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the problem with these rules is the time frames we save more and less varies for all of us.
salary can vary too , what salary should i use ? since i am winding things down the last two years i have been working less and less and will finally stop in july.
what salary should my reference be ?
the bigger the amount you grow the bigger the deals you can be part of so alot of growing may not happen until well down the road.
it took me 50 years to hit a million but 12 years to triple it. the deals were far more lucrative as time went on.
i know that - but this isn't about how far ahead of other people i am. it's about how far ahead i am of a guideline that a major financial services company is advising. if i am truly that far ahead, i question if i'm saving "too much".
i know that - but this isn't about how far ahead of other people i am. it's about how far ahead i am of a guideline that a major financial services company is advising. if i am truly that far ahead, i question if i'm saving "too much".
If you're that far ahead of the general population, you're also very far ahead of any guideline. Whether you are saving too much depends on your goals and lifestyle.
i'm on pace to be about 2.5x by 35 and nearly 4x by 40.
1x and 2x seem very conservative. i know i'm well ahead of the savings curve - but i'm not THAT FAR ahead am i?
Keep in mind your salary is likely to change as well, which will require more to match the 2x. Right now if nothing changes I will be on pace to have saved 3x by 35, but I'm including my brokerage accounts as well, which I'm not sure why some people are only counting 401k and IRAs.
You're not rich till your money works for you vs you working for money.
Both can happen at the same time, they are not mutually exclusive. Anybody with both a job and investments is working for money and has money working for them.
Keep in mind your salary is likely to change as well, which will require more to match the 2x. Right now if nothing changes I will be on pace to have saved 3x by 35, but I'm including my brokerage accounts as well, which I'm not sure why some people are only counting 401k and IRAs.
true, but my salary increases aren't dramatic unless i get a major bump in job level. i'm 33 now, so that's possible by 35 and probable by 40 within my current company, but even accounting for that i'm still pretty close to my original numbers (plus as salary increases happen, so do increases in my contributions to retirement accounts).
these rules never mean much to me, other than potentially serving as some guideline to people who can't wrap their hand around long-term financial planning.
Using multiples of some 'salary' or income as a basis for what you need in retirement, especially for someone like me at 30, is arbitrary at best even if backed into using some historical data. Will you continue to make the same amount with cost of living increases? Will you double or triple your salary in your career? Do you plan to live in the same place your entire life + retirement? Do you plan to increase lifestyle cost as your salary goes up? Does that continue into retirement or do you have planned lifestyle changes into retirement? Someone makes $100,000 and lives off of $25,000, they will certainly need much less than someone who makes $100,000 and spends $70,000.
Instead, I think retirement planning should be based on what you plan on SPENDING and then working backward into what you need to sustain that. Not guess what you need based on your current inflow of cash at some random point in your pre-retirement stage.
I have my plan and I review it once a year around tax-time (this is also when I re-balance my buy-and-hold mutual fund accounts). My plan is based on what we actually live on each year, which is much less than what we make. Then I take into account inflation, estimated gains over time, when we plan to retire, how long we plan to live etc. It is still an estimate but it is a calculated estimate based on our specific situation, not some random multiplier that tries to take a one size fits all approach. Using this approach, even though we live well below our means, I am shooting for much more than most of the multipliers tell you that you need. The nice thing about that is that if we fall short we're still way ahead of the curve. Or, if something big/negative changes in our life or careers between now and retirement we have a buffer to be able to recover and get back on track.
I actually think that it should be 3X your annual expenses (not your salary). Salary is just an easy way to say it since many people like roughly paycheck to paycheck. For example, if you make $80k after taxes but spend $60k and save $20k, your lifestyle requires $60k. You won't be saving for retirement when you're in retirement. However, your expenses at retirement may go up because of health expenses, etc.
I also think that home equity should be part of the equation somewhere. For example, I'd much rather own a $1m home outright and have $500k in my savings and retirement accounts than owe $1m on my home and have $700k in savings and retirement but if you exclude home equity, the $700k guy seems like he's doing better than the $500k guy.
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