How much $ do you hope to have in retirement? (paying, million, rate)

[michgc]

Lately, I've been playng around with some numbers regarding our retirement. We are 44 and 46 years old, and we are hoping to retire in 18-20 years.

I consider us pretty good savers - we max out my husband's 401(k), have a company match, and each put $5K into our IRAs. But even doing all that, it doesn't seem to be nearly enough according to some retirement calculators. When I plug in the numbers, it says that we should have $4 Mil saved by the time we retire! And that we should be putting away $4K per month toward retirement, based on how much we have saved to date.

I made the following assumptions: that we won't be collecting Social Security, that our house will be paid for by retirement, and that we will make conservative returns on our money (6%). At our current rate of savings, I estimate that we will have about half of what the calculators say we should have.

The one big question mark in our situation is my going back to work. I worked until 5 years ago when my youngest was born. I was hoping to go back when he turned 3, but with the economy the way it was, it wasn't feasible. Now we have recently moved (job relocation for my husband), and this area has even fewer job opportunities than where we left (DC area). Plus my being out of work for 5 years and not knowing anyone doesn't help. I know I can probably find some kind of job, but it seems like I really need to start contributing to a 401(k) plan again in order to get anywhere near a $4M figure.

I always felt like we were in a good place financially for retirement with our saving as much as we do, and I feel like we live frugally in order to put away for the future, but now looking at these calculators, it seems like we aren't doing as well as I had thought.

Is $4M a realistic number to shoot for in retirement 20 years from now or does that seem high? Has anyone else figured out "their number" that they are shooting for in retirement?

[drshang]

Some questions:

Why do you assume you won't get social security? The likelihood that you get it is extremely high, almost certain. Unless you just moved to the US and didn't contribute to it. It doesn't make sense, in general, to just assume you won't get it because you feel frustrated with the current state of gov't affairs. Lots of people seem to assume they won't get it, but there isn't any real good evidence to back that up in my mind.

Why do you assume 6% market return? I realize the market hasn't done well lately, but 6% is a pretty low number if you consider historical returns and if you consider what a lot of very wise investors (think Warren Buffet) say about their prospects for future market returns (they tend to be in the 8-9% range and historical numbers are more like 10-11%).

From what I've observed, 4M is a lot for retirement, but this is to a large degree dependent on what you project your lifestyle to be when you retire. This simply depends on how much money you will spend after retirement, but if you have no house payment, why do you think you need 4M to retire in your mid 60s?

I realize people like to be conservative when they project how much they need for retirement, and that makes sense. But often the retirement calculators already do that (of course this is dependent on the calculator). So when you add extremely conservative projections to an already conservative financial calculator, you end up with a set of values that is not really valuable since they aren't in line with reality.

[michgc]

Originally Posted by drshang

Some questions:

Why do you assume you won't get social security? The likelihood that you get it is extremely high, almost certain. Unless you just moved to the US and didn't contribute to it. It doesn't make sense, in general, to just assume you won't get it because you feel frustrated with the current state of gov't affairs. Lots of people seem to assume they won't get it, but there isn't any real good evidence to back that up in my mind.

Why do you assume 6% market return? I realize the market hasn't done well lately, but 6% is a pretty low number if you consider historical returns and if you consider what a lot of very wise investors (think Warren Buffet) say about their prospects for future market returns (they tend to be in the 8-9% range and historical numbers are more like 10-11%).

From what I've observed, 4M is a lot for retirement, but this is to a large degree dependent on what you project your lifestyle to be when you retire. This simply depends on how much money you will spend after retirement, but if you have no house payment, why do you think you need 4M to retire in your mid 60s?

I realize people like to be conservative when they project how much they need for retirement, and that makes sense. But often the retirement calculators already do that (of course this is dependent on the calculator). So when you add extremely conservative projections to an already conservative financial calculator, you end up with a set of values that is not really valuable since they aren't in line with reality.

Thanks for your input. I just did the SS assumption, not because of any frustration with the current state of the government, but because a lot of times when I read about retirement planning, it says we shouldn't count on SS being there, but, hey, if it is, it will be a bonus! As for the 6% assumption, when I used the Kiplinger's calculator, there were three sets of returns you could use, 6% was the most conservative, 10% was the most aggressive, and 8% was in the middle. I tend to be somewhat of a conservative investor, so I took the conservative route. But I see your point that by taking a conservative route at each stage, I am getting the worst case scenario.

So, I am going to go back and change my assumptions to get more of a "best case" scenario - better returns and SS being there and seeing what I get.

As to your other question of why I think I need $4M, I didn't necessarily think that I did. But when I used a few different retirement calculators, and plugged in my numbers, that's the amount it came up with.

[mortpes]

You need to work. When you roll into retirement you should have your own paid up retirement program plus all big ticket items should be paid for. You should be out of debt.

[michgc]

So going back and making different assumptions changes things drastically.

If our worst case scenario is no SS and low rate of return on our investments (6%), then we should be saving about $4K per month for retirement for a $4M goal.

For a mid-case scenario,

If we assume we DO get SS, but still get a low rate of return on our investments (6%), then we need to only save about $1500 per month to reach a retirement goal of $3M.

If we assume we won't get SS, but get a middle rate of return on our investments (8%), then we only need to save about $2K per month for retirement, even though our end goal is the same ($4M).

The best-case scenario would be:

If we assume we Do get SS and we get a middle rate of return on our investments (8%) then we need to only save about $100 per month to reach a retirement goal of $3M.

Wow! Interesting to see the differences. I do need to check my SS assumptions, because I may have estimated our monthly income on that too high. But even if I guessed correctly on that, I guess it's possible the SS benefits could be reduced or delayed.

Being in the mid-case scenarios do seem attainable for us, though. It's just the doom and gloom conservative scenario which would make it out of reach for us, assuming things continue as they are for us financially. Of course the best-case scenario would be the best, but I won't count on that.

[mysticaltyger]

Honestly, I think you are overplanning a little. And I don't say that lightly! It's too hard to project what is really going to happen in 20 years. I seriously wonder if we won't have a depression within 20 years that will make the Great Recession of 2008-09 look like a walk in the park and that is no joke. I don't let that stop me from saving for the future....but at some point, you have to let it go.

If you can save a little more while still enjoying life, then go ahead and do it. If not, don't fret too much about it.

The one thing I will say, though, is that a lot of people get knocked out of their good paying jobs in their early to mid 50s....so it may not be realistic to assume your DH is going to keep making that good income into his mid 60s.

[michgc]

Originally Posted by mysticaltyger

Honestly, I think you are overplanning a little. And I don't say that lightly! It's too hard to project what is really going to happen in 20 years. I seriously wonder if we won't have a depression within 20 years that will make the Great Recession of 2008-09 look like a walk in the park and that is no joke. I don't let that stop me from saving for the future....but at some point, you have to let it go.

If you can save a little more while still enjoying life, then go ahead and do it. If not, don't fret too much about it.

The one thing I will say, though, is that a lot of people get knocked out of their good paying jobs in their early to mid 50s....so it may not be realistic to assume your DH is going to keep making that good income into his mid 60s.

I tend to be an overplanner! But...I also have been hit in the head with reality with "the best-laid plans of mice and men..." so I know things won't play out as I think.

It's interesting that you mention about my husband's job. That is so true, and we have already seen that you cannot count on anything. His company got bought out, which is why we had to move. We could have stayed (he was offered another job) but one of the reasons we did move was because he had been with his company for a long time and for some great benefits they offer (50% match on his 401(k). But with his company having new owners, anything could happen (as it already did!), and I know we'd be hard-pressed to find another job that pays well with the good benefits that he has.

In the meantime, I'll go chase those 8% returns...

[NJBest]

I think $4M is reasonable. That was my initial personal goal. External factors have caused me to make some changes to that figure.

[Hemlock140]

If you are depending on just social security then you would need additional savings, I suppose retiring at 55 and living until
80+ 4 million might be close. Who can say what prices will be in 20 years?

People with a decent retirement/pension in addition to social security should be able to live just fine on the combination of the two, at probably 70-80% of what they made when working. The additional savings from 401K/IRA etc would help offset the cost of medical not covered by medicare, if it still exists by then and provide additional income for entertainment/travel.

[Escort Rider]

It seems to me there is too much blind faith in the various retirement calculators. Have you looked carefully at the assumptions on which each calculator is relying? What percentage of your current income do they say you need for retirement? What percentage of your current income do you think you will need to live the way you want to? How do you plan (or wish) to live in retirement? International travel every year, staying at five star hotels? Is that part of the assumption? In general (since I know very little about your particular situation) I think people can live comfortably and enjoyably for quite a bit less than the calculators assume. Of course, that may not be true in your individual case. Color me skeptical about the $4 million.