Retirement planning

[riverwed070707]

Do you have a dollar amount you’re targeting for your retirement savings? We reached a big milestone this year (1x our annual salary!) which I initially was aiming to do by the time I was 30 (I'm 27). Since DH isn’t working, I’m thinking I should actually aim to have double my salary by 30, which I feel is totally attainable with some minor adjustments to current contributions, but when I run the numbers for what I think I will actually need for retirement, I start to think maybe I’m over contributing and I don’t need to keep the purse strings quite so tight. At the rate I’m currently contributing, assuming a 1% raise/year (estimating low) and assuming DH never works again (lol hopefully this isn’t the case!) we would have $1.5m by the time I’m 57 which is about when I think I’d like to “retire” aka roam the earth doing meaningful work instead of a 8-5 office job. Its been on my radar that I’d like to ramp up our savings another 5% over the course of this year from 10% to 15%, but if I do that we would have around $3m by retirement which seems obscene and unnecessary to me (the annual interest would be 5x my current salary!). OTOH I feel like it would be better to over-contribute now in case we ever need to scale back later… ugh too many options. What do you do? Do you aim for a number? Just go for a certain percentage? We're definitely skimping on some things now in order to contribute what we do -- do I really need to scrounge up the extra to hit that 15% number or can we keep enjoying a few luxuries and hold steady at 10% for now?

[riverwed070707]

Guess its also noteworthy that we do contribute another 2% to a roth for DH meaning we're contributing 12% and my employer contributes 5% which I don't include in my future value calculations

[TBH]

I think 15% is a good goal, but with your DH unemployed maybe 12% is good enough for now? Has he been unemployed long term? How likely is he to start working again soon?

[riverwed070707]

I think 15% is a good goal, but with your DH unemployed maybe 12% is good enough for now? Has he been unemployed long term? How likely is he to start working again soon?

It has been a couple years. Started out as unplanned but during that time he realized he enjoys being home with our daughter and we could afford it so he now intentionally stays at home. She is in preschool now and will be again next year (which is just a few hours a day, 4 days a week). I would anticipate once she starts full school days in a couple years he will be interested in finding work again. For now, we're happy with how things are. I travel a lot for work and him being home gives us needed flexibility in our schedule, we paid off our debt and we're meeting all of our savings goals -- just want to make sure we're staying on track for the long term stuff.

[breathemusic]

I really don't think that $3M for 2 people is unreasonably high to retire on. Consider the fact that inflation means everything will cost that much more in the future. health costs will also increase as you get older. Also, what if you live to be like 95 or 100? Both of you? That's a long time to live off your retirement. Better to over-save and just be able to travel more when you're older than not save enough and have to get a job again when you're 80 because you outlived your retirement savings.

[TBH]

Okay, if it's a semi-long term period without working for him, I would try to get your contributions up to 15% if you can.

Good for you for having a stay at home parent and meeting your savings goals! It's not easy to do.

[disneysteve]

Do you have a dollar amount you’re targeting for your retirement savings?

Ideally I'd like $2.5 million though I don't realistically expect to get there.

[MonkeyMama]

Guess its also noteworthy that we do contribute another 2% to a roth for DH meaning we're contributing 12% and my employer contributes 5% which I don't include in my future value calculations

I wasn't quite wrapping my brain around your numbers until you mentioned the 5% from employer. (Wasn't sure how you would maybe double your retirement balance in 3 years...). Aha! This makes more since - so about 17% is being contributed to your retirement funds.

I have several thoughts:

1 - The general advice is to "not count matches towards total retirement contributions." Having had a generous employer match in the past we absolutely counted the match as our own contribution, because it would have been absurd not to. Otherwise we would have ended up bending over backwards to contribute a total 25% to retirement (the "15% rule" plus "10% match). I think it's fine to count the match as long as you don't rely on it. I'd be really pleased with your age/retirement balance and 17% contributions. Just don't put that 5% that otherwise would have gone to retirement to lifestyle inflation. Put it to savings, debt, preschool?, or wherever it is more useful in the *short term.* Immediately divert it to retirement if you ever lose the match. This is what I would do/have done.

2 - Since you have done so well on the young side you simply won't have to work so hard on retirement savings for the long haul. Having regularly contributed 12% to our own retirement (no gaps) since age 23, I find that to be more than ample for retirement savings. {It's not that I would never aim higher: 15%, 20%, 50%, but this is what we have with maxing out our retirement funds at current, and with my spouse out of work for the long-term, and I am fine with the long-term outlook at this rate. Mostly because saving early and often has put us on a really good track. If my spouse gets a job we may contribute 40% and speed up retirement by a decade or two}.

3 - I totally believe in "Make hay while the sun is shining" and "Hope for the best and prepare for the Worst" but...

4 - My family is filled with "living to very old age extreme over-savers." SO, I am trying to balance our genetic "high savings" tendencies with a more realistic and useful view of retirement. Which means not beating myself up for not saving 15% or 20% or more *every single year of my life.* We will do so in prosperous 2-income years, of course. But I think $3 million would be a ridiculous amount of over-saving for our own purposes.

5 - Sacrifices - what are you sacrificing? Is it superficial stuff that doesn't matter in the long run? Or are these sacrifices the kind you will come to resent? I would just think long and hard about that. If you don't know the answer to that question, give it some time. It will become more clear at some point. I feel like many of the "Sacrifices" we made in our 20s turned out to not mean much to us in our 30s. Like when we could finally afford a nicer car or a nicer vacation. By then it just didn't *mean* anything to us. Which is the benefit of staying the course. But you don't want to be so imbalanced that you have a mid-life crisis and blow a chunk of savings. I think it's just always an ongoing challenge to strike that balance. I do know way too many people who save save save and never enjoy life - it goes both ways. We just try our best to find that middle ground.

[disneysteve]

The general advice is to "not count matches towards total retirement contributions."

I just want to comment on this because the advice comes up all the time - I give it myself - but it rarely gets explained.

Here's my take on it. If you are saving 15% of your gross income for retirement and your employer is kicking in another 5%, that means you are living on 85% while a total of 20% is going to retirement. If, however, you are only saving 10% and counting a 5% match to be a total of 15% going to retirement, that means you are living on 90% of income. The result is that to maintain that lifestyle will take a larger nest egg while a smaller total percentage of income is being saved. That makes meeting your retirement goal considerably more difficult.

[LivingAlmostLarge]

I agree contributing early and regularly makes a huge difference. I wish we could have started earlier than we did but it is what it is. Our number? $4M at least I think that should be very comfortable. I think you are doing great. I think when one spouse isn't working anything they contribute is gravy.

[snafu]

Another point of view.. What things are you missing? What fun, entertainment or event would release your feeling of sacrifice? Perhaps a modest reduction in contribution would be sufficient. You can always bump up the contribution resulting from a raise for example. Do you have any contribution room for a ROTH? As I understand it, you can withdraw any part of your contribution without negative consequences, just not the profit.

When DH returns to the workforce, how will that change the paradigm?

[sherylgray]

Retirement Planning

It is very necessary to think about the insurance planning after retirement. After all, the hard earned money should not be wasted and it be invested in such a policy that give a better return. This facilitates to live life happily and free of financial worries.

[bUU]

With regard to company match, at the very least, it doesn't count until after it is vested.

[riverwed070707]

I wasn't quite wrapping my brain around your numbers until you mentioned the 5% from employer. (Wasn't sure how you would maybe double your retirement balance in 3 years...). Aha! This makes more since - so about 17% is being contributed to your retirement funds.

I have several thoughts:


2 - Since you have done so well on the young side you simply won't have to work so hard on retirement savings for the long haul. Having regularly contributed 12% to our own retirement (no gaps) since age 23, I find that to be more than ample for retirement savings. {It's not that I would never aim higher: 15%, 20%, 50%, but this is what we have with maxing out our retirement funds at current, and with my spouse out of work for the long-term, and I am fine with the long-term outlook at this rate. Mostly because saving early and often has put us on a really good track. If my spouse gets a job we may contribute 40% and speed up retirement by a decade or two}.

Guess I have a bit of a strange way of calculating it because I wouldnt account for the match in say a long-term retirement calc or when accounting for the percentage I contribute but in my head I know how much is put in the account monthly and what I'm averaging as a return so for a 3 year short term estimate, I do kind of assume the match will continue to be there during that time. You're right -- without that I would not double in 3 years.

Totally feel the same -- if we can plan for retirement in our late 50s/early 60s while being a 1 income household, DH going back to work would just be icing on the cake -- we would have some additional expenses for care for DD but it would be minimal once she's in school and we would save a large portion of his income and potentially retire sooner. I guess I try not to get too wrapped up in it because barring any illness or health issues, I don't really plan to stop working in retirement, I just want to have the financial flexibility to work the hours I want doing something I love.

Sacrifices are probably a bit superficial. The biggest one for me probably is travel -- I love to travel, and I get a generous PTO allotment at work but we only allow ourselves to take a vaca once every other year, and even then the budget has usually been $1000-1500 for the three of us for a week. I don't care that I drive an old car or thrift my clothes but sometimes it would be nice to be able to spontaniously go out to eat on a busy night and that sort of thing. DH and I also could use a date night every now and then, but with no family close by that doesn't happen but once every 5-6 months when we either go visit family or have them in town simply because the cost of a sitter + an evening out blows our whole months entertainment budget in a few hours. Don't get me wrong, we live comfortably and we like our arrangement and seeing the retirement dollars add up makes the "sacrifices" worthwhile IMO. We still get out as a family a lot. We have time for running, we have gym memberships and play team sports. We have the freedom to make trips to our hometown as needed for family gatherings and we don't live on a rice and beans grocery budget so we're not deprived.

I just want to comment on this because the advice comes up all the time - I give it myself - but it rarely gets explained.

Here's my take on it. If you are saving 15% of your gross income for retirement and your employer is kicking in another 5%, that means you are living on 85% while a total of 20% is going to retirement. If, however, you are only saving 10% and counting a 5% match to be a total of 15% going to retirement, that means you are living on 90% of income. The result is that to maintain that lifestyle will take a larger nest egg while a smaller total percentage of income is being saved. That makes meeting your retirement goal considerably more difficult.

This is a great point. I think the reason I'm a little comfortable with living on 90% despite the 85% recommendation is two fold. One, retirement isn't the only savings we have -- we actually save close to 15% in total and another 5% is currently being diverted from savings and going toward home renovations which could obviously stop if needed -- and secondly we aren't maximizing our earning power. If things got tight, DH could easily pick up PT or FT work and nearly double our current income. Maybe that isn't total reassurance that we're doing things right but it helps a bit -- its better than being strapped with 2 incomes and little opportunity to increase it.

Another point of view.. What things are you missing? What fun, entertainment or event would release your feeling of sacrifice? Perhaps a modest reduction in contribution would be sufficient. You can always bump up the contribution resulting from a raise for example. Do you have any contribution room for a ROTH? As I understand it, you can withdraw any part of your contribution without negative consequences, just not the profit.

When DH returns to the workforce, how will that change the paradigm?

I look at DH returning to the workforce a bit like I do a company retirement contribution lol. If it happens it will be icing on the cake and we can really ramp up savings while also accelerating mortgage payoff and thowing in some travel we otherwise wouldn't be able to afford. Basically it would be like a giant ongoing bonus. We're already in a home we love and have no intention of upgrading and we really don't have any things we need or would upgrade if/when that happens. Cross that bridge when we get there I guess.

With regard to company match, at the very least, it doesn't count until after it is vested.

Also a good point. I am fully vested though.

[MonkeyMama]

Sacrifices are probably a bit superficial. The biggest one for me probably is travel -- I love to travel, and I get a generous PTO allotment at work but we only allow ourselves to take a vaca once every other year, and even then the budget has usually been $1000-1500 for the three of us for a week. I don't care that I drive an old car or thrift my clothes but sometimes it would be nice to be able to spontaniously go out to eat on a busy night and that sort of thing. DH and I also could use a date night every now and then, but with no family close by that doesn't happen but once every 5-6 months when we either go visit family or have them in town simply because the cost of a sitter + an evening out blows our whole months entertainment budget in a few hours. Don't get me wrong, we live comfortably and we like our arrangement and seeing the retirement dollars add up makes the "sacrifices" worthwhile IMO. We still get out as a family a lot. We have time for running, we have gym memberships and play team sports. We have the freedom to make trips to our hometown as needed for family gatherings and we don't live on a rice and beans grocery budget so we're not deprived.

I think the date night thing could be important for any marriage. That said, this is a temporary expense. Now that our kids are a few years older we do more "lunch dates" more than anything, during the day (while they are at school). In a couple of more years we can go out at night without worrying about babysitters. So this is one of those type things I may consider temporarily taking advantage of match (but does not permanently increase your lifestyle or spending). Actually, I think the biggest thing we personally took advantage of was daycare when my kids were young. IT was kind of a "for our sanity/for their benefit" thing that meant far more to us than some general rule of thumb that we should be saving 15% of my income for retirement. That said, my spouse being home was the #1 luxury, so pretty much everything else had to give at that point in our lives. It was worthwhile because our #1 priority was being realized. With time and raises we have been able to add priorities #2 & #3, etc.

If travel is important to you, then you should probably give it more priority. But, it might have to take the backseat for the short run.

Good Luck!