Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I live on around 50% of my net income now. I have no kids to support, and will have my mortgage paid off in my 40s. So no way will I need 80% of my gross when I retire. I might need 80% of TODAY'S gross by the time I retire, though, after figuring in inflation. But if you use a calculator that already figures in inflation, then you are double counting that.
I'm 38. I figure, after counting on about 100% cumulative inflation (100% about every 20-25 years historically) and increased medical bills, I'll need somewhere around my current net, which is in the ballpark of 80% of my current gross, to retire. But if I were already in my 50s, I would not need 80% of my gross at that time if I was still working the same sort of job at expected pay.
But it is totally a ballpark. Maybe you make next to nothing in your 20s, and you'll need 300% your current gross in order to retire, because your lifestyle grows over the next 40 years.
I agree 100%, especially the part in bold. Lots of people suck at budgeting, and they don't realize it. A buddy of mine is convinced his budget is foolproof because all of his bills are paid each month, so the leftover is "fun money". I asked what his yearly budget for clothing or transportation is, and he confidently replied with "that's the beauty of it! I don't need to know, since I'm not spending more than I earn!"
I don't have a budget for clothing or transportation. My budget is pretty simple: we save this much into savings account from net, this much into HSA, this much into college savings. This is all after pre-tax contributions to retirement accounts, which are the subject of this post.
There are bills that are set, and there is all the miscellaneous spending (this includes food, transportation, clothing etc). Misc spending fluctuates slightly from month to month, but is usually around a certain amount. If we spend less - great, we can leave the "extra" money for the next month when we spend more. If we consistently spend less, we just shift more money into savings. If we consistently spend more, and need to take money out of savings - it may be time to revise our overall approach to spending, but even then budgeting for every particular item is an overkill, IMO.
It works well for us, I don't see a need to budget $556.86 for food each month.
I've been thinking about this for a while, and reading posts in this forum sort of reinforces my thoughts. I think that most retirement calculators that make you believe that you need 80% of your current income are, well, bogus. They are sponsored and/or hosted on websites of companies such as Fidelity, Charles Schwab etc., so, companies who will directly benefit from people saving more into their retirement accounts.
The way I see it, there is no way I will need this much in retirement. We save about 15% of our pretax income and about 10% of our net. This in itself means that we are living on less than 80% of our current income right now. We have two school age children, one of them will be off to college next year and we are preparing for the added costs of paying for his education. We are also paying mortgages on two properties, and they both should be completely paid off before we reach 65. One can become a rental property later on.
I understand there will be added medical and insurance costs when we retire, but can they possibly be more than two mortgages and costs of raising two children?
On the other hand, with our incomes, reducing our pre-tax retirement contributions means our income taxes will be higher. For every $400/month I don't contribute to my 403B I will have to pay ~$120 in taxes. So, it's either having extra $400 in my retirement account or $280 in my checking account.
Sorry, this may sound like a very much of a first world/high earner problem, but I was wondering if there were other people who share my thoughts and what approach you are taking to your retirement savings strategy.
Oh, and I don't want to retire early, at least now, at 38, I really don't see myself retired any time soon.
You are safe in averaging a 3% rise in cost per year over time span retired. That will assure enough to stay at same level its thought. Medical is huge change as you age as to secure against cost. Most do that by either separate medical savings account or by Medigap once on Medicare. As you age the cost for what need change a lot ;so hard to compare to your present cost at 38 versus 65+. Your way to far from retirement to know the average cost to live has you do now really but 80% now isn't same lifestyle in 27 years I guarantee you.
Thank you everybody for your feedback. I'm about to have some fun with numbers - I liked quite a few ideas here about how to calculate your need. I will stick with our 15% of gross for now, but we shall see once we hit mid 40s and know for sure what our children's education will cost us.
My husband is maxing out his 401K now. I have room to add quite a bit to my 403B, but I think I will stick with the current level.
To those that say they don't need to know how much they're spending in different categories, that may or may not work for you, but it's largely luck unless you're extremely diligent about savings first. Not to mention, you could be vastly overspending in some of those areas, and remaining willfully ignorant doesn't seem like a good solution.
Usually people respond to that with "gotta live a little", but you can always "live a little" with a little less and no reduction in your quality of life. I have yet to reflect back and say "MAN! I wish I spent $20 more on this shirt" to the countless transactions that add up to each of the budgeting categories. Maybe others do, though.
To the example of my buddy above, he had to declare bankruptcy a few years ago, and has changed nothing in his budgeting/spending techniques. I've personally watched the destruction of that budgeting style. Could it work? Sure. But it's a veeeery dangerous game.
I've been thinking about this for a while, and reading posts in this forum sort of reinforces my thoughts. I think that most retirement calculators that make you believe that you need 80% of your current income are, well, bogus. They are sponsored and/or hosted on websites of companies such as Fidelity, Charles Schwab etc., so, companies who will directly benefit from people saving more into their retirement accounts.
The way I see it, there is no way I will need this much in retirement. We save about 15% of our pretax income and about 10% of our net. This in itself means that we are living on less than 80% of our current income right now. We have two school age children, one of them will be off to college next year and we are preparing for the added costs of paying for his education. We are also paying mortgages on two properties, and they both should be completely paid off before we reach 65. One can become a rental property later on.
I understand there will be added medical and insurance costs when we retire, but can they possibly be more than two mortgages and costs of raising two children?
On the other hand, with our incomes, reducing our pre-tax retirement contributions means our income taxes will be higher. For every $400/month I don't contribute to my 403B I will have to pay ~$120 in taxes. So, it's either having extra $400 in my retirement account or $280 in my checking account.
Sorry, this may sound like a very much of a first world/high earner problem, but I was wondering if there were other people who share my thoughts and what approach you are taking to your retirement savings strategy.
Oh, and I don't want to retire early, at least now, at 38, I really don't see myself retired any time soon.
What you are saying is exactly correct. The so called financial planners need fear to project their message. None of it is true.
You decide how much to spend in retirement. Better to calculate your yearly expenses now and compare this to before tax income today. Estimate retirement spending by excluding expenses like mortgage which will be gone.
Also remember that from age 65 to age 75 the average retiree reduces spending by 40%. So why use a retirement calculator that increases spending 3% a year. Again none of the financial planners have a clue what they are talking about.
What you are saying is exactly correct. The so called financial planners need fear to project their message. None of it is true.
You decide how much to spend in retirement. Better to calculate your yearly expenses now and compare this to before tax income today. Estimate retirement spending by excluding expenses like mortgage which will be gone.
Also remember that from age 65 to age 75 the average retiree reduces spending by 40%. So why use a retirement calculator that increases spending 3% a year. Again none of the financial planners have a clue what they are talking about.
Strange you call out planners for not having a clue and then you blanket apply a 40% spending reduction?
Last edited by Lowexpectations; 07-22-2015 at 04:46 PM..
To those that say they don't need to know how much they're spending in different categories, that may or may not work for you, but it's largely luck unless you're extremely diligent about savings first. Not to mention, you could be vastly overspending in some of those areas, and remaining willfully ignorant doesn't seem like a good solution.
By definition, if it's not cutting into my ability to save or to pay the major monthly bills (like my mortgage payment or utilities), it's not overspending.
By definition, if it's not cutting into my ability to save or to pay the major monthly bills (like my mortgage payment or utilities), it's not overspending.
It depends on your definition. I define "overspending" as spending more than you need to for something. You can overspend AND be net positive in your budget. Retailers are counting on people that budget like that, it helps maximize their profits without you realizing it. Why do you think car salesmen ask what you want your monthly payment to be?
My point here is you can't trim the fat in your budget if you don't know what you spend in major categories.
In addition to healthcare costs, the rate of inflation and length of retirement is the big unknown.
People are regularly living 20-30 years in retirement. Think about trying to live on 65-80-percent of the salary one earned ... of 20-years ago.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
