Are you on track for retirement?
 

I just received an e-mail from the Motley Fool in which they said that you shouldn't draw more than 4% of your retirement savings each year.

If, for example, you need $100,000 per year to live as you're accustomed, you would need to have $100,000/0.04 = $2.5 million invested at retirement time.

For your particular circumstances, are you on track to have the money that you need when it comes time to retire? Or, looked at another way, at your current savings rate, how old will you be when you can comfortably retire?

There are, of course, a lot of variables in this equation (how long will you live, how will your investments do between now and then, your employment situation, unexpected expenses, etc.), but do you feel comfortable with your retirement savings situation?

We had, at one time, planned to retire at 50. Every year that goal is moving farther back.

*taps on calculator*

Damn. Well, that's discouraging.

I hate this thread.

If it serves to motivate one person to increase their savings effort it will have accomplished something good.

4% is pretty cynical view for the future of investing. I usually try to keep withdrawals under 5% if possible. anything over 6% and clients have to sign a disclosure in which i explain that it is their money and they can take any amount they want at any point in time but historically taking more than 6% withdrawals will cause a depletion of principal with the very real potential of outliving their money.

the reality is that cookie cutter formulas don't work for financial planning. it really isn't hard but there are some questions to consider.

1) do you intend to leave a legacy or do you plan on bouncing your last check on the way to the funeral home?

2) will your expenses in retirement be the same as they are now? fewer lunch runs from the office vs increased travel to see the grandkids, mortgage, cars, etc.

3) what sources of income will you have in retirement other than your "retirement account"? will you work part time? old pension? start robbing banks? prostitution?

4) do you have sound medical insurance? life insurance on both? long term care expenses?

5) what is your risk tolerance and attitude towards the money you already have?

6) are you willing to sacrifice on some lifestyle issues today or would you prefer to live more frugally in retirement?

Those are the kinds of questions you need to ask yourself. write the answers down. then come up with a REALISTIC number of what you would likely spend if you were in retirement today. remember that if you are putting $15,000 into your 401K each year, you won't be doing that in retirement anymore, so don't just take your salary and say "that's what i need".

in general, cost of living doubles every 20 years. (about 3.5% inflation) do some math. for instance, if i plan to retire in 20 years and in today's dollars i need $80,000 to get the job done, then my math needs to come out as a $160,000 year income in retirement 20 years from now.

subtract the number you are likely to receive from social security if you have faith that it will still be there. subtract any other sources of income such as pensions, rich aunts,etc.

let's say that you have other income of $30,000/year. that means you need enough in your retirement accounts to produce $130,000/year income.

Let's say that it is very important to you that you leave a big pot of money for the grandchitlins. So we need to produce $130,000/year while sustaining the principal. By my math that is doable indefinitely with a 5% withdrawal rate. SO...

you need $2.6 million in retirement accounts. Currently you have $400,000? ok, that $400K just following an average return of 8% which is conservatively feasible over 20 years can become roughly $1.8 million. Well done my friend. with 20 years to go before your planned retirement date you are almost 70% of the way to your target number. now we just need to figure out if the amount you are putting away each year right now will make up the shortfall.

or so the story goes. every single person's plan will be unique to them.

Your Money. Your Goals. Your Plan.

remember the Motley Fool is a hardcore DIYer's resource. you can seek input from a professional. in fact, i advise it.;)

a common mistake i see people make that causes them to panic after using those calculators is that they forget to subtract the amount they save and invest every year now, from their future income needs.

another bigger mistake is that they recognize that inflation means they'll need more to spend later, but they forget that the markets historically outpace inflation so the money you already have will also grow substantially.

nah I'll just eat cat food and sleep in a big cardboard box

lookout, I was hoping you would post, but I thought it would be rude of me to ask.

Thanks.

At first I wasn't sure, but now I am - I'm screwed - thanks lookout - I needed that right before christmas.

[mumblefuckgrumble]everythings going back - where are the receipts?[mumblefuckgrumble]

as always past performance is no indication of future results. i can't talk specific plans or cases with someone that i haven't interviewed but i'm always happy to chat about this stuff. it really isn't as big and scary as most people think it is.

the good, nay GREAT, news is that even if you are short now, it really isn't that hard to tweak some things and get a person there. don't bury your head in the sand and hope for the best. think about it. if that $1000 you save this year will be $4500 in 20 years, and the $1000 you do next year will be $4100, and the... you can make time work in your favor.

Save? Invest?
I'm with Binky

well, i know plenty of people who live on little more than social security too.

the above scenario was for someone who has picked a date that they want to flip off the boss and never work again after that. and to boot, they want to live exactly the same way they do now or better.

tailor the story to meet your needs.

Also, don't forget to add the money that the tooth fairy will be bringing you as all your teeth fall out in old age. ;)

[Disclosure: I absolutely believe "social security" will still be around by the time I retire. But I believe the eligibility requirements will have been tightened significantly, and I have no intention of being able to qualify for them.]

The sooner these damm kids get off the payroll the sooner I can put away what needs to be done to live comfortably. Therefore I fear that I will be working well into my 60's, bar a disabling health issue. An early death would actually benifit the family better due to the 1.5 mil in life insurance they would get all at once.

saving less now is far more powerful than saving more later. yet another reason i urge people to quit funding college plans for the younguns until they've got their retirement plans on track.

Everyone says that but when I went to college I just got loans and grants and scholarships... Not anymore. Kids are not allowed to get their own loans. All loans are tied to the parents income. My kids do not qualify for anything. The kids can get mini loans but all loans have to be taken out by the parents in the parents name. One kids has gotten me 45k in loans for 2 years, there are two more behind that one. The system is set up to protect the lenders by making the educational loans the parents loans to increase the chance that they will recoup their money with interest. It is a total rip off.

not true. there are many different kinds. student loans are based on the student. parent loans are based on the parent's in income. both programs are "need" based. the individual school gets to decide what the level of "need" is.

And that is the problem! I think it should be put on the kid going to school to carry the burden of the loan, regardless of my income. My income should have nothing to do with the loan the kid can get to go to college.

Students who do not get any free federal or state grants are almost always still eligible for a Federal Stafford loan which is in the student's name. Of course, the Expected Family Contribution is tied to parental income if the student does not meet the qualifications for independent status, but not meeting unmet need with free grants leaves the student borrowing power. After that, there are federally backed parent PLUS loans, which are still a better deal than alternative loans.

Of course, there are limits to what a student may borrow...stafford aggregate limit is around 45 grand, annual limits up to 7500 for a dependent student, which i know won't cover an expensive college.
More info here, and feel free to PM me if I can help with anything.

Also, it is worthy to note that it is the position of the Department of Education that the parent/family is ultimately responsible for the education of the child.[/I just got back from state conference] ;)


I agree...those are luxuries.

My oldest daughter was only eligible for $1200 in Stafford loans the first year. Let me do the math... $22,000 - 1,200 = $20,800.... Hmmm how is she suppose to pay the rest??? This is not some private school, it is at a large state school.

No, the parents have to get the PlUS loan. That is BS, it is her education they should be her loans. Not only that the loans are not even at the low interest rate that education loans should be at, they are at 5, 6, 7 %, more BS. When I went to school I got loans every year to pay for my school over a 30 year period at 2%.

My parents made great sacrifices to make sure I, and my 2 brothers, went to college. I did what I could with work-study, loans, and summer jobs. They felt it was their responsibility. They didn't go on fancy trips and my mom wore crappy clothes. She learned to make a million meals out of ground beef. There was no RV to sell, no cadirracs or motorbikes...just a notion that their children would get the chance they never had one way or another.

my parents were unable to help me pay for college. they did raise me to the age of 18 and teach me how to work for things i thought were a priority.

post-secondary education is a privilege, not a right. it requires sacrifice and determination.

I understand all that, before everyone slays me. What I have said was "to the best of their ability" and that kids need to do their part as well. I was not born with a silver spoon, believe me. But, I do believe that some parents could realize when their bouncing baby cutie-pie comes into this world that in this day and age you won't get far without a college education, and should look forward to that, sacrificing and saving along the way as well.

There are many many many many many (did I say many?) Dept policies I don't agree with, and commisserate with many folks (for instance I don't agree with "until the age of 24" so much) but when I see parents who make over 100 grand a year and gripe about not getting help I wonder if they should consider selling their speedboat or the lake house, or one of the three nice cars, for the future of their offspring.

Many of the policies are, really, an index, which doesn't always bode fairly for everyone...but are designed to assist the greatest number. Not perfect, not by a long shot.

i'm on board with you cousin. if you make significant income - and i think $100K annually qualifies a personal decision needs to be made. The parents need to decide if paying for the kid's schooling is an obligation they want to take upon themselves or not. if they don't want to pay for the schooling then by all means - buy the bigger boat. if school is the priority - then fire up the savings or 529 plan.

but when it comes down to it, i've got problems with parents trying to take on debt to pay for their kid's college degree. unless the kid is going to medical or law school if they come out of college with $50K or more in student loans they are pretty fucked. if the loans are in the parents' names then they are both fucked. to go deep into hock just to get a B.A. makes NO sense. work part time or full time if necessary - graduate in 5 or 6 years instead of 3 or 4. decide what you want to be BEFORE you start school instead of changing majors 5 times.

Good points. I, personally, try to steer people away from borrowing if at all possible.

I have not always made good choices, either. I see it from both sides of the fence. The old "if I could do it over again..." :)

But I am forever indebted to my parents for wanting me to have better, to believe in the education they never got, for giving up things while we were growing up.

T. Rowe Price has an interesting calculator for what expected college costs will be when your kids reach college age. They take current costs for each school, and you get to choose what you expect inflation to be.

According to their calculator with an assumed 7% inflation rate (who knows if that's a correct assumption?) our in-state university will cost $119,000 for my daughter. If she gets into MIT (just picking at random here) it will cost $345,000. This is for all four years. Sending both my kids to college will cost between $200K and $800K depending on the school and inflation between now and then. Ugh.

That sounds like a calculation people should make before deciding to have kids.

Other helpful calculators here.

Small nitpick... if she attends MIT it will be that much. I got into every college I applied to, but did not qualify for any meaningful financial aid, and ultimately my parents and I decided that getting my undergrad degree from a high-quality state school was a better deal. (At the time I admit I was a teensy bit bitter, but having since seen where all my friends and their various degrees actually ended up, I have realized they were right.)

The only point I would like to add is that who is to say how much money a person or family makes is enough to make the parents take on all the debt, where the child, who is about to go to school, has no chance in hell of getting loans in their own name. The ability of a child to get a loan, or any other need, is based on parents income. I have no problem contributing, but I want her to take on the debt in her own name. What I make should not be a factor in the personal decision that we make as a family or that the child makes on her own to take on the debt. The simple number of dollar amount in income is not a measure of one persons financial solvency.

income has everything to do with loan approval. IMO it would be flat out wrong to approve kids for large student loans in their own names when there is no evidence supporting their ability to repay the loan. that is why the amount the individual student is able to borrow is relatively small - so that financial ruin isn't guaranteed shortly after graduation.

the parent's name is used for the loan because they are supposed to have to the personal discipline to decide whether it is an amount they can repay or not.

the formulas to decide who get's how much are pretty crappy, but limits have to be set somehow - the pool of money for student loans is not unlimited. there is a finite amount funded for the programs that is passed on to each school. it is up to the school to decide what their guidelines are. at least that was true the last time i looked into it a few years ago.

I'm not saying that it is fair and youdon't have the right to grumble, just trying to point out that there is a certain logic to the program.