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I am 12 - 15 years from retirement. I met with a financial advisor today and he stated he recommends his clients who have more than $200K a year income to have 20X their current annual income in savings before they retire.
I am curious if people saved that much when retiring. Basically if you have $200k income you would need $4,000,000 in savings.
You might want to start from the other end of the formula i.e. what income will you need to sustain yourself? Just to start, some questions to ponder:
-- will you retire with any debt e.g. mortgages?
-- will you be receiving income from sources other than your savings e.g. social security, pensions?
-- what are your annual expenses now?
Your advisor is probably basing his advice on your current lifestyle. Your answers to the above questions will help YOU decide what you need to do in the next few years to be able to retire.
he stated he recommends his clients who have more than $200K a year income
to have 20X their current annual income in savings before they retire.
Was this suggested as a target to motivate deep action?
Or was it meant as some sort of actuarial calculation?
Quote:
Basically if you have $200k income you would need $4,000,000 in savings.
That $4m is *not* savings. It is 40+ years of reinvested yield and capital growth.
That $4M allows for a nice 5% return to maintain their $200K income...
and for the retiree to leave a nice inheritance too. Cool beans.
Assumption:
The $200,000 (a 20+ years) salaried person can probably count on a nice pension to go
along with a nice 401K plan, their IRA's and of course the max of SS income...
all in addition to whatever income/drawdown that their primary investment portfolio might produce.
$200,000 -SS Income ($30,000?) - $Pension Income ($50,000?) ...
nets this person out at needing $120,000 from their own portfolio resources.
How much do you think you will need to maintain your needs in retirement?
How much do you think you will need to maintain your luxuries and wants on top of that?
(I suggest that you start thinking of them separately now... so you aren't surprised later)
Last edited by MrRational; 10-12-2013 at 10:35 AM..
I am 12 - 15 years from retirement. I met with a financial advisor today and he stated he recommends his clients who have more than $200K a year income to have 20X their current annual income in savings before they retire.
I am curious if people saved that much when retiring. Basically if you have $200k income you would need $4,000,000 in savings.
You will probably want a base retirement income of at least 120k. This assumes you will not need to be investing at the same rate etc. you aren't retiring to cut back on lifestyle. There are lifestyle levels you get use to. Depends on where you live and what any dollar amount will give you in life style. If you are a golfer it might be fewer local courses and more you have to travel to. Some good road trips. I know folks who have exchanged a work career for a golfing one.
I am 12 - 15 years from retirement. I met with a financial advisor today and he stated he recommends his clients who have more than $200K a year income to have 20X their current annual income in savings before they retire.
I am curious if people saved that much when retiring. Basically if you have $200k income you would need $4,000,000 in savings.
We focused on retirement planning when I had 14 years to go.
My career earnings peaked at around $75k/year. We both took courses on tax-planning, and so we were able to keep our gross income fully tax-sheltered. In that period of time, we were able to build a Net Worth of a little over $900k.
My pension is close to minimum-wage. Then in the '08 crash we lost around $300k.
As it stands we have no mortgage, very few bills, and we settled in a low cost-of-living area [The COL index here is .87].
Our portfolio at it's peak was 12X our annual income. After the crash it was reduced to around 8X.
Today we are doing, exactly what we had planned to be doing. I do not see where our lifestyle is above, nor below what we had expected it to be.
Unless you are making no changes at all when you retire you need to work off the expense side not the income side.
First decide what kind of budget you will need. Then figure out how much has to be generated by your own investments. Then you can see what kind of allocations you need to get that level of income.
Then you need to look at the risk level of the allocations you will need to generate that amount and see if you are comfortable with them.
There is no magic number as to what someone needs. It will be unique to just you and your lifestyle.
Saving 20x income is just rule of thumb, setting up a target for you to achieve. It's neither right or wrong. It's also affected by the sources of retirement income you'll have coming in. For instance, if you have a pension, it can represent a sizable piece of the 20x.
As others have said, budgeting retirement expenses is key to determining what you'll need. Most start with their current expenses as a guide, adding and subtracting what will change in retirement. As you get closer to retirement, you expense numbers will get better. Keep in mind that a lifestyle change can have a major impact.
I think the 20 times ones annual income is a simplistic number that translates into you could draw down 4-5% of it per year thus having close to about the same income, continue to live ones present life style, plus leave an estate. It is not sound financial planning.
It is almost a blow away number. A number one would get from a "financial planner" when you have made it clear you will not being doing business with them. Like OK, dead beat (no business from you) you want a number. Here it is. Now get out of my face.
It could also be an answer from someone with nothing more then a calculator.
I think of it as a cold, slap in the face number, to wake people up that they need to save more. Really nothing more or less than that. Retirement planning can't be one simple fits all formula.
20 times gives you a goal that if realized gives you a continuation of your current finances in retirement. Would we want to strive for anything less? Didn't we give our kids and our careers lofty goals to strive toward? Don't most folks able to afford a top notch planner. And score a game winning retirement touchdown?
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