Dave Ramsey question...retirement savings

[Ladyw/theTramp]

We will finally have a fully funded emergency fund by the end of March.. yay!.. so now we will move on to retirement savings. I've heard Dave say that you should save at least 15% of your gross income and not to count contributions to Social Security, because it's so unstable.

My question is... do contributions to a public employees pension fund (like OPERS) count? I already contribute 10% to my pension, (my company contributes 15% in addition)... so do I just need to save another 5% or save a whole 15% above the pension fund?
HOw do other Dave Ramsey fans interpret it?

Thanks !

 

[ilovemk76]

We will finally have a fully funded emergency fund by the end of March.. yay!.. so now we will move on to retirement savings. I've heard Dave say that you should save at least 15% of your gross income and not to count contributions to Social Security, because it's so unstable.

My question is... do contributions to a public employees pension fund (like OPERS) count? I already contribute 10% to my pension, (my company contributes 15% in addition)... so do I just need to save another 5% or save a whole 15% above the pension fund?
HOw do other Dave Ramsey fans interpret it?

Thanks !

How long does it take you to be vested in that company match? I would not count that money until it was actually mine. Since you already contribute 10%, I would raise it to 15%. Do in increments. When you get a raise, add that to the retirement. You do not need to put that 5% into the pension fund. Check to see how good the funds are and how diversified they are. If you are not happy with the funds, then put that extra money into a Vanguard, or the like, fund.

 

[Lisa71]

Great question!! I have a pension I am required to put 8 percent and employer does the same. Currently I also put 3 percent in an additional fund.

 

[Happyjen27]

At a minimum, I would put in what would add up to 15%. In your example that would be 5% into a Roth IRA or different vehicle.

That is if you trust that your municipality will actually come through with at least your contribution to your pension should they file for bankruptcy or otherwise try to avoid pension payments due to lack of public funds.

To be more aggressive, since you're already doing 10%, and you've met some other financial goals without that 10%, I would go for more than 5% in the Roth, since some of the money you were putting in to build the emergency savings has just freed up. I can't imagine many retirees wishing they saved less for retirement, you know?

 

[Redarrow5150]

I'm in the financial industry and YES without a doubt contributions toward a pension count. By the way don't bust a nut about 15% and perhaps gradually get there. It's like dieting...don't try to lose 15 lbs the first week but make it a realistic goal.

We will finally have a fully funded emergency fund by the end of March.. yay!.. so now we will move on to retirement savings. I've heard Dave say that you should save at least 15% of your gross income and not to count contributions to Social Security, because it's so unstable.

My question is... do contributions to a public employees pension fund (like OPERS) count? I already contribute 10% to my pension, (my company contributes 15% in addition)... so do I just need to save another 5% or save a whole 15% above the pension fund?
HOw do other Dave Ramsey fans interpret it?

Thanks !

 

[Jeff_G]

The other things I would keep track of is the funding level of the pension. The industry considers an 80% funding level (meaning we have enough money to pay 80% of the pensions today) to be a safe point.

I believe Ohio is at 80% right now however you are going to have to watch this over time. I also do not know if state run pensions are a part of the PBCG ( Pension Benefit Guaranty Corporation), however last reports are that the PBGC is not in good health either.

I could my pension as gravy on top of my own retirement savings and I do not believe Social Security will exists when I retire (30 years from now).

If you are getting a match I would contribute upto that match, then max out a Roth IRA.

 

[lvillotta1]

Only fund up to 10% of your income. At retirement all the funds will be taxed from your place of employment. You need to start a Roth IRA and max it out every year as there are no tax penalities. I have decided I will do 10% and I am just starting to fund my Roth fully every year at the age of 42.

 

[rigs32]

A Roth may or not be better - depends on your tax bracket now vs at retirement

 

[vacationer1954]

We will finally have a fully funded emergency fund by the end of March.. yay!.. so now we will move on to retirement savings. I've heard Dave say that you should save at least 15% of your gross income and not to count contributions to Social Security, because it's so unstable.

Advisers like Dave Ramsey, Suze Orman and Clark Howard are really good for motivating folks to get rid of debt and build up basic savings into an emergency fund. Once that's accomplished I've found their advice pretty useless. Once you have an emergency fund, I would consider switching to resources such as William Bernstein, Burton Malkiel, and the Bogleheads.

I think assuming Social Security won't be there at all is an extreme and excessively pessimistic assumption that might result in decisions that will have an unnecessarily large negative impact on lifestyle. I believe in moderation. For those over 50, assuming that Social Security will provide about 1/3 less than what it is providing now is sufficiently prudent. For folks over 30, perhaps devaluing Social Security by half is good.

I also think it is important to always look at the question of retirement savings from both sides: How much you save as well as how much you spend. There are some excellent retirement income planners available. You enter your expected income, your assets and planned contributions, and your expenses and expected changes to expenses as you age, and they provide a really good view of the future. I recommend Fidelity Retirement Income Planner (RIP) the most, if you're a Fidelity customer. Otherwise, the best I found was Quicken Lifetime Planner which can be found in the better editions of Quicken.

 

[ilovemk76]

We are over 50 and we do not include our SS in our retirement savings. They could do means testing or raise the age/reduce the benefit at anytime. Plus, the cost of medical case could be way more than anybody expects.

We expect to get some of our SS but we are going to treat it as a windfall. It would fund trips, cars, house repairs/upgrades or the like.

Our CFP, runs a very extensive program that varies many factors and the. Checks what percent I the time we meet or exceed our goals. We are on tract to retire in a few more years. Our plan lets us decide when to start SS (62 or wait until 70).

Advisers like Dave Ramsey, Suze Orman and Clark Howard are really good for motivating folks to get rid of debt and build up basic savings into an emergency fund. Once that's accomplished I've found their advice pretty useless. Once you have an emergency fund, I would consider switching to resources such as William Bernstein, Burton Malkiel, and the Bogleheads.

I think assuming Social Security won't be there at all is an extreme and excessively pessimistic assumption that might result in decisions that will have an unnecessarily large negative impact on lifestyle. I believe in moderation. For those over 50, assuming that Social Security will provide about 1/3 less than what it is providing now is sufficiently prudent. For folks over 30, perhaps devaluing Social Security by half is good.

I also think it is important to always look at the question of retirement savings from both sides: How much you save as well as how much you spend. There are some excellent retirement income planners available. You enter your expected income, your assets and planned contributions, and your expenses and expected changes to expenses as you age, and they provide a really good view of the future. I recommend Fidelity Retirement Income Planner (RIP) the most, if you're a Fidelity customer. Otherwise, the best I found was Quicken Lifetime Planner which can be found in the better editions of Quicken.

 

[vacationer1954]

Our CFP, runs a very extensive program that varies many factors and the. Checks what percent I the time we meet or exceed our goals.

That puts you in a better position than most of the rest of us. If we were that well-off then we would probably be more conservative in our assumptions as well. I guess that that is one of the things you can afford better when you have more income and assets.

 

[amcnj]

Instead of focusing on a percentage of income, you could also try and determine what your current sources of income (pension, social security, etc) will provide for you in retirement, and then compare this to a guesstimate of the income you will need in retirement and try to fund any difference with savings. This gets easier, or more precise the closer you get to retirement, but still can be a useful tool.

 

[ilovemk76]

That puts you in a better position than most of the rest of us. If we were that well-off then we would probably be more conservative in our assumptions as well. I guess that that is one of the things you can afford better when you have more income and assets.

You are making a lot of assumptions!!!!

 

[writermommy6]

We don't include SS as part of our retirement. Hubby has a 401k that he has aggressively invested in. The goal is close to a million as possible before retirement so we can live off interest. He can take early retirement in six years. We live frugally and his company matches like 3% of whatever he puts in.

I would consider what amount you need to live off of and don't forget to factor in inflation. There should be free retirement calculators easily found through Google.

 

[Belle599]

To the OP, why not take the time to do a proper calculation (including sensitivity analysis) to determine what $-value you need to contribute to reach the retirement you want, based on the lifestyle you want to live.

Everyone has their own lifestyle preferences and different comfort levels with respect to assumptions so what works for one person can be insufficient or unrealistic for another person.

For example, for myself it turns out I need contributions of 25% of my gross income to meet my target, as I am only comfortable with very conservative assumptions.

There are many good resources on the internet which can explain the terminology and help you with your calculations. Best of luck!

 

[vacationer1954]

You are making a lot of assumptions!!!!

Not really, no.

http://www.csmonitor.com/Business/2013/0319/Most-Americans-retirement-savings-under-25-000

 

[ilovemk76]

That puts you in a better position than most of the rest of us. If we were that well-off then we would probably be more conservative in our assumptions as well. I guess that that is one of the things you can afford better when you have more income and assets.

Not really, no.

http://www.csmonitor.com/Business/2013/0319/Most-Americans-retirement-savings-under-25-000

Yes you are! Reread your post. None of the three line are generalizations. Two say you and the third implies you.

 

[manning]

Only fund up to 10% of your income. At retirement all the funds will be taxed from your place of employment. You need to start a Roth IRA and max it out every year as there are no tax penalities. I have decided I will do 10% and I am just starting to fund my Roth fully every year at the age of 42.

Also, if your company has a 401-k plan and they match be sure you contribute what they match. As an example my company matched the 1st 6 percent. I always made sure I put that in that 6%.

 

[vacationer1954]

Yes you are! Reread your post. None of the three line are generalizations. Two say you and the third implies you.

Why are you working so hard to misunderstand what I wrote?