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Average Retirement Savings by Age
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I don’t put much stock in most “averages,” whether they’re rules of thumb or average net worth, but every once and a while it’s good to know where you stand.
So where do we find the average retirement savings by age? We are forced to rely on the internet. Unfortunately, with the recent stock market crash, writing about nest eggs and average retirement savings hasn’t been very popular. To get data, we turn to the Employee Benefit Research Institute’s latest report on Individual Account Retirement Plans (August 2009).
The EBRI’s report has a ton of detailed information on almost everything you might want to know about retirement savings and participation, from defined contribution plans to IRAs. For the purposes of our comparisons, I’ll just look at the age breakdown (2007 figures adjusted to 2009):
- < 35: $6,306
- 35 – 44: $22,460
- 45 – 54: $43,797
- 55 – 64: $69,127
- 65 – 75: $56,212
- 75+: (sample size insufficient)
Some words of warning after you read this:
- Remember that this data is just data, you can’t draw any conclusions of what’s right or wrong from the statistics alone.
- If you’re “below average,” you shouldn’t feel bad about it. Age is not a good indicator of where you are in your life. Some people get a later start and others have a more inflated lifestyle, how much you’ve saved by when should only give you a bar to reach.
- If you’re “above average,” you shouldn’t rest on your laurels and think you’re doing great. Much like the words I wrote for those who are below, being above doesn’t mean you’ll have enough for retirement. You have a few years until retirement, a lot can happen then, so keep at it.
- Average doesn’t mean someone in their 20s that has more than $6,306 is set in retirement (or that someone with less is screwed). It’s estimated that you should spend about 4% of your nest egg each year. At 4%, your nest egg should last long enough. How does that 4% figure translate to your estimated yearly expenses? Divide how much you think you’ll spend by 0.04 and you have your target (based on that rule of thumb) – $50,000 a year requires a nest egg of $1.25M.
Much like average net worth, it’s useful to know where you stand but don’t put too much stock in it.
How do you stack up? 
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It just doesn’t seem like enough.. People need to wake up and aim much higher..
Start young. Force yourself to save some even if just a little and be disciplined about not touching it. Tell yourself its like you don’t even have it. It will be sooo much easier. My business is slow right now and I am telling myself I do have my retirement savings but I really do not want to touch it! I got a $155.00 check back from my mortage escrow account this week due to property taxes being less. It is tempting to spend it but will go to savings as unexpected money so plan to not spend that.
I am 50 with $388,000 in my 401K, cabin paid off ($200K). $100K left on my house mortgage (house worth $225K). Also have pension and SS benifits. However, when I put all the data into the Fidelity.com retirement planner, it says I am falling short. The Fidelity planner also assumes an 85% of current income is required (although I am happy with a walk in the woods, reading a good book, listeninng to music, cooking, etc. which doesn’t require big $$$). Personally, I feel I’m saving enough but the simulators say otherwise. Anyone else had experience with the forecasting tools? Pro’s or cons?
Well I too used the Fidelity planner (my 401k provider) 4 times.
I have 300K in 401, two rental homes both paid off generating $1,500 and $950 monthly profit.
SS says in about 6 years I’ll be able to draw $2,600 monthly. Wife has Pera school retirement around $3,500 monthly.
2 rentals and my residence = $600,000 equidity.
+ my tree farm assists=$100,00.
Yet the Fedility calc also says I’m net saving enough? I’m thinking I’m entering the numbers incorrectly or they (Fedility) simply work off of a percentage.
Elbert, I wouldn’t worry too much about what any financial calculator ends up showing for you. From what you describe, you’re doing better than most on this planet. We’re not as well off as you, but we live a very comfortable lifestyle in retirement, because during my working years, we bought income property and invested in our retirement plan.
The way I view wealth are a) how happy are you, b) how healthy are you, and c) there’s no worry about shelter and food for your foreseeable future.
If you meet this criteria, you’re better off than 95% of the people living today. That’s saying something – in my book.
Those calculators seem to want us to save every penny. Beware of calculators from investment banks, they make money off our savings.
My husband and I, both 57, were pretty petrified so we went to a well-respected fee only financial planner. It turned out that we were fine. It was worth the money for the reassurance.
Jim, Your numbers doesn’t make much sense; If you still have a mortgage but will not have one when you’re retired, I’m not sure how you can come up with 85% required of pre-retirement income to survive in the manner in which you have become accustomed.
During my working years, the estimates given for the same level of standard of living was 75%.
I know they are only rough guesstimates, but my wife and I managed to save 10 to 15% of our income towards our retirement savings during most of our married life, and it’s been adequate to keep up our standard of living quite well.
When my income level was more than sufficient to live comfortably, I bought income property and a shared condo at Incline Village, and sold it when I retired.
I believe your savings level and cabin ownership has you pretty much on target to meet your retirement goals.
We don’t have a mortgage, car payment, or credit card loans. We pay off our credit card in full every month whether the balance is under $1,000 or over $5,000 (I take regular vacations). Many people’s monthly mortgage runs about $2,500/month. Here in Silicon Valley, it’s much higher by multiples. I’m not sure how the younger generation survives in this valley.
I avoid those calculators as I know it would just depress the hell out of me. However, with what you describe Jim it reinforces my belief they are trying to scare you to get you to invest more especially if it was a cslculator from an investment firm like Fidelity. It looks to me like your well set! You could always sell one of your homes if needed. L just have to focus on doing the best I can to save as much as I can and not stress about it. I hope to have 19 more years to do this.
the most important thing to remember is this:
It’ not how much money you manage to make, it’s how you manage the money you make!
House worth 282599 per refinancing appraisal owe 324500 after refinancing. Income is 4700 every two weeks with 2200 (monthly) to repayment of credit cards (37K) and loans from 401 (k)(24K). Mortgage payment will be 2334 monthly(25Yr) after refinancing. I am 56 and W is 49…240000 in TSP and 32K in IRA. Two Kids starting college next year. Proposal is community college the we borrow from 401 K for last two years. Social Security, Medicare and Govt pension critical to survival IMO. Any comments.
I have been looking at a lot of retirement planning and I am just a middle class worker both my wife and I make about $100k total per year. We are in our late 50′s and plan on retiring in about 4 years. We have both accumulated 401/403 combined retirement savings and Regular Savings Total $900,000 today. Expect about $1,000,000 at retirement. Based on both collecting Soical Security at about $1600 each per month = 38,000 yr + wife’s pension = to about $27,000 yr. Total income without tapping into 401 = $65,000 yr. We have no debt other than car lease payments. We can live our existing life style that is more than above average tapping only 2% per year of our retirement savings. Giving us more than we really need to live in retirement years. With a slight increase each year our 401/403′s will last us 30 years + with a conservative 3% yearly return on the 401. So I think I am the right track. House Paid for worth about $200K Any other ideas would be appreciated.
Mike,
You nailed it. Congrats!
One main point on how my wife accumulated so much in our 401′s. We lived a good life but lived below our income level. We managed our life style as though we were on one income not two. We both made good money and our goal was always to max out or come close to the max of our contributions to tax deferred 401′s. We managed our life with never having debt outside a mortgage or car payment. Never carried a credit card debt as we pay our credit cards off as soon as we get the bill. Never have we paid interest to a credit card company. We lived within our means by doing this. If we could not pay for something within the 30 days of our payment for credit, we saved until we could pay for it. So those in their 40′s can accumulate a good chunk if they concentrate on maxing out the limit of 401′s or IRA’s but live below the level of income they are making. We were not high income earners. We just managed our finances.
Mike,Is absolutely right. It’s not about what you make, it’s about what you save, and how well you can defer income.
Always pay yourself first. Take 10-15% of your pay and have it invested directly out of your pay check. START as early as possible. Compounding interest is a beautiful thing.
Pay off all credit card debt. It will kill you. Buy a good reliable car and drive it’s wheels off. TAKE care of your health, don’t smoke and drink reasonably, if you do this you will retire wealthy. Trust me. It works.
I saved money by over-paying my taxes through withholding and then banking the refund every year. It’s not what financial advisors suggest, but it worked for me. It forced me to live on less while saving. I did it faithfully every year and never spent a dime of the refunds, which were sizeable. The savings are now earning a good amount in compounded interest each month. I pay attention to interest trends — I lock in at highest rates for longer terms as I see interest lowering and for shorter terms when predictions are for higher rates in the future.(Right now, I’m doing shorter term when renewing because of inflation fears which will mean higher interest rates ) Also, I paid 4 extra payments on my mortgage each year (divided over twelve months, increasing the monthly payment made to principal). The mortgage was paid off in full years early, saving me tens of thousands in interest. I have avoided investments which I don’t understand and can’t manage intelligently. Also, I always pay off all credit card balances each month, never paying a dime in interest or late fees. I use one no-fee credit card for almost all my expenses, including groceries and insurances, that pays a cash bonus each month. I’ve received over $2000 cash back since using it. Hope these tips can help those who have trouble saving or have trouble with planning.
Mike you should be giving advice versus needing it. Looks like you did all the right things. Though I am curious as to why you lease cars versus owning them. Alot of financial advisors advise against this. Tom I would say pay off your credit card debt and then stay out of it! Thats my plan. Your kids could live at home, work part-time, buy used books, perhaps get a small loan, while you also help some with tuition. Borrowing against retirement is probably not advised unless an emergency. It doesn’t look to me life you are doing too bad. If you plan to stay in your home for along time maybe you get back the equity. I just listen to advisors. Obivously I am not in good shape and hope to be able to at least be above a poverty level. Maybe staying married is good as two Social/serurity checks for one household will be easier than for a single person. I am hoping to have $30,00 saved by the end of the year and with interest over 19 years will be $35,000.00. Thats to supplement an estimated $1,400 to $1,500. SSI check.
I’ll have to think about that cash back bonus thats a good idea. I fear though about my ability to pay off every month. Hopefully credit cards kepp doing that with the new laws.
Cherion,
Credit cards are very good IF one can manage them. Chase Bank offers a very good no fee cash back card. It use to be a better deal, but the banks are hurting, but it is still one of the best cards out there.
Cherion, the reason we lease cars is goes against the grain of advisers but the reason we do this is because ever since my wife an been married (39) years. We never liked car problems or repairs. So every 3 years we bought a new car and had a car payment all of our lives. We made the decision to lease aboout 12 years ago for a simple reason. We built the payments into our budgets already so by leasing we got more of a car for the same price we had in the budget. Is was not for any other reason than it fit our mind set of having a good vehicle every 3 years.
In retirement we are not sure how we will handle leasing vs buying. We still have the payment in our retirement budget but will cross that bridge at that time.
Thanks for your feedback.
Mike, I know you don’t know me, but please consider a good used car checked out by a reputable mechanic, or buy a hundai with their 100,000 mile warranty or another manufacturer with a comprable deal. You will be money ahead in the long run
Mike, I subscribe to your way of thinking too. A car was never viewed as an asset but more of a commodity in our household. We have always budgeted for a leased car payment but we also have a side business that we write off the payments against. Since you’re nearing retirement it might be nice to free up the extra cash and get a reliable car that will last the next 15 years such as an Acura TL or RL. I do not recommend any other car not even Toyota. Acura cars are reliable just like Honda and every dealer I’ve worked with across the nation has provided excellent customer service.
Lori, over all the years my wife and I have overpaid our taxes for the same reason. However, before we did that we used made sure we could MAX OUT OUR 401′S or come close to it each year. All of our refunds would go directly to our savings accounts.
Lori and I were on the same page as far as mortgage went. We doubled our monthly payments for a number of years to reduce the principal. When I had $50,000 left on my mortgage I was in jeopardy of getting laid off. So my mortgage payment was about $500 mo. I had a home equity loan for that amount available on my mortgage and got that at a 1% over prime back in 91 or 92. So I then paid off my mortgage with my equity loan which was based on a 20 yr payback rate and reduced my monthly commitment to about $180/mo from my $500/mo. If I got laid off I would be able to afford the $180/mo. But that didn’t happen, so I still paid off at $1000/mo and paid it off in a just over a 4 yr period. Strange as it sounds it worked out and we had no house payments since 95. Lori and I are on the same page with credit cards. Since we never pay interest on credit. We got about 4 credit cards that give out the 25,000 sky miles for each card. We traveled for free on two trips just using the cards for all our spending wherever possible. Then closed out the cards. No fees.
Obama will take care of us, don’t worry!
Any truth to the stories I have been reading that the Obama folks are working on legislation to force us to invest our IRAs, TSAs, 401K’s, and 403Bs in US Treasuries?
The 4% rule is silly. The notion of someone needing to save $1 million to have a decent retirement is even sillier.
Here’s the real deal:
(1) If you and your spouse retire at 65, there’s a pretty good chance one of you will die by 75. Without resort to actuarial tables, its around 50%. When your spouse dies (or you die), presumably you are going to inherit much of their wealth (or vice versa), or, if you consider it shared wealth, then your living expenses are going to decline about 30+% being only one of you.
(2) If you are both 50 and planning to retire at 65, there’s a pretty good chance one or both of you isn’t even going to make it to 65. See above.
(3) You can live anywhere you want when you retire, so it is a simple matter to move somewhere with a lower cost of living and reduce your expenses dramatically. When you don’t have to live close to work, a lot of options open up.
(4) Contrary to all the nonsense from the investment industry, the vast majority of people’s cost of living and lifestyle costs decline dramatically once they are retired. There’s a good chance your house will be paid off by then (70+% looking at current statistics). Your kids presumably will be off your teat by then. The costs of working are dramatic when you really add them up (commuting, wardrobe, unreimbursed business expenses, eating out more often due to lack of time to cook, etc.) You can go on vacation whenever instead of on weekends or holidays when airfares are higher. Etc. etc. etc.
(5) Worst case you can do a reverse mortgage at some point and buy another 5 years.
(6) Worst, worst, case, you can use your lifetime of good credit to rack up around 100K in credit card debt and discharge it in BK before you kick the bucket–you don’t need good credit at that age anyway.
(7) In the very unlikely event that you outlive your life expectancy and “run out of money”, you will still have social security, whatever company pension you had already, etc., and you will be so old and decrepit by then that your cost of living will have fallen dramatically. (Really think about the truly elderly people you know…).
(8) If it really came down to it you could probably turn to other forms of welfare, food banks, or your kids. Not a top choice, but just a final-final-final safety net in the extraordinarily unlikely event that things go south for you.
In light of the above, if you currently make 50,000 a year and are planning to retire at 65, you are going to need around 300,000 in savings to have a comparable standard of living to pre-retirement. You can probably get away with less if you expect your mortgage to be paid off by then.
uh..You’re suppose to be sober when you post.
Thank goodness my 90 year old grandma didn’t think like this – she would be living in a box!
Well said. You are absolutely correct. You have really thought this one out.
I would have to disagree. This advice is a bit irresponsible, did you work for Goldman Sachs? Sure just pass the problem on to the rest of America.
Check your statistics, people are living longer. 85 is the current target mortality rate. We’re up the creek because all of our grandparents and parents lived past 96 years of age. Good genes and healthy diets have a downside when it comes to funding retirement.
What you fail to address is the retiree who had a $170,000 income pre-retirement and is used to that kind of lifestyle. Not many will go from that lifestyle straight into frugality once they retire. In addition people may still have mortgages to pay, not to mention dreaded property tax in my state is up to $10,000 a year for our property.
$300,000 isn’t enough to last us another 30 years.
Let’s be a little caustic and cynical:
1)Sometime after I was born, I decided what to do with any money I was given. It was all choices.
2)Choices about money are made everyday, accumulating rewards or consequences.
3)Misfortune can strike even the most gifted.
4)If you try really hard in America, at least so far, you can really get ahead i.e.(Study, good job, career, savings)+ a little luck.
5)You can marry money(OK cynical but I’ve seen the broke do it)
6)Divorce costs alot-you end up with less than 1/2, then go down from there.
7)Married people, intact families do better.
cdk not sure if your post makes me feel hopeful or depressed!
Rusty G. Please do not believe everythnig you hear especially about Obama. There are so many ridiculous and incredible lies from those who want to compeletly undermine his presidency. Its scary because people are beliving them and responding in violence. I have not heard any such thing as you mention. Go to Factcheck.org with any rumors.
cdk, Esq. — You have really put some practical thinking forward. Clear and to the point, it cuts through a lot of fear about how much is enough. Obviously, people need to be responsible and save as much money as they can but most will never have enough according to the “experts”. I’m sure your straight talk is tough for some people to contemplate but I found your comments very uplifting — they made my day.
Thank you, now I know I’m going to take that leap of faith before it’s too late.
Cdk,esq – you say that $300,000 in savings would be enough to maintain a $50,000 yearly lifestyle. My family tree lives well into the 80′s and 90′s. Grandmother died at 104. Father still alive at 91. Mother still alive at 84 and very healthy. I figure I need at least 20-25 years from 65. What would I need? I think my $900,000 is a good number for me and will need it. These are all speculative answers but realistically you need to see how you live and what your family life tree looks like. I am figuring about $50,000 living expenses which I need about $70,000 before taxes per year to live on. I will have over 1 million in 401 by the time I retire and that will take my to about 88 years old with inflation.
That’s taking into account Social Security and Pension. In my case the $1,000,000 is borderline, I may need more.
What you haven’t considered is the premise that your expected $1-million retirement savings is a given.
There were many like you back in 2007 who thought like you did, but ended up working longer and having less.
Good luck!
One thing that is overlooked in retirement is long term health care, be it assisted living or nursing home care. With people living longer, nothing and I mean NOTHING will absolutely drain your savings faster than nursing home care. I know as I had a parent in a nursing home for 4 years. Even with the average time an elderly person spends in a nursing home at only 2.4 years; the average cost is $266 a day…read that again and do the math: $266 per day! YEs….$8,000 per month; $96,000 per year! (Assisted living expenses average about half as much , but many people transfer from an assisted living facility to a nursing home at the end of their life). And MEdicare will NOT pay for long term nursing home care. Usually one must spend down assets to state required levels( when your net worth is about $15,000) and then you can apply for MEdicaid.
So those of you who have accumulated $500,000 or more in retirement savings do the smart thing and PROTECT it!
I have read that you need $400,000 alone just to pay for medical and nursing costs that Medicare doesn’t cover. Anything you save after that is what you’ll be living on. Yikes!
Roger —
I can appreciate your PROTECT it comment but what are the options? With long term health care insurance being so expensive do you have any other ideas for protecting your nest egg/net worth?
Andy,
I understand the concern with the cost associated with purchasing long term health care insurance, but the cost of NOT buying this coverage can be devastating. Of course if a retired couple has a net worth of say $50,000….no big deal. Spend it down and let MEdicaid pay for nursing home care if needed.
But what about a retired couple in their 60′s who have liquid assets of $500,000 and a house worth $500,000 for a total net worth of $1 million? Maybe this couple wants to leave remaining assets to their heirs or charity.
Unfortunately at future costs of $100,000/ year for nursing home care ( figure in 10-15 years); this couple would quickly spend down their assets. What is even sader is that most states will force the couple ( if both are in a nursing home); to sell their house once liquid assets have been sold off to continue to pay for care. Plus….once assets are depleted the state can and will force the individual to move to a nursing home of their choosing…not yours.I had this happen to a family member. Sure, they will pay the cost now, but you will go where they tell you which could be far away from family and friends. Like most things , the earlier one buys this coverage and locks in premiums the better. A couple around age 60 should be able to buy a policy for about $2000/year for each of them. This should pay for about 80-90% of future care. Well worth it. Just a thought.
There is a lot of fraud going around in connection with long term care insurance, so make sure you thoroughly check the company that wants to sell it to you. Consumer Reports.org, periodically updates their ratings. I’d check there.
If its time for a nursing I think it might be time to go. I don’t know maybe I would change my mind later. I think though that the more you have saved the better. If you don’t have long-term care or can’t afford the insurance you would have to put your assests elsewhere so that it doesn’t get drained like Roger states. Also even if in own home still hard to predict what expenses will be such as food, energy, real estate taxes,insurances, ultitilies etc. in 20 years when I hope to be able to retire. Longevity in my family is fairly good. My grandmother will be 99 in a few months. I plan to stay as healthy as possible so I can be on my own and mobile. I hate the thought of not being. Though at 51 I already can feel stiffness.
It appears that people with a plan and frugal spending habits will cross the finish line with enough savings to enjoy a happy retirement. The gotta-have-it-now crowd will end up woefully short and will need help.
Help is on the way. Obama will take from the first group and give to the second group. The reason is that the fat cats in the first group should not fare better than the second group. We’re all the same dontchaknow. Think about it; the right to a happy and worry-free retirement is a right bestowed upon everyone, not just a few. This inequity will be corrected.
Yes, and for sure the first group will say the he!! with it and stop working hard and living within their means.
Suddenly, our country is in a position whereby we are out of wealth to spread, then the reveloution begins.
Bring on Socialisum and I’m putting my home in a LLC and quitting my job, buying a new car and filling for bacnkrupcy, then signing up for wealfare for the fist time in 55 years.
It’s called the American retirement plan….
My wife and i was talking about this yesterday. I’m 44 years old and have about $78,000
in my IRA. i have about $30,000 in CD. and another 22 year on my 1 bedroom Coop. we have one child. Realistically speaking i never work in a company that pay me more then $55,000. my wife works part time and pull in less then $15,000 ( 3 days a week). because my son have special needs. we have no car and clips coupons, my one credit care is allway payoff ahead of time. is it realistic for someone like me to retire at the age of 65 or 75 if i contribute $5000 a year to my IRA? How much do i need to save for retirement if i want, say with $35,000 to $45.000 from my IRA before taxes?
you didn’t mention if you or your wife has a pension. Since your son has special needs do you receive state health care for him to help offset medical costs? You guys should do fine but you’ll have to live on a strict budget to cover medical costs in the future. At least your home will be paid off by the time you retire so 65 should do fine for you. Make sure you and your wife are contributing the full $5000 per person to your Roth IRA. Just make sure you and your wife are landing at LEAST a 3% raise each year to keep up with inflation – otherwise you’re taking a pay cut each year.
I’m 34 and my spouse is 40. We have $490,000 in various types of investments (Roth, IRA, 401k, CDs, cash and stocks) We have made it a point to negotiate sizable raises from our employer each year. In addition, we ask for development opportunities for promotions. We both got the company to pay for our Ivy league masters degrees so that we can be competitive in the job market. Once i reached my cap on salary increases, I left the company and was recruited by another Fortune 500 firm. Keep your job skills up so you can command a higher salary – then do everything you can to save and invest that extra cash. Look at starting a side business so you can generate residual income as well.
Hi cdt. You asked if it is “realistic” for someone in your situation to retire at age 65 to 75 if you contribute $5,000/ year to your IRA and how much you need to save for your retirement. The honest answer is . It depends. It depends on what you think your tax rate will be in retirement? It depends on what you currently have your IRA invested in? Stocks, Bonds, Money MArket? It depends on what future returns will be on those investments? You get the idea. As far as how much you will need to save for retirement; most people use the rule of 4% meaning if you withdraw 4% of your IRA each year in your case this would come to $40,000/ year ( between the $35 and $45K you desire) so you would need to amass a retirement fund of $1,000,000.
You may be one of the people where keeping all your IRA assests in a traditional IRA versus a ROTH IRA may be beneficial. I say this because it seems your marginal tax rate will be around 15% in retirement. I say this because you should be able to take a medical deduction for many medical needs of your special ed child that are not covered for his future care. This could be substantial and will reduce your tax liability.
BEfore you contribute to your IRA check with your employer to see if they offer a 401K type plan and if matching contributions are offered. It almost always makes sense to at least save up to matching contributions by your employer (usually 1-3% of gross income) as this amounts to “free money” and is tax-deferred. After this most definitely contribute $5,0000 annually to your IRA and if possible have your wife contribute to her own IRA as well. Also remember if your wife stops working, she can STILL contribute to her IRA as a non-working spouse.Ask your accountant for details. Contributing to your IRA is even more attractive if you do not have a retirement plan at work as some or all or your IRA contributions may be tax deductible.
Finally, just as a suggestion, it seems that the $30,000 you have in CD’s may be too much. I know it is “safe” but at a 2% or less returns PLUS the fact that all interest is subject to both Federal and state taxes….your money is not working for you. Keep enough for 3 – 6 months living expenses and use the rest to fund your IRA’s or open up a separate account such as a mutual fund with low costs ( no loads and low expense ratios). Vanguard is a good place to start. You will get more than what you earn on your CD’s and your low tax brackets means you will not owe much in taxes each year. Remember also your CD interest is taxed as ordinary income; where any long term capital gains distributions on your mutual fund investments will be taxed at lower capital gains rates. Good luck.
cdt. Based on your age and projections of today’s income needed in retirement. If you want about $35,000 to $45,000 before taxes(today’s dollars). In 20 years you will need about $80,000 to $120,000 per year to live to keep up with Inflation. It’s hard to swallow but it’s reality. 25 years ago I kept a spreadsheet going with my projections based on what I thought I would need to retire with. The numbers back then projected I would need between $800,000 to $1,200,000 in a nest egg not counting Social Security or Pension for a married couple using $$25,000 per year 20 years ago. Since then inflation and life style brings me to about $50,000 before taxes. I thought at that time those numbers were really out of wack and crazy. Now the day has come and I will have close to the $1,000,000 in 401′s/IRA. I am borderline on projections to last me into my 80′s. In your situation as bleak as reality can look. A comfortable figure for someone in their 40′s today, will need at least $2,000,000 in a nest egg. This figure is probably on the low side since Social Security will be near bankruptcy at the current pace with debt the country is in. $1,000,000 will probably last you about 5-10 years in retirement.
This is the reality. Many younger people think that when they see these high numbers its just crazy. I thought the same 20 years ago too. It’s not.
You are absolutely right, Mike. When we started planning for retirement 25 years ago, we saw the same alarming figures for how much savings we needed for retirement.
We couldn’t believe it then but, at 57, we know it’s true. If the markets would stop crashing and the CD’s stop returning 2 percent interest, it would make it a lot easier.
Remember when those financial calculators estimated a 7 to 8 percent return on your savings?
Mike, You claimed you had close to one million in your 401k/IRA. My question to you is, what’s your balance today, May7 19, 2010?
My funds ratio changed from 55/45 to 60/40 since this slide in the market, but I’m still ahead for YTD.
With your exposure to more risk, I’d like to know where you stand.
Thank you Roger! Thank you MIKE! for your reply.
this is what i found out.
if you take 15,000 divided by .06 the number you get would be 250,000. that means i would get a $15,000 in yearly return if i have $250.000 in my (traditional) IRA. again your are right Roger with the taxes. I may just roll everthing to a Roth IRA.
but if i contribute extra $10,000 (on top of the $5000 in my ira) a year to a 401k or annuity with a fix rate for the next 14 years i would boost my retirement to may be another $150,000? maybe?
Please be aware of WEP when considering SS income and Pension income. SS income will be reduced by at least 1/2 if you have a good pension.
Sanity,
Please explain your WEP and SS reduction comments.
I didn’t go back to read what’s been already stated, but one are that seems to be missed in this discussion is a) investment planning by age, and b) what is your risk tolerance?
These are important issues as one goes into retirement, and the unknown issues of future inflation and earnings on investments.
What’s been bothering me is the simple fact that the average investor lost 40% in 2008, but some people on this blog claim they still have one million in their retirement savings.
There are two issues that needs to be explained: 1) without some higher risk in their investments, how did these people keep one million, and 2) if they indeed lose the average in 2008, they would have had $1.6 million in 2007. How did they accumulate this amount at their age?
Tak D.
Those who stayed with the market have recover to 90% of the pre-crash value. If you bailed out at the bottom and put it in bonds, then you lost.
I think that those who have more in retirement are financially savvy at a young age. If you avoid risk at all cost, your financial trajectory does not reach retirement orbit. Savvy people have ways of attaining this orbit.
Retired in CT,
I know about risk and returns; I’ve been retired since 1998, and our retirement investments are “conservative.” I have pretty much self-managed our retirement savings through different institutional funds and bonds until my retirement in 1998. We have consolidated all of our different funds into Vanguard after I retired. I also sold our income property, because I didn’t want to “manage” anything after retirement to enjoy life. I have seen most of this world having visited over 150 countries, all five continents, the southernmost city of the world, flew to Mt Everest (the highest point on earth), dipped my feet in the Dead Sea (the lowest point on earth), and will be visiting the northernmost city of the world in September when I do a Norwegian Coastal Cruise.
Our Net Equity is currently worth over 80% of our lifetime earnings (after marriage), and although “averages” have very little financial meaning, our net worth is more than many multiples for most living humans (I would guess over 90%) on this planet. We are not wealthy but comfortable.
In 2008, my wife lost 11% and I lost 17% from the financial crisis. Those who lost 40% in 2008 must gain 166% to return to their pre-2008 balance. In 2009 the stock market gained 19%, and in 2010 YTD gained 6%. I don’t see the 66% gain since 2008, so my question to you is, where did you have your investments, and how much did they gains since the lows of 2008?
Tak D.
Congratulations on a successful retirement. When you visit Norway later this year, bring some sweaters.
The real low was March 2009. Since then, I’ve invested in a broad spectrum of stocks. Example: CAT, BA, CELG. Most have recovered very nicely. Only one, Morgan Stanley, has done nothing.
The real key was to realize that the March low was a generational low. Acting on this single epiphany save me years and years of savings. Having “fresh” money to put into the market also helped. Overall, I’d say my gains from the March low is close to 60%. Sounds unbelievable, but I am not the only person that has done this.
I know one thing as fact; those who are day-traders do not make any money. Over 85% lose, and the rest are lucky to break even after they pay the cost of trading and fees.
I’m sure there are some who have made money since 2008, but I’d venture to say that most are still behind from their 2007 levels.
Those of working age are lucky to still have income, but the number of those losing their homes and cars are still increasing.
All assets dropped in value as the following article from Wiki shows:
“Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans’ second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and [b]pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.[123] Since peaking in the second quarter of 2007, household wealth is down $14 trillion.[124]“[/b]
The majority of people who had homes or investments lost value. Some lucky people like you seems to have done better than most.
When the market was above 14,000, I sold 40% of my gains and transferred them into money market funds. I repurchased some of my funds when the market hit 8,500. I thought I was smart! LOL
I also think that the general population’s holdings are still not to 2007 levels. And I do not count the primary residence.
The market is replete with investment styles, talking heads that offer advice, and professional managers that (for 2%) manage your account. Information overload! The key, I think is to have the huevos to act, carpe diem, on an opportunity. Example: My father at 87 years old invested big time in Citicorp in 2009. Wow! Is this luck? Or is it savvy investing?
We will be 55 next year and plan on retiring, we will have about $2.9 million ($2.0 in retirement accounts, and $0.9 in taxable accounts). Our house is paid off and we have no bills. I would expect we might withdrawal $90,000 to $100,000 a year. Will it last?
I should have added to the post. You can save a lot of money if you save early and as much as you can.
My wife and I currently make about $150,000 together, but it has not always been that great, but we max out our 401k contributions (and always have) and also save outside of those accounts.
I think retirement is reasonable, but with the democrat ideal of redistributing wealth I have my concerns.
We also started early in our marriage to save for our retirement. Most people never realize that the savings they make early do not impact their lifestyles, and the long-trend in savings helps increase those savings even during good and bad economic times. People fail to understand the long-term effect of the stock market which is based on our country’s ability to continue as the strongest economy in the world. Both of our politics and business environment changed about 15 years ago that led to the imbalance in income and wealth creation.
Very few gained during the past 15 years while a small percentage of people increased their wealth ten-fold. Salaries remained stagnant, so people started buying on credit and borrowed against their home equities. Consumer spending was strong, and it seemed to grow our GDP, but many didn’t understand the macro-economics of this shift in growing our economy. We all know what happened in 2007.
Anonymous, Do the calculation; just don’t forget that at 70.5 years old, you must begin to withdraw from your IRA at the rates required by law.
When you estimate your returns, make three tables; 1) low estimate, 2) high estimate, and 3) average. They’re only guesstimates, and you can revise them as our economy changes.
This will provide you with some idea on how your $2.9 kitty will last.
****
I prepared our guesstimates before retirement, and from my calculations made the decision to retire early (based on affordability). I retired in 1998, and our retirement funds are still intact – and healthy enough to provide for my lifestyle – which is world travel for me.
What I did do after retirement were 1) consolidated about a half dozen different funds into Vanguard, 2) increased our bond funds ratio, 3) sold our income property to “really” retire from work, and 4) watch the market and adjust accordingly since then.
We’re not as “rich” as you are, but considering the economic conditions during our generation, and raising two children, I feel we’ve done a pretty good job of savings for our retirement.
Retired in CT, Unfortunately for many Americans, they had to count the value of their residence to calculate their net worth. Many borrowed from their home equity to live beyond their means, and they got burned. Many are still losing their jobs and homes, and this will continue until our economy begins to hire at much higher levels than they are today. I doubt very much our unemployment rates will see 5% for many decades.
We were fortunate because the ZIP code in which we live in Silicon Valley has held its value pretty well. We have no mortgage, and we made major renovations on our home in 2008.
I self-managed our retirement funds from early on, because I knew that investment counselors were no better at picking stocks or funds than throwing darts at a board. They also made their money from churning their customer’s stocks/funds and their fees. I learned this lesson very early.
Vanguard has one of the lowest fee structures that helps keep most of your assets; this can save the investor thousands every year.
Tak D
You and I share the same financial philosophy. My house is paid off. I have never paid interest on credit cards although I use them extensively as cheap short term credit. I abhor financial managers for the same reasons you cited.
Going forward, I see the economy gathering strength. This will be reflected in the stock market. Furthermore, there are many people that need to “catch up” so they will plow money into the market. I see strength in the market for at least 2-3 years. At that time, the economy will be very toasty. I’d be worried at that time for the next bubble that will lead to the next crash.
The only survival in the next 5 years will be to level the playing field from the Democrats who are moving us to Socialism. With that in mind it may mean all our savings for retirement could be in major jeopardy as the Government will have to tap into them greatly to pay down this unprecedented debt they are currently putting America in. Remember our children will be carrying the burden and will not have the dreams of wealth, only the nightmares of survival.
Surely you are exaggerating. The Democrats are Progressives, not Socialists!
I agree that we are digging a huge debt hole with us at the bottom. I don’t think retirement savings will be targeted by Robin Hood. Social Security will be stretched out by cutting benefits and increasing retirement age. But at the end of the day, the tax paying worker bees will bear the burden.
There is an outside chance that our economy will increase so strongly that normal taxes are enough to pay down the debt. We were very close to this during Bill Clinton’s second Term.
Mike, I agree with CT that the Democrats are not socialists. It seems many who label Democrats as socialists do not understand the definition.
What’s funny about the tea party movement is their insistence that Obama is a “socialist;” wrong definition. What’s even funnier is that our government is spending too much! If anybody bothered to look at the federal budget, they would find that the greatest percentage of the budget is “Defense,” followed by Social Security and Medicare. Do these same people want to sacrifice on Defense, give up Social Security and Medicare? I haven’t heard on tea party member say they will. Until then, they’re all talking foolish and stupid!
Tak D, you did not get my sarcasm. Present day democrats are socialists. They want to migrate the US to the Christian Socialist type governments in Europe.
American are not Europeans and we do not want to go the way of France. Watch how this plays out this Fall.
I didn’t “catch” your sarcasm; I’m a simpleton who can’t read between the lines too well.
At any rate, “socialist” has to do with government ownership of all the production of goods and services. We’re not even close to that definition.
I was one of those voters (independent) who voted for Obama, but do not agree with most of how he has handled the stimulus plan/bailouts and the health care reform.
Obama fails to understand what “capitalism” is all about, and you don’t bail out companies who’s management screwed up and was ready to go belly up.
Saving the banks was a necessary evil; capitalism or commerce cannot survive without banks. No economy can survive without banks.
How much they gave out and how they gave out those funds were sloppy and unnecessary.
Obamacare is the wrong health care reform; they didn’t include the many cost savings regulations, and got it passed with too many loose ends. They’re going to add over 30-million more patients without showing how they’re going to pay for them, nor where our country is going to find the additional health care workers to care for them. There’s going to be forced rationing of care, because Obama failed to understand simple logistics.
Obama is a dangerous screw-up who will impact our country in too many negative ways. The increase in our national debt is going to bite us where it hurts in the not so distant future.
Can I take my vote back?
Tak D,
We only differ in philosophical definitions. I believe socialism is: “From each to his abilities, to each according to his needs.” (Karl Marx, 1875). Obama wants to provide for everyone regardless of their station in life.
ObamaCare is a disaster that will mushroom into a catastrophe. Who said 30 mil more people. If it’s free, let’s go and get it! It will end up 100 + mil. Healthcare will be allocated as it is in Europe. Our only hope is that this healthcare plan gets reduced or scuttled.
The beauty of the American system is that we can change the political landscape quickly. I hope for a sea change in both houses this November.
No, you cannot take your vote back. The best you can do is to not vote democratic this fall.
There are car salesmen and there are politicians; unfortunately for all of us, we can’t survive without them, but they are out to screw us every time we buy or vote.
I am 41 & wife will be 36 this year with a combined household income of $130,000 (2 kids). We have a total of $379,000 in our 401K, $10,000 stuck in stocks on the side, 8 years left on our mortgage and $20,000 on our home eq loan. Minor credit card totals and a car payment. Currently at 6% contribution rates working our way up to 8% (possibly 10). Would like to retire at 60. Are we doing enough?
There are two “markers” that predict successful attainment of retirement funds by the desired age. They are the ability to control spending and savings. Where you are in the savings trajectory demonstrates that you are masters of both. The methods you have used to amass your nascent retirement egg…just keep doing it!
The kicker in all this is the cost of college for your kids. Given your profile, you probably have this figured out already.
You hear about risk tolerance, investment returns, and the “NUMBER” you need to attain to retire early. This adds complexity but does not provide anyone with guidance. The key, as you have already figured out, is to live below your means and pursue an aggressive savings program. As for the NUMBER you will ultimately achieve: Que sera, sera.
MM Crew, That would depend on several issues you have not addressed; 1) what is your goal, 2) what is your risk tolerance, and 3) what do you believe will be the long-term returns on your retirement savings?
Without knowing these three issues, it’s difficult to know whether you will meet your goal to retire at 60.
Retired in CT, I agree with your premise that aggressive savings should be the only goal; it’s not only the best way to save, but the best way to get the best prices on your investments by averaging. You never pay the highest or lowest price, and the long-term increase in value usually provides the best strategy.
This is almost the same as investing in bonds; most people talk about the dangers of bond price decreases, but evidence have shown that whatever loss is realized in one year is made up in subsequent years from the rates earned.
It’s also the best vehicle for seniors who must preserve their savings for the long term. The primary issue for any investor is the balance between equities and bonds. The basic principal has always been that as one ages, their bond holdings should be increased.
Tak D,
I agree that older investors need to be more in bonds. But how it is used is different than conventional wisdom.
Suppose you choose a 70:30 split, bonds and equities. Even retired folks need equities due to the threat of inflation, TIPs notwithstanding. If equities return 10% and bonds 4%, the average is 5.8%. Under normal conditions, the earnings from this portfolio is fairly steady. It falls apart during stock market crashes. I remember the one in ’87, and the Tech bubble. We are now just recovering from the mortgage bubble of ’06. In all crashes, there is a recovery.
My thesis is that bonds should be used as investment “fresh money” after a stock market crash. If you double down at the bottom, your recovery is much faster. Typically, bond yields go down during a crash so bond prices rally which adds more fuel to the fire.
I like my concept better than to put everything in a variable annuity. These are expensive financial vehicles. You lose a lot by buying peace of mind.
Then again, I could be all wrong and my money will be gone midway in my retirement! Did you know that dogfood is very tasty?
Retired in CT -
’87 always strikes me as a curious reference. The return for someone who went to sleep on 12/31/86 and woke on 12/31/87 was about 5%. Someone who retired in ’86 based on the ’86 balance was just fine in the end of ’87. The huge rise and drop was nothing if taken in that context.
The tech bubble was another story. It wiped out a lot of wealth, and scared many out of the market for good.
Joe Taxpayer,
The ’87 crash stands out for the carnage magnitude in one day. True, the crash had no lasting effect.
But some people exited the market based on fear.
My point is that to have dry ammo (bonds) at the ready helps to mend the equity portfolio.
As I’ve said before, it’s about ratio; I don’t believe in 100% bonds; never have, never will.
I’ll be 75 in a few months, and my split is 55/45, bonds/equity.
I used to have some of our investments in variable annuities, but gave them up because of their high cost of maintenance, and non-guaranteed returns.
Dog food prepared in this country is probably more nutritious and safe than many food stuffs coming out from foreign countries. When we think that many cultures eat dog and ox penis, dog food doesn’t sound too bad! LOL I’m pretty sure there will never be any need for my wife and I to consider dog food as a food source during our lifetime although it might be better for our health than all the junk food we consume.
I also try to get a regular regimen of exercise to stay healthy.
Tak D –
I am in my late ’50s and have a higher proportion of equities. Equities will be good for a few more years until the next crash. Right now, the Fed is giving out free money. A successful investor does not fight the Fed.
You and I have the same style. We want our financial destiny in our hands. I do not want financial advisors, who don’t know any more than me, to tell me to do this and that.
If you want a stock tip, its Citicorp (C). The government wants it back to normal health. I can see it as a $25. stock easily in a few years.
CT, You have to be careful about all this “free” money eventually biting you in the behind. This creation of a larger federal debt is a dangerous game played by nincompoops. They know not what they do; look at all the countries who’s debt has created major economic problems. Greece and Portugal are small economies, but they now impact the world economies and stock markets.
Just imagine what the US bust will do.
Our governments, federal, state, and local, haven’t learned to live within their means. They’re all looking at huge deficits that’s been building for years, but seem unable to attack this monster with intelligence and proper fiscal management.
The feds must stop spending by cutting all levels of expenditures including defense, social security and Medicare. The “new” ObamaCare is going to exacerbate this deficit, and they’re still talking about spending more money they don’t have. The special committee they just created to find ways to cut the spending is a huge waste of time and money. It’s the president and congress that must take the necessary actions on the three-pronged spending (identified above) that makes up the biggest portion of the budget. It’s the same with state and local governments; they know where they must cut, but don’t.
The state of California spends more on prisoners than they do on our children’s education. That’s not only stupid, but exacerbates the problems for the future.
It’s a one-way street that they got stuck on, and don’t know how to change lanes or turn onto another street. Dummies all!
****
Another area of frustration is the greed of the CEOs and others who take in huge salaries and bonuses rather than sharing the pie with all their workers – who are the ones who keeps our economy ticking. I don’t understand how these greedy people can justify taking 99% of the pie and expect our economy to survive. This trend has been getting worse for the past 15 or so years while the middle class and the poor continue to lose their jobs and homes.
Politicians now work for big companies that provides them with the money to run their reelection campaigns. That’s the reason why they bailout wall street in billions (much of it wasted and without regulations or constraints on how its spent) and give main street the left-over scraps.
It’s all beyond our control, because we vote in the same crooks over and over.
I forgot to add the fact that when the baby-boomers begin to retire (which is about now), there will be more retired folks pulling in social security and using Medicare, while the workforce and tax revenues shrinks.
How does Obama and congress expect to pay for this increasing cost?
They have several options available to them:
a) increase taxes, b) increase the age of eligibility, c) decrease benefits, and d) some combination of a, b, and c.
This country is already bankrupt, not only money-wise but government-wise.