Investments/Retirement-how much should we have?

[MAJPLO]

I know every situation is different, but typically, how much should one have in retirement and how much in something like a 401K (403b, 457)? One year's salary (401K)? Enough to cover the price of the home? How about life insurance?

Just wondering what the general advice is. We put into these things but I'm really not sure if we are on target for a comfortable retirement or not. We have talked to financial planners in the past but it is a little too intangible for me to keep track of where we want to be and where we are now and if we are on track for the future.

 

[Marionnette]

I know every situation is different, but typically, how much should one have in retirement and how much in something like a 401K (403b, 457)? One year's salary (401K)? Enough to cover the price of the home? How about life insurance?

Just wondering what the general advice is. We put into these things but I'm really not sure if we are on target for a comfortable retirement or not. We have talked to financial planners in the past but it is a little too intangible for me to keep track of where we want to be and where we are now and if we are on track for the future.

There are no concrete numbers. So much will depend on where you intend to live when you retire, whether you enter retirement with your house paid off, whether you are married or single, whether you have a pension, how you want to live life in retirement and at what age you intend to retire. Those are just a few of the factors that will influence how much you will need.

 

[TwoMisfits]

We can help you out more with more info...at a min, we'd need to know how old you are now and how old you want to be when you retire, then we can at least talk generalities (but the more details you give, like current salary, current annual savings rate, current amount of retirement assets, current amount of debts, etc the more we can comment on where you are at)...

 

[mjkacmom]

A million? That's my very basic answer. DH is a CFP, so he's in charge of that for us (with me joking - sort of - that he can never retire). Once the kids are out of the house, you will need much less life insurance, though. We have a million on DH, half of that on me, to make up for years of lost income and child care expenses.

 

[bearzabout]

I think the most important thing to consider before retirement is to make sure you have no debt - not even a mortgage. Live below your means years before retirement and pay off everything.

With no debt, it is easier to calculate how much the rest of your expenses are- the carrying cost of your home, car, insurances, food, discretionary expenses, etc. Multiply that times the average age you expect to live based on genes and this would be a start.

 

[tvguy]

I think the most important thing to consider before retirement is to make sure you have no debt - not even a mortgage. Live below your means years before retirement and pay off everything.

With no debt, it is easier to calculate how much the rest of your expenses are- the carrying cost of your home, car, insurances, food, discretionary expenses, etc. Multiply that times the average age you expect to live based on genes and this would be a start.

Exactly. And with homeownership, it means avoiding the temptation of pulling equity out of your house. I feel sorry for a guy down the street, he's 78 years old, been in his house for 35 years, and still owes more on it than he paid for it.

To the OP's question,in a perfect world, the investments your IRA/401k etc. will earn as much per year when you retire as you earned working, less social security so you have no drop off in income. Generally speaking, folks need less money in retirement than when working, but not always.

 

[ICF]

As much as possible.....this is a question that really needs to be asked of a financial planner....not a Disney message board.

There are so many variables....

When do you want to retire....where do you live...are you going to travel or sit at home and watch tv....what your life expectancy?

I'd say you would need WELL more than one years salary.

 

[scard192]

we were having a conversation about this a few months ago at work and someone said Susie Orman had a formula that was 4 or 5 times your current salary but I can't remember the details.

 

[ajsmama]

One years salary seems a little light. I put 20% in retirement (401k and Roth IRA) and also have investment accounts..I still don't feel like it's enough and feel so behind. Retirement planning is stressful!

 

[ilovemk76]

As others have said, too many variables. We have our set to a $ in current dollars. The formula takes into account taxes (obviously this is today's taxes). The $ amount is what we spend now minus work expenses and plus new expenses. We do this calculation without SS and then treat SS as our back up plan.

We have a number and age in mind (based on the above calculation), only time will tell if it all plays out.

 

[tvguy]

Where you live, how you live and how you have lived your life can be huge factors.
My mom had no problems in 28 years of retirement of paying all her expenses with money left over from her $1,200 social security check. But her house had been paid off for 25 years when she retired. Her car paid off 9 years earlier.....and lasted another 18 years before needing to be replaced.

Her $400 a month pension and $400 a month IRA money was her mad money for trips and home repairs, but mostly it just went into the bank. I took over her finances for the last year of her life and I was amazed at how little money she needed to live.

 

[arthur06]

As others have said, there are far to many variables in your original question to make an accurate observation.

I am reading "The Millionaire Next Door" by Thomas Stanley. He talks about equations that you can input to see if you are on track.

One that he uses is:
expected net worth = 1/10 age x income

Thus, if you are 50 years old and make $50,000 a year it would be:
$250,000 (expected net worth) = 5 (1/10 age) x $50,000 (income)
if you are greater then that you are doing well, if you are lower then that you need to increase your savings.

Also, if you are a two income home do the same formula twice and combine.

Everyone will have a different idea, but this could be a guideline.

 

[lost*in*cyberspace]

I absolutely agree that you would be wise to consult a financial planner, not the DIS boards. We have one, and she has been extremely helpful. It doesn't cost that much money.

 

[DVCcurious]

1. Figure out your expenses in retirement.

2. Figure out how much you'll get from Social Security.

Subtract 2 from 1 and you'll get how much you need as income from investments. Multiply that number by 30. That's how much you need in retirement.

Let's use an example.

You need 80,000 per year income in retirement.

You and your spouse will each get 15000 per year in retirement (30,000 total)

You will have a shortfall of 80,000 - 30,000 = 50,000.

Multiply 50,000 by 30. You will need 1.5 million to fund your lifestyle.

Now, if you're going to fall short of whatever number you come up with using these calculations don't despair. You can always work longer and get a larger SS check. Every year you delay taking social security you get a larger check. Instead of retiring at 65 imagine if you work until you're 70. You can save more (because you're working and saving longer), you'll increase your social security check (if you delay SS you get a larger check) and you won't take as much money out of your retirement accounts (because you have 5 years where you're getting income from working instead of taking money out of your accounts).

For most people if they work until 70 they should be totally fine almost regardless of how much income you had during your life or how much you saved. The high SS payment at 70 really helps cover for a lot of investing mistakes you may have made (like not saving enough or early enough).

 

[aprilgail2]

I know every situation is different, but typically, how much should one have in retirement and how much in something like a 401K (403b, 457)? One year's salary (401K)? Enough to cover the price of the home? How about life insurance?

Just wondering what the general advice is. We put into these things but I'm really not sure if we are on target for a comfortable retirement or not. We have talked to financial planners in the past but it is a little too intangible for me to keep track of where we want to be and where we are now and if we are on track for the future.

It depends, are you getting a pension? I am retiring in 74 days (but who's counting LOL) I will be 51 but I have a good pension that I will collect right away and at 60 I collect railroad retirement (we don't pay into social security so we don't collect it)- between the 2 things I will actually be making 20,000 a year more than I am making now working- I do have a 457 plan too but it was just meant to carry me from 51 till 60- which it will more than do, the rest I will just leave alone.

 

[GAN]

As others have said, there are far to many variables in your original question to make an accurate observation.

I am reading "The Millionaire Next Door" by Thomas Stanley. He talks about equations that you can input to see if you are on track.

One that he uses is:
expected net worth = 1/10 age x income

Thus, if you are 50 years old and make $50,000 a year it would be:
$250,000 (expected net worth) = 5 (1/10 age) x $50,000 (income)
if you are greater then that you are doing well, if you are lower then that you need to increase your savings.

Also, if you are a two income home do the same formula twice and combine.

Everyone will have a different idea, but this could be a guideline.

I'd have to agree that this is a pretty good rule of thumb.

 

[eliza61]

LOL, how much are you going to spend??

for some folks 1500.00 a month with no mortgage, they would be comfortable. I know other who's retirement goals are more in line with 7000 bucks a month and that's what they are saving for.

for example, many people go on and on about not having a mortgage. now for me that's not some thing I worry about. when I retire I want to be a snowbird, I love my house in Philly but the winters stink so I'm going to fly south or to Europe for the winter and I'm certainly not going to pull my money out to be mortgage free and own two houses.

So my retirement budget will be calculated on having some type of housing cost.

So my dh and I never made being mortgage free our goal. Our goal was always to increase our net worth. that worked much better for us.

So we calculated more like dvccurious. we estimated our monthly expenses for the type of life we wanted, then we calculated how much we would each receive from our pensions and social security, we subtracted then the difference is what we would have to make up through savings.


A fun tool is firecalc.com. you put in what You've saved so far and it will project the probability of you making
Your goal. What's cool about it is it shows what will happen in good conditions as well as bad
Also age is going to be a factor. how long do you want to work. 58 is my end. period. so I needed to make adjustments for that.

 

[nunzia]

1. Figure out your expenses in retirement.

2. Figure out how much you'll get from Social Security.

Subtract 2 from 1 and you'll get how much you need as income from investments. Multiply that number by 30. That's how much you need in retirement.

Let's use an example.

You need 80,000 per year income in retirement.

You and your spouse will each get 15000 per year in retirement (30,000 total)

You will have a shortfall of 80,000 - 30,000 = 50,000.

Multiply 50,000 by 30. You will need 1.5 million to fund your lifestyle.

Now, if you're going to fall short of whatever number you come up with using these calculations don't despair. You can always work longer and get a larger SS check. Every year you delay taking social security you get a larger check. Instead of retiring at 65 imagine if you work until you're 70. You can save more (because you're working and saving longer), you'll increase your social security check (if you delay SS you get a larger check) and you won't take as much money out of your retirement accounts (because you have 5 years where you're getting income from working instead of taking money out of your accounts).

For most people if they work until 70 they should be totally fine almost regardless of how much income you had during your life or how much you saved. The high SS payment at 70 really helps cover for a lot of investing mistakes you may have made (like not saving enough or early enough).

To me, the above is the better way to figure it than most. Of course, healthcare is the wild card, but basically, figure out retirement income (SS/pension) then figure out what you need per month to live, plus extras..trips, repairs, annual expenses, etc. etc. figure out how much of a gap there is, then figure taking 4% of your retirement savings out per year to make up the diffference and there you will have what you need saved. So if your yearly difference between income and what's needed is $20,000 you need $500,000 in savings/retirement funds.

 

[morgan98]

I too think that one needs to look at the income they will need to support their lifestyle in retirement. My husband and I are fortunate in that we make a very good living (dual income profesional salaries) but only live on a relatively small percentage of what we make. There is no need for us to make anywhere near our current income in retirement. We also have no dependents and pay a very large portion of our income to taxes.

Therefore, we are following the income needed less social security (we are only counting on 50% of our expected benefits) to calculate what we need to live off of.

The other thing I find somewhat annoying in all these calculation is they basically want you to save enough to only live off earnings and not touch the principle of your investments at all.

To us, this is crazy. As I said, we are childless. We have nieces and nephews, etc. but I do not need to leave them $1.5 to $2.0 million dollars. I completely understand not wanting to run out of money in retirement, but there seems to be a lot of space between spending no principle and going broke.

 

[3PrincessesAndaFrog]

A lot of great suggestions.

Everyone's needs are different. There are a ton of retirement calculators out there. Try a few different ones and average them to get a good idea. Make sure the calculators look at life span some of the older formulas only considered a life expectancy of 80 years. My husband's family has several in the 100 age group. So we have to consider long life expectancy in our calculations.

You need to know what your needs are going to be also.

House paid off, cars, insurance, medical, property taxes? I would think about what your budget will look like in future. Do you plan on traveling? Do your kids live near by? Will you have to hire out jobs for house repair when you get older?