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.