K when my company starts to match in a couple months, but I'd rather put that money into my student loans to pay that off as quick as possible.

Being out of debt is a noble goal and a great feeling. But giving up 100% free money is not a wise move. Contribute at least enough to get the full company match. That is hundreds/thousands of dollars of free money a year. Your student loan interest is probably insignificant in comparison.

Plus 401k contributions lower your taxes, possibly putting you into a lower tax bracket. Same goes for student loan interest. It is win-win-win to go for the 401k and not pay off those loans.

 

[rcpratt]

OP, I believe the rates you used are too optimistic. I developed a similar spreadsheet 20 years ago for my 401K. All I can say is that I will have nothing near what I had hoped to have in the 401K if I ever retire. I pump the max allowed into it and it dosen't seem to go anywhere very fast (unless the market drops).

The best we can do is use historical rates, the largest sample we have. Everyone knows the last 10-15 years have been the dumps, but that's no better an indicator of future performance than the whole sample.

 

[96Firebird]

Another reason I won't put money into 401K right now is because I don't plan on staying with this company for very long. So even if they match anything, I won't stay long enough to keep it. Here are the details of my company's 401K...

Employee can contribute to plan on the 1st day of month following hire date
Company match is available after one year of service
Company matches 25% of the employee’s first 5% of contribution. ( maximum company contribution is 1.25%)
Vesting is based on a 5 year schedule
Eligible employees (one year of service) will receive a company Safe Harbor contribution of 4%.
Vesting is immediate.

I am on a "probationary period" for 6 months, so after that I can start to contribute (which will actually be my "hire date"").

 

[rcpratt]

Another reason I won't put money into 401K right now is because I don't plan on staying with this company for very long. So even if they match anything, I won't stay long enough to keep it. Here are the details of my company's 401K...

I am on a "probationary period" for 6 months, so after that I can start to contribute (which will actually be my "hire date"").

Safe harbor? Not familiar with that. Other than that, that's a pretty crappy plan. I believe mine vests over 4 years, but 1.25% is just pathetic.

 

[linuxboy]

The best we can do is use historical rates, the largest sample we have. Everyone knows the last 10-15 years have been the dumps, but that's no better an indicator of future performance than the whole sample.

I believe one can make intelligent predictions by evaluating the economic and political conditions that have led to inflation.

In many cases over the past 80 years, inflation has been caused by loosening monetary policy to create liquidity. If you look at the 1920s and 1930s, for example, there was deflation until more money flowed into the system due to Fed Reserve actions.

That said, we an in an interesting period where there's been a ton of money pumped in through mechanisms such as quantitative easing, and at the same time, real wages have been trending lower. So if that continues, for many people, forget about raises that keep pace with inflation.

My guess is that the next 2-5 years will solidify the course. There's still a chance for improvement. And of not, our financial fates are sealed for the near term because policymakers and markets are running out of tools to manipulate markets.

 

[Fausto]

Financial advisor + wife's 401k + my 401k + my pension = #WINNING

 

[vi edit]

If my wife and I stay with my company we have a very sweet 401k plan. Plus we are grandfathered into a prior pension system that will at the very least pay for property taxes or health insurance.

Our 401k's will match 100% up to 5%, and then they have a "service year" bonus that combines your age and your years worked to give you an additional bonus into your 401k each year. I'm 33 and have worked here for 5 years giving me enough to hit the first bonus level. I get an additional $1000 a year added into my 401k. If I stay here another 15 years I'll be all the way up to a $7000 a year bonus add to my 401k on top of the match and my contributions.

Same thing for my wife since she is under the same system. I've got us heavily invested into the "target accounts" under our plans that basically go index heavy now and then slowly move to bonds as we get closer to retirement age.

My wife is lucky in that she has a very high paying, low physically demanding position that she can continue working well into her 50's or 60's if she wants. Even working part time she have a very comfortable income.

I put in 20% of my income into my account and my wife has hit her contribution limits with her %.

Outside of that I've been putting into my Roth account, but it's not as much as I'd like. Daycare bills tend to take a bite out of some saving. Plus we've been burning through cash like crazy with a house build so I blazed through a pile of liquid assets in the last 12 months. House should hopefully be paid off before kid #1 goes to college. And then we start looking into retirement living someplace that's lower property taxes and ideally income taxes than what we have right now.

 

[BabaBooey]

I already have my appliance box folded up in the basement for when I become homeless.......that's kinda being prepared,right ....😕

 

[vi edit]

I already have my appliance box folded up in the basement for when I become homeless.......that's kinda being prepared,right ....😕

That's thinking outside the box.

 

[Fausto]

..and if all else fails, I will don my finest loincloth and live out my days as vi_edit's Cabana Boy. 😛

 

[SSSnail]

I carefully invest in the great state of California lottery system, tyvm.

 

[GotIssues]

Max out retirement accounts, a little "fun" money for individual stock purchases. Once all of the "bad" debt is paid off (debt that isn't advantageous in any way), it just goes into savings and/or a taxable account.

My spreadsheet is similar to yours, but I leave a little more flexibility for tweaks mid-plan, and show total and total in today's dollars.

 

[freegeeks]

It isn't difficult. A general rule-of-thumb is that ~15% of what you have to spend (earning post-tax and post-savings) needs to go to retirement savings. Be sure to include your retirement matching from your company when you do the math.

I think most people fall short of that target though. They'll have to either retire poorer than they were when working or they'll have to retire much later than they wanted.

US personal saving rates are among the lowest of all OECD countries, some years they are even negative!!!

It's going to be a rude awakening for a lot of people when they retire

 

[rcpratt]

Max out retirement accounts, a little "fun" money for individual stock purchases. Once all of the "bad" debt is paid off (debt that isn't advantageous in any way), it just goes into savings and/or a taxable account.

My spreadsheet is similar to yours, but I leave a little more flexibility for tweaks mid-plan, and show total and total in today's dollars.

What do you mean by leaving flexibility for tweaks mid-plan? Total in today's dollars would probably be interesting, although salary in today's dollars is what really matters.

 

[Bateluer]

I'm going to switch my On/Off switch to Off.

 

[Texashiker]

US personal saving rates are among the lowest of all OECD countries, some years they are even negative!!!

It's going to be a rude awakening for a lot of people when they retire

There is nothing guaranteed these days.

Look at the Enron employees, some of them had hundreds of thousands of dollars in their retirement, and it was gone in a matter of days. Look at the companies that had invested into enron, and lost everything.

Back around 2002 and 2003 I was doing some work in the Kingwood area of Houston. The area is mostly upper middle class, and what you might call "rich". People like George Foreman and George Zimmer have homes in Kingwood.

I was at this older gentlemens house doing some computer work. The customer had a friend over, they were talking at the kitchen table and both looked very worried.

When I finished the job, and as the customer was signing the work order, I asked if everything was ok, because both of the men looked worried.

Both the them explained to me that they were worried about how they were going to afford to live. They had lost a lot of money out of their retirements and did not have enough to pay their bills.

On top of losing money out of their retirement, they had bought in an area where the property taxes were almost doubling every few years. Property taxes in the area were close to $10,000 a year for a 1,500 square foot house.

To me, retirement should include a total planning package, and not just how much money you can save. How do you plan on property and school taxes doubling every 3 years? How do you plan on the price of fuel and food doubling every couple of years?

How much money do you need to live off of? But also where (physical location) do you want to live?

Personally, I want to live in a rural area so I can have livestock, chickens, rabbits, a nice garden, and be able to go fishing and hunting. Hopefully, the money I save by raising my own food will offset money I would have to spend on food.

 

[HybridSquirrel]

you are 23 and make $50,000? bawler.


Right now, ive got an IRA and need to sign up for my works 401k....except my work doesn't match right now so there is kind of no point. I also have stock options with my company that helps grow my investments a little bit. I don't really understand how their 401k works but I guess ill just sign up for it and figure it out as I go....

 

[Elbryn]

The best we can do is use historical rates, the largest sample we have. Everyone knows the last 10-15 years have been the dumps, but that's no better an indicator of future performance than the whole sample.

no but you also serve your cause by assuming a conservative number but it depends on how you view things. i'd rather plan conservatively, save a bit more and be pleasantly surprised with higher returns than save less and be stuck having to invest a higher % of salary to play catch up or reduce expectations in the long run. the other thing i'd consider changing in your spreadsheet is the change in expected return as you shift your asset allocation as you age.

 

[Elbryn]

you are 23 and make $50,000? bawler.


Right now, ive got an IRA and need to sign up for my works 401k....except my work doesn't match right now so there is kind of no point. I also have stock options with my company that helps grow my investments a little bit. I don't really understand how their 401k works but I guess ill just sign up for it and figure it out as I go....

if there's no match, then you can afford to wait a bit to read through the relevant material and make an educated decision. your 401k could be super expensive in the expense department and may not be worth it.

 

[rcpratt]

no but you also serve your cause by assuming a conservative number but it depends on how you view things. i'd rather plan conservatively, save a bit more and be pleasantly surprised with higher returns than save less and be stuck having to invest a higher % of salary to play catch up or reduce expectations in the long run. the other thing i'd consider changing in your spreadsheet is the change in expected return as you shift your asset allocation as you age.

Yeah, I should change it to a gradual decrease in expected return as retirement approaches to a minimum value late in retirement that is low-risk.