Crunching Numbers for Retirement Part 1
The “quick and dirty says just what I feared” conservative estimate edition.
We don’t have a lot saved for retirement yet. I’m the first to admit that. We each have an IRA (mine Roth, his not) that have not seen contributions in several years. And 4% of my spouse’s salary (with a 20% match of that 4%) goes to a 401K. The match maxes out at the 6% contribution level, which we are going to go up to…. soon. I don’t know exactly when. But anyway. I know we need to save more for retirement, but the debt reduction is the focus first. We’re both 33, and I assume plan to start taking benefits at 65. So I did some quick and dirty number crunching for my part 1 of figuring out retirement.
I did a conservative estimate using us retiring at 65, living to 90, replacing 100% of my spouse’s salary, and receiving no social security. I used two different calculators that were recommended on Free Money Finance, the ballpark estimate and Fidelity’s My Plan. I started doing FMF’s own very detailed and complex but unendingly thorough calculation and I got a little lost so I decided to try that one again another day when I’ve gotten the hang of thinking about this more. This runthrough is quick and dirty after all, for now. Surprisingly (or not so surprisingly) I got about the same estimates from both calculators. We need to save about $2 million dollars by retirement in ~32 years, and to do that we should a bit over 20% of my spouse’s salary. Maybe 20% doesn’t sound like a huge amount, but that is of his actual salary. If we are talking *take home*, it is more like 33% of my spouse and my *combined* take home after taxes and health insurance are taken out. I know the 401K is taken out pretax, and we already contribute 4% so it would “only” be 16% additional to that in total retirement contributions but… yikes. Basically the quick and dirty estimate gave me the same numbers as what I basically was assuming all along. We need to bump the 401K up to 6% to capture the full 20% match, and then just about max out the IRAs for both of us every year to be in a good place come age 65.
When I told my spouse he snickered and said “That’ll happen” and then told our son he needed to get rich to support his parents in their old age. Kidding! But still.
I know we’re behind the eight ball on this. Our Pudding Score (how you measure up compared to where you “should” be, 100 is average, lower is bad) is 39. I know we’re behind. It just seems unlimitedly daunting to catch up, and just about impossible to imagine. But we will try. Once we knock out the debt. We’ve got time on our side (somewhat) at least.
August 29th, 2007 at 6:15 pm
Very interesting – thanks for posting.
I’m just wondering why you are planning to replace 100% of your husband’s salary when clearly you can live on a lot less (assuming no debt payments).
Mike
August 29th, 2007 at 6:48 pm
Cause this was the conservative estimate
And, I honestly don’t know if we can live on (much) less than my husband’s salary. My income is what pays the debt payments, generally. A small amount of his salary too but generally my income and what we pay to debt kind of cancel each other out.
And honestly, I’m not quite sure how to decide what proportion of our current income we’d need. We’ll have lower costs in some areas (like housing) but higher costs in others (like healthcare).
So I went as conservative as I could think of. Chances are this would be overprepared vs underprepared I think.
And not really all that realistic or attainable either, so I’ll be doing other ways of looking at it as well over the next little while. But I started worst case scenario. lol
August 29th, 2007 at 11:31 pm
That makes sense, I was thinking that maybe his was the only salary but since you are paying the debts then yah, you’re right!
Don’t forget – 32 years is a long time so whatever your assumptions are now (rate of return, inflation etc), will probably not be 100% accurate. Best thing to do is put together a plan (like you’ve done), do your best and see what happens.
Mike
August 29th, 2007 at 11:45 pm
nod nod. I am planning on looking at this again… and again… and again… lol.
But not right now. Let this sit, come back in a month with more data and numbers and think about it some more from different angles.
Been trying to convince the spouse to up the 401K contribution to 5% but he wants the credit card paid off first. Since that’ll take another year maybe he’d rather retire at 66. Heh.
August 30th, 2007 at 7:23 am
hmmm that’s tough one – you’re giving away free money by not doing the full match on the 401k – on the other hand the credit card fees are also giving money away.
Mike
August 30th, 2007 at 8:25 am
nod. life is complicated. lol