Retirement: Withdraw no more than 4% of your retirement savings the first year of retirement

[JEDI]

CNN

"Rule of thumb that you should withdraw no more than 4 percent of your retirement savings the first year of retirement and then increase that dollar amount each year for inflation"

Another rule of thumb is that you can retire on 80% of your current salary.

ie:
$100k x 80% = $80k
80k / 4% = $2M

and if you avg 10% return in your retirement accts, the $ doubles every 7 years.

so if you have $125k in 401k/roth/ira at age 27, then that's $2M at age 55. Early retirement! :Q

That doesnt seem right???

When i did the calcs for my retirement a couple of years ago, i was on track to having $4M at age 59, and i thought i barely had enuf for retirement.

What am i missing?

 

[vi edit]

Length of payout. People are living longer, and at higher costs. A lot of analysts are saying that 4% is far too much for most people any more and that they should actually be looking at 2%-3%.

 

[Tifababy]

Between my wife and I we have well over $125k in 401k/roth/ira/CDs/MF. I'm 27 and she's 25, does that mean we can retire now? Or does it just mean we can save less and still be able to retire at 55?

 

[tfinch2]

Originally posted by: Tifababy
Between my wife and I we have well over $125k in 401k/roth/ira/CDs/MF. I'm 27 and she's 25, does that mean we can retire now? Or does it just mean we can save less and still be able to retire at 55?

It means keep saving.

 

[vi edit]

The other thing to figure is that as you get older, you shift your assests to more liquid/income based porfolios that don't pay out as much (lower interest). So instead of 10% returns and doubling in 7 years, it might be more like 4%-5% and doubling in 14.

 

[Gunslinger08]

Geez, $4 million at age 59 and you're worried? You plan on living until 130?

 

[TallBill]

I've crunched the numbers and came up with $2m as well, although thats probably more then I'd need. However, if I end up with a federal retirement, then any extra money I save will just be a bonus. I'm on pace to retire at 46

 

[Imdmn04]

I wonder how much 2 mil really is 30 years down the line, inflation adjusted.

Probably only around 500k I imagine.

 

[Riverhound777]

Sigh... I am 24, have $4k in savings, $500 in retirement. And I'm doing pretty well compared to most of my friends. Hopefully i'll be getting a new job that pays decent in the next few months. Oh and I have a BS in Computer Science making $14/hr currently.

 

[kranky]

I know everyone's situation is different, but I won't need anywhere near 80% of current income in retirement. My house will be paid for, I won't be putting 18% of my income into savings, I won't be paying 20% or more in income taxes, and I will be cutting back on charitable donations when I retire.

By my calculations, I could do just fine on 60% of current income. I've always tried to live below my means and that should make for a comfortable retirement.

 

[dullard]

You have a few problems there.

1) You'd need $138,700 at age 27 to reach 2M by age 55, not $125,000. And that is if you get a consistent 10% return.

2) If you have just one bad year, say on the first year you get a 5% hit as stocks fall and/or you have fees for investing then you'd have just $1.7M at age 55 ($138,700 at age 27 and 10% all other years assumed). Basically, volitility can get you far, far less than you planned on, even if most years are 10% return.

3) You forgot any social security or other forms of income.

4) You are ignoring the point someone else brought up, but what if you don't earn 10% on that during retirement? Say you do have $2M at age 55. And say you do withdraw $80k on the first year, and adjusted 3.4% for inflation each year after that. Then if you only got a 3% return on your investment, you'd be broke at age 80, at age 90, you'd be nearly $2.7M in debt. Or what if the economy tanks and you get an average of 0% return? Then you'd be broke at age 74. And remember this (~0% return for extended periods of 10-20 years) has happened repeatedly throughout history.

5) And the biggest thing: by the time you are 55, $80k won't buy you much at all. With 3.4% inflation, $80k at age 55 is the same as $31k for someone who is 27 today. $31k won't get you far when you are still in the prime of your life and especially it won't be true when medical bills kick in during old age.

 

[OS]

inflation

 

[Turin39789]

Originally posted by: dullard
You have a few problems there.

1) You'd need $138,700 at age 27 to reach 2M by age 55, not $125,000. And that is if you get a consistent 10% return.

2) If you have just one bad year, say on the first year you get a 5% hit as stocks fall and/or you have fees for investing then you'd have just $1.7M at age 55 ($138,700 at age 27 and 10% all other years assumed). Basically, volitility can get you far, far less than you planned on, even if most years are 10% return.

3) You forgot any social security or other forms of income.

4) You are ignoring the point someone else brought up, but what if you don't earn 10% on that during retirement? Say you do have $2M at age 55. And say you do withdraw $80k on the first year, and adjusted 3.4% for inflation each year after that. Then if you only got a 3% return on your investment, you'd be broke at age 80, at age 90, you'd be nearly $2.7M in debt. Or what if the economy tanks and you get an average of 0% return? Then you'd be broke at age 74. And remember this (~0% return for extended periods of 10-20 years) has happened repeatedly throughout history.

5) And the biggest thing: by the time you are 55, $80k won't buy you much at all. With 3.4% inflation, $80k at age 55 is the same as $31k for someone who is 27 today. $31k won't get you far when you are still in the prime of your life and especially it won't be true when medical bills kick in during old age.

6) I'm going to die at 67

 

[JS80]

woot i'm 24 and negative $50k equity!

 

[dullard]

Originally posted by: Turin39789
6) I'm going to die at 67

Well, then you don't have to worry about saving for retirement. You'll die just as you retire. Enjoy the extra money now.

 

[BlueWeasel]

Originally posted by: dullard
You have a few problems there.

1) You'd need $138,700 at age 27 to reach 2M by age 55, not $125,000. And that is if you get a consistent 10% return.

2) If you have just one bad year, say on the first year you get a 5% hit as stocks fall and/or you have fees for investing then you'd have just $1.7M at age 55 ($138,700 at age 27 and 10% all other years assumed). Basically, volitility can get you far, far less than you planned on, even if most years are 10% return.

3) You forgot any social security or other forms of income.

4) You are ignoring the point someone else brought up, but what if you don't earn 10% on that during retirement? Say you do have $2M at age 55. And say you do withdraw $80k on the first year, and adjusted 3.4% for inflation each year after that. Then if you only got a 3% return on your investment, you'd be broke at age 80, at age 90, you'd be nearly $2.7M in debt. Or what if the economy tanks and you get an average of 0% return? Then you'd be broke at age 74. And remember this (~0% return for extended periods of 10-20 years) has happened repeatedly throughout history.

5) And the biggest thing: by the time you are 55, $80k won't buy you much at all. With 3.4% inflation, $80k at age 55 is the same as $31k for someone who is 27 today. $31k won't get you far when you are still in the prime of your life and especially it won't be true when medical bills kick in during old age.

It's stuff like this that makes me worry, no matter how much I'm trying to save and plan for retirement now, that it just won't be enough.

 

[Riverhound777]

Originally posted by: JS80
woot i'm 24 and negative $50k equity!

Woops, forgot about that. With student loan and car loan, i'm abut -23k.

 

[mugs]

Originally posted by: JEDI
CNN

"Rule of thumb that you should withdraw no more than 4 percent of your retirement savings the first year of retirement and then increase that dollar amount each year for inflation"

Another rule of thumb is that you can retire on 80% of your current salary.

ie:
$100k x 80% = $80k
80k / 4% = $2M

and if you avg 10% return in your retirement accts, the $ doubles every 7 years.

so if you have $125k in 401k/roth/ira at age 27, then that's $2M at age 55. Early retirement! :Q

That doesnt seem right???

When i did the calcs for my retirement a couple of years ago, i was on track to having $4M at age 59, and i thought i barely had enuf for retirement.

What am i missing?

Time value of money. $2 million won't be enough for you to retire on by the time you hit 55, you'll need much more. Also, your salary will increase by then, as will your standard of living. You need to continually save for retirement.

 

[GasX]

Originally posted by: BlueWeasel

Originally posted by: dullard
You have a few problems there.

1) You'd need $138,700 at age 27 to reach 2M by age 55, not $125,000. And that is if you get a consistent 10% return.

2) If you have just one bad year, say on the first year you get a 5% hit as stocks fall and/or you have fees for investing then you'd have just $1.7M at age 55 ($138,700 at age 27 and 10% all other years assumed). Basically, volitility can get you far, far less than you planned on, even if most years are 10% return.

3) You forgot any social security or other forms of income.

4) You are ignoring the point someone else brought up, but what if you don't earn 10% on that during retirement? Say you do have $2M at age 55. And say you do withdraw t$80k on the first year, and adjusted 3.4% for inflation each year after that. Then if you only got a 3% return on your investment, you'd be broke at age 80, at age 90, you'd be nearly $2.7M in debt. Or what if the economy tanks and you get an average of 0% return? Then you'd be broke at age 74. And remember this (~0% return for extended periods of 10-20 years) has happened repeatedly throughout history.

5) And the biggest thing: by the time you are 55, $80k won't buy you much at all. With 3.4% inflation, $80k at age 55 is the same as $31k for someone who is 27 today. $31k won't get you far when you are still in the prime of your life and especially it won't be true when medical bills kick in during old age.

It's stuff like this that makes me worry, no matter how much I'm trying to save and plan for retirement now, that it just won't be enough.

it won't...

 

[dullard]

Originally posted by: BlueWeasel
It's stuff like this that makes me worry, no matter how much I'm trying to save and plan for retirement now, that it just won't be enough.

Some worry is good. Too much worry is bad. Not everything I posted there was bad. For example, he forgot social security, which will greatly assist the whole picture (I didn't take it into account for any of those numbers). And volitility can help too (even though I only posted the negative side). One great year at the beginning will be far more helpful than many great years at the end.

In the worst case scenerio, you (a) work part-time or (b) spend less. Your world won't end in either case. Spending less isn't all that difficult. If you have the self control (many don't), you probably won't have house payments to worry about and you certainly won't be buying outrageously expensive jeans/shoes that are the cool thing at the moment. Working part-time isn't the end of the world either. You may even be bored to tears and want some social interaction from the part-time job.

And those are the worst case scenarios. Most likely, you won't have to face either.

 

[BlueWeasel]

Originally posted by: Mwilding

Originally posted by: BlueWeasel

Originally posted by: dullard
You have a few problems there.

1) You'd need $138,700 at age 27 to reach 2M by age 55, not $125,000. And that is if you get a consistent 10% return.

2) If you have just one bad year, say on the first year you get a 5% hit as stocks fall and/or you have fees for investing then you'd have just $1.7M at age 55 ($138,700 at age 27 and 10% all other years assumed). Basically, volitility can get you far, far less than you planned on, even if most years are 10% return.

3) You forgot any social security or other forms of income.

4) You are ignoring the point someone else brought up, but what if you don't earn 10% on that during retirement? Say you do have $2M at age 55. And say you do withdraw t$80k on the first year, and adjusted 3.4% for inflation each year after that. Then if you only got a 3% return on your investment, you'd be broke at age 80, at age 90, you'd be nearly $2.7M in debt. Or what if the economy tanks and you get an average of 0% return? Then you'd be broke at age 74. And remember this (~0% return for extended periods of 10-20 years) has happened repeatedly throughout history.

5) And the biggest thing: by the time you are 55, $80k won't buy you much at all. With 3.4% inflation, $80k at age 55 is the same as $31k for someone who is 27 today. $31k won't get you far when you are still in the prime of your life and especially it won't be true when medical bills kick in during old age.

It's stuff like this that makes me worry, no matter how much I'm trying to save and plan for retirement now, that it just won't be enough.

it won't...

Thanks...