Retirement Nest Egg projection?

[LivingAlmostLarge]

How much do you project you'll need in retirement? Do you think you'll make it? What assumptions do you use?

I was using a simple calculator and found that in 25 years, saving $2500/month @ 6%, and a $250k starting balance I'd have $2.8M, a little shy of the $3M I needed to replace $120k/year.

It made me nervous that it was close and a little short. Are people concerned about their retirement savings? Is there anything I should consider besides saving more?

[jpg7n16]

Why did you choose $120k as the number to replace?

[bjl584]

How much do you project you'll need in retirement? Do you think you'll make it? What assumptions do you use?

I was using a simple calculator and found that in 25 years, saving $2500/month @ 6%, and a $250k starting balance I'd have $2.8M, a little shy of the $3M I needed to replace $120k/year.

It made me nervous that it was close and a little short. Are people concerned about their retirement savings? Is there anything I should consider besides saving more?

Consider that when you are retired you probably won't need to replace your salary at a 1 to 1 ratio. Often, when people retire their expenses decrease. No more debt (hopefully), no more beating up the car commuting to work, the kids are grown and moved out, etc.

Unless you plan to travel extensively and buy a bunch of toys in retirement, then you probably won't need the full $3M. $2.8M will probably work just fine.

[bennkar]

With a very solid pension and social security (more or less squishy at the moment) I expect these two to cover 45% of my current income. And since I live on less than 50% of my takehome now.... my main concern is health care costs going forward. To deal with that issue I workout daily and try to eat nutritious - I'm close to my college weight but with much more muscle now.

But to answer your question, given the above I want to have at least $500,000 by the time I retire (11 years). Currently all my investments (457, Roth, DRIPs, bonds) add up around $280,000. Since I'm currently saving more than $25,000 / year.... well I'm not stressing .

[Emerald]

Coincidentally, I just ran the numbers again this morning. I figure if I average returns of 6%-8% I should be OK, anything less and I'll be short. This is assuming I contribute the same amount till age 67, when I'm eligible for SS.

I'll be officially eligible to retire at 57, but I plan to keep working (hopefully in another field) at least part time. I can only do this if I contribute the same amount till 67, so it may or may not work out.

Decisions. Decisions.

[JoeP]

Please post the links to these calculators!

[Christian321]

Coincidentally, I just ran the numbers again this morning. I figure if I average returns of 6%-8% I should be OK, anything less and I'll be short. This is assuming I contribute the same amount till age 67, when I'm eligible for SS.

I'll be officially eligible to retire at 57, but I plan to keep working (hopefully in another field) at least part time. I can only do this if I contribute the same amount till 67, so it may or may not work out.

Decisions. Decisions.

As I stated in an earlier post on a different topic, concentrate on increasing your savings while totally eliminating debt. If you can save more, maybe you only have to average returns of 4%-5% for example. Additionally, unless you are looking to fund a lavish retirement, I doubt that you would need to replace all your pre-retirement pay. This is assuming all your debts are paid off before retirement. If not, this should be your priority.

Regardless, you sound like you will be ok.

[Emerald]

As I stated in an earlier post on a different topic, concentrate on increasing your savings while totally eliminating debt. If you can save more, maybe you only have to average returns of 4%-5% for example. Additionally, unless you are looking to fund a lavish retirement, I doubt that you would need to replace all your pre-retirement pay. This is assuming all your debts are paid off before retirement. If not, this should be your priority.

Regardless, you sound like you will be ok.

I'm currently investing 15% (with a 5% match), but I'm also saving more outside of retirement for my next home with land. Ideally, I'd like to put down as much cash as I can, so my next mortgage is smaller than the current one. I'm also hoping my cost of living will be less. Then, I'll be able to save more towards retirement. Fingers crossed.

[snafu]

Retirement planning is really difficult. I went to one of the seminars where they identified 3 stages as Active, often spend-y doing all the things on your "Bucket List.' Stage 2 is much more relaxed with family, friends, volunteer and senior activities. Stage 3 is the most expensive since it includes the cost of care.

Would you be willing to create a list of your personal assumptions like I plan to live in my current city with it's COLA and expect to maintain the same accommodation. Perhaps you would prefer to live in a lower COLA in smaller living quarters? Will you trade cars regularly? Do you plan to buy expensive season tickets annually? What significant expenses do you expect? Are you in good health and actively involved in maintaining health?

Whatever the balance when you retire, you will likely withdraw a set sum monthly, quarterly or annually as meets your needs but the majority will remain invested still earning income.

[kork13]

I'm only 25, so my "retirement planning" is really more along the lines of "guessing." However, I'm making the estimate that I'll want $80k/yr (today's dollars) in retirement, and will need ~$2M saved to provide that $80k/yr income.

My assumptions are broad, because I don't know what my income will look like over the next 40 years, but for now I'm using an average 5% gain (above inflation), saving $15k/yr. I currently have $60k, and in 40 years, I'm estimating I'll have $2.2M, so according to that I should be fine. (For those asking, I use a home-grown excel calculator, so a little difficult for me to pass along)

My $80k/yr goal is probably higher than I'll need, but my goal is to retire comfortably with plenty of options, never to touch my principle (to enable passing it all down), and not to rely on any outside source of income (SS, military pension, etc). I would much rather be "over-prepared" for retirement and be able to live in the (relative) "lap of luxury" than to wildly underestimate and find myself impoverished.

At this point, I'm not concerned about retirement. I'm saving plenty for it, and I've got 40 years to go, so there's no point in freaking out right now. But as others have said, potential considerations for you should be your expected SS benefit, and also some general sort of estimation of what your annual expenses will be in retirement. Those will both impact what you need for your annual income from your savings.

[witchkizzle]

I'm only 25, so my "retirement planning" is really more along the lines of "guessing." However, I'm making the estimate that I'll want $80k/yr (today's dollars) in retirement, and will need ~$2M saved to provide that $80k/yr income.

My assumptions are broad, because I don't know what my income will look like over the next 40 years, but for now I'm using an average 5% gain (above inflation), saving $15k/yr. I currently have $60k, and in 40 years, I'm estimating I'll have $2.2M, so according to that I should be fine. (For those asking, I use a home-grown excel calculator, so a little difficult for me to pass along)

My $80k/yr goal is probably higher than I'll need, but my goal is to retire comfortably with plenty of options, never to touch my principle (to enable passing it all down), and not to rely on any outside source of income (SS, military pension, etc). I would much rather be "over-prepared" for retirement and be able to live in the (relative) "lap of luxury" than to wildly underestimate and find myself impoverished.

At this point, I'm not concerned about retirement. I'm saving plenty for it, and I've got 40 years to go, so there's no point in freaking out right now. But as others have said, potential considerations for you should be your expected SS benefit, and also some general sort of estimation of what your annual expenses will be in retirement. Those will both impact what you need for your annual income from your savings.

Remember that inflation is going to eat away a large portion of everyone's buying power.

You say you want to have 80k per year of today's dollars in 40 years. With 3.5% inflation (just a guess, I have no idea what inflation will average over the next 40 years) 80k of 2012 money is about 315k of 2052 money. On the flip side, if you can withdraw 80k a year in 40 years, that is similar to being able to withdraw and live on 20k a year right now.

Remember to account for inflation. One million dollars today isn't close to being 1 million in the future.

Your calculation should look more like this:

per year withdraw in retirement in todays dollars: =80k
inflation adjusted withdraw in retirement in future money : =315k (check Time Value of Money Calculator for the Time Value of Money calculator. Let me know if you need help using it)

So, you need 7,875,000 or so saved up to be able to take out 315k a year (assuming the same 3.5% inflation rate and a return of 5.5% on your post retirement savings for a net gain of 2% a year) for 35 years to take the account to $0.

You will need much more than that 7.8 million to never touch your principal if you want to be able to pass it all down to your offspring. I think you would need closer to 11.5 million to achieve that.

Maybe someone can point out my errors or wrong thinking, but this is how I try to plan for retirement.

Another way to think about it is if you want 2 million of today's money you can do the same TVM calculation and see that in 40 years that is equal to about 7.9 million with 3.5% inflation and, again, on the opposite side 2 million in 40 years is the same as having 500,000 now.

I'm 25 too, and it's good that we are planning for this stuff already.

[feh]

How much do you project you'll need in retirement? Do you think you'll make it? What assumptions do you use?

My number is around $1.5-1.6M. We should hit that mark in a few years, at which point I'll be free to work part time if I choose.

We don't plan on spending nearly as much as you do in retirement. Our expenses are $40K/year now.

[JoeP]

My number is around $1.5-1.6M. We should hit that mark in a few years, at which point I'll be free to work part time if I choose.

We don't plan on spending nearly as much as you do in retirement. Our expenses are $40K/year now.

I think we're slightly above that, but not by much. Besides downsizing, I plan on buying inexpensive older cars to keep insurance rates low, and growing vegetables in a garden. This will reduce travel and its associated costs, and provide exercise along with healthy food.

[kork13]

Remember to account for inflation. One million dollars today isn't close to being 1 million in the future.

The inordinately complex process of accounting for inflation is a major pain in the butt, so I find it easier to bypass it. Calculate everything in "today's dollars", and use an estimated investment return that is an amount above inflation (it assumes your investments will outpace inflation). Whatever inflation happens to end up as, I don't really care. My only concern is buying power, and that's what I work off of.

Seriously, telling me or anyone that you need $11M of "inflation-adjusted year 2050 dollars" means absolutely nothing. Estimating inflation is a wild guess, and for something so far out, it needlessly over-complicates everything. My method is just as accurate and far simpler.

[LivingAlmostLarge]

Inflation is too hard to adjust for so I don't bother. It'll work out because if you adjust income for inflation as well in theory you should be making more and saving the same percentage.

I wanted to replace most of our gross income, not including bonuses etc. We live on like half of that now but I know it'll go up when we buy a different home and have a few more kids. So I'd rather have more than less. Besides I like the idea of maybe even having nicer things than I ever expected in retirement. Maybe a nicer car, more travel than now, college paid for 100%.