The 'Million Dollar Question': what should you be doing now when you're young to make sure you can live in style when you stop working?Did you ever notice that almost every bank or finance advertisement features the same recurring elements and themes? They're always trying to explain retirement and savings with the same tired comparisons. It's usually 'training for a marathon' with investments that pan out over time, rather than a 'short sprint' with huge initial returns that fizzle.
Don't forget those large noble elk roaming around the forest looking very wise and stately with their financial planning advice. My favorites were always all those sailing-themed commercials. Apparently Wedding Crashers was right, 'Sailing's like sex to these people. They love it.'
But really what it all boils down to is the one big question: how much of my yearly income should I sacrifice for the greater cause of my 'savings'? That's all I really want to know. Give me a number, a percentage, and I'll just plug away at it until my ripe old age of 65. At which point I will hopefully be able to retire somewhere and steal small items from stores without fear of incurring any consequences for my actions.
Apparently that number is a very elusive figure to get a hold of. There's practically an entire industry dedicated to keeping it a big secret. Between financial planners, retirement specialists, savings experts, and market analysts, you may have to fork over some serious dough to get the answers you're looking for.
One thing that may help you is a handy social security calculator. Find out exactly how much you'll be getting from those social security checks when you retire. If you are in your 20s and 30s now, a safe bet might be to not count on social security handouts paying any of your expenses.
These figures can be argued, but one could use them as guidelines for an estimate:
- a steady 3% salary increase each year (lucky)
- a 3% inflation rate increase (likely)
- Then if you invest in stocks, you might hope for something like a 10% return on them annually (not counting any future recessions)
Also, this is not including anything you might put into a 401k or company matching retirement plan. You also might want to try and figure out how long you have to live. If you plan on dying very soon, maybe retirement isn't for you?
There are also plenty of people out there who would be bored by retiring early and would rather keep working at a job they enjoy. Are you one of those people?
But to give you a general guideline, if you decided to save between 10% and 15% of your annual income, that would be a great start. Considering that almost no one in the United States believes in long-term savings, it would put you significantly ahead of the curve.
And who knows, maybe one day when you die you could screw your bratty kids out of your massive inheritance? We can all dream big, right?
USA Today: How Much Should You Save?
Social Security: Quick Calculator
Monster: How Much Should You Save?
MSN: Plan for Retirement
27 comments:
I hate those banks ads. Too many rich white people with too much free time. Unrealistic.
THe only way I could save 10% annually is if I weren't addicted to anything anymore. Fat Chance!
I think putting in a few examples would give better explanation. All in all nice article.
http://www.dividendpirate.com
This article is useless without graphs and hard numbers.
My expenses are low, so I live comfortably and invest about 40% per year. At this rate I will retire a multi-millionaire. And if inflation keeps up at it's current rate, it will not really matter.
It's really not that hard to do actually. I manage to put away about 15% of my income annually and I'm only 23. The trick is to just have it taken out of your account every month (or I find weekly better), so you don't even notice it when its gone.
Then go ahead and stay poor for the rest of your life.
One day I will learn to save. Until then I waste my money on cigarettes, food, ebay, and beer.
Is it so wrong?
Of course could you live on that 80% with the way medical/housing/food/gas prices have been increasing? Might as well just assume you will never retire with the way prices are vastly out pacing most incomes.
So I agree people in our 20s shouldn't expect social security. But calling social security "handouts" is a bit of a stretch, since we've all been taxed for years by social security.
I hate black people that always rant about the "rich white people". So sick of the racism double-standard...
It's not that hard to do really. I started about the time I turned 21. I just setup an auto draft of 1%. It was pretty much nothing and I didn't miss it. Every year, I have gotten a raise and instead of changing my standard of living to use it anad more like most people, I bumped up my percentage 1 or 2 points which again I honestly didn't notice because I didn't have it before the raise.
Now I am about to turn 32 and I am doing 401k at 12% and saving another 10% direct into a high yield account. Between the 401k and savings, I already have over 100,000 saved up.
It sounds crazy but it's pretty easy given self discipline and time. That money is the most important as it is now MAKING me more money than I can contribute almost and will continue to double and steam roll along as I get closer to retirement.
At the end of the day you have to answer to you. I want to have at least tried and not depend on the 'system'. I have to be honest that no golden lotto ticket or inheritance is going to save me either.
Yeah, financial planners live in a dream world where everyone gets a 3% raise every year and a 10% return happens constantly over x years. You'll have more luck playing the lottery than the odds of those things happening. Let's talk about reality where people get stuck in a $40k a year job for a majority of their lives and have three kids. Those figures are highly probable and depressing. Crazy Unrealistic Goals must have been a minor in college for CFPs.
The problem is that this should be age based. If you are young enough (under 40) for nanotechnology to become "real" you should be saving zero (because the costs of supporting oneself will be insignificant). If you are over 40 then you should be pushing on nanotechnology as much as you can so we can get to the point where savings are much less of a concern.
(One may of course differ with the number 40, but that is a good ballpark given my knowledge of the field.)
Robert Bradbury
This is a lot of writing for a simple concept. Retirement involves two principles: Saving and Spending.
Rather than solve for saving first, you need to figure out spending.
Take your current lifestyle and figure out what you spend each year after taxes. Take this number and divide by 4% (i.e. $50,000 / .04 = $1.25 million). This is the amount you'll need to have saved in order to retire and maintain your lifestyle. Note that I didn't include inflation, but keep in mind that your lifestyle will decrease when you're older so this more than offsets.
Now that you know you need $1.25 million, figure out how much time you have to accumulate this. If you have 30 years and you assume you get a return of 10% a year on your investments, then you'll have to save $7,600 a year, or $633 a month for 30 years to get to $1.25 million.
If you can - save 50%. That way you can retire way before most people retire. :)
I can't believe this got Dugg. Isn't this common sense? In the US we are all going to be working until we are 70 years old anyways.
how about a beginning teacher getting paid 25k, no car, no insurance, enormous student loan debt....
I hear they've invented ways to not have 3 kids.
Yeah, financial planners live in a dream world where everyone gets a 3% raise every year and a 10% return happens constantly over x years.
That's not a dream world - that is perfectly attainable even if you don't have a college degree. You have to work hard and be disciplined though, something a lot of people these days can't get a grasp on, largely because their sense of entitlement is ridiculous. The fact that you exist entitles you to very little, like it or not. Work for it.
You'll have more luck playing the lottery than the odds of those things happening.
That statement is obnoxious. If you believe that you're an idiot.
Let's talk about reality where people get stuck in a $40k a year job for a majority of their lives and have three kids.
You can retire very comfortably on 40K a year if you are disciplined. That is plenty. Perhaps start by not having 3 kids if that is really your problem. Kids are a choice, and if you think they're not then remember that sex is a choice. Be disciplined.
Those figures are highly probable and depressing. Crazy Unrealistic Goals must have been a minor in college for CFPs.
Stop putting it on others and take responsibility for yourself. Don't worry about CFPs, worry about yourself.
Two things -- If you are young and single, spend and ENJOY it! I did and have no regrets. Now I am a white middle-aged old fart with kids and have plenty of time to save plenty.
Second -- the so-called "experts" that say you need 80% of your current income to retire comfortably are just trying to get to as much of your money as possible. I pay a fortune to support 2 kids, a mortgage, etc. -- none of which I will have to do in retirement. My parents lived comfortably on a fraction of my father's working income.
yeah...those rich white people...those rich white people that pay 85% of America's tax.
anon@4:18pm...
Teachers start at around 50k/year....
For those who are making little money after getting out of college: Maybe you should have worked harder and get an engineering degree instead of a useless art degree? I'm so sick of hearing people with art degrees (or some other useless degree) cry about having no money. When I ask them why they didn't go for a useful degree like engineering, accounting, etc., they say "it's too hard". No, it's not too hard, they're too lazy. We've become a generation of lazy f*cks.
With my current financial status, I am applying the 60% solution -- where my savings are included in my 60% of the margin.
If you're asking for the 40%, they go to my wants.
Saving is very easy and getting a high paying job requires work. Something many people do not want to do now a days....I know, I have a handful of friends as perfect examples.
I think its a great idea to save as much as possible. Why not? Id rather retire at 50,55,60 than work till 75 living like a bum because I "lived my life" as a young person.
Chooseing to "live your life now" is only ignorance and the future will show you without a doubt.
Plus I like being wealthy.:)
stop popping out kids. it costs 180000 to raise a kid to 18 in public schools. no wonder my taxes pay for everyone elses poor financial decisions. meanwhile, I'm trying my best to save a couple hundred thousand dollars so i can afford a house and the property taxes (aka state worker gravy train supplier) in new jersey, but the government's gonna raise my taxes to bail out all the idiots who are told they can afford a $300000 house on $40000 income. predatory lending my a$$ - if you are that stupid you should not only not have a house, you shouldn't have a job or children either. this country is doomed on many levels, but financially speaking we are truly uckfed. stupid people suck.
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