Hi all, I am 42 and have about $500k in retirement at the moment. Saving roughly $23k/yr in retirement now. Mainly invested in $FXAIX. I know stocks are at all time highs. Curious to understand if it’s a safe assumption that my money will double every 7 years. That would mean:
42 yrs old @ 500k
49 yrs old @ 1M
56 yrs old @ 2M
63 yrs old @ 4M
I guess I’m just wondering if I need to contribute so much to retirement currently as I really would only need $2.5M in retirement to be very comfortable at a 4% withdrawal rate.
Thanks for any insight!
edited post to fix math mistakes as pointed out in comments
Do I need to continue saving for retirement?
byu/itsakoala infinancialindependence
Posted by itsakoala
21 Comments
Congratulations, you’ve discovered CoastFIRE 🙂
Usually people use real returns to account for inflation. Your 10% feels way too high.
You can coast fire now.
I would calculate for inflation adjusted returns, so, closer to 6-7% annually over the long term (that doesn’t include sequence of return risk which can really jam up plans).
Using the rule of 72, I’d say a true doubling is closer to 10-12 years each.
Small math error there – 42 to 47 is only 5 years
If you were 42 in 2000, by 2010 at 52 you’d have $500k.
So, no, don’t stop saving for retirement until you are ready to retire.
I would keep saving because you never know what can take you out of the workforce early. Health, layoff, etc. At the most, I would cut back slightly and use the money for travel and making memories.
Your returns are too high and not inflation adjusted.
Yes, keep saving for retirement.
Good rule of thumb (Google the rule of 72) – have your invested equities double every decade.
At 62, you’ll have about $2m in today’s dollars. Sure, your balance may be around $3m, but you likely won’t be able to live comfortably off that forever if you’re budgeting for $100k/yr in today’s dollars.
Never stop saving. Past returns are no guarantee of future ones.
Heads up: 42 to 47 is only 5 years, not 7. Your ages in the list should be 42, 49, 56, 65. Do you want to work until your late 50s, early 60s, which is how long it would take under your assumption (which is just that–there is no guarantee or “safe assumption” when it comes to investing).
Yes.
Never stop.
If/when you hit your number then you can slow down. But not before then.
There’s too many unknown variables to account for everything. That’s why you keep saving.
Get to the FI first.
Then the RE part will get easier.
You need 2.5M for a comfortable living in today’s dollars. What will you need in 2045 dollars?
Also consider the tax benefits and matching dollars (if applicable) of retirement account contributions.
Most folks here who reach FI want to RE. Is that not your desire? Do you have a rough idea of your expenses in retirement? A mortgage will really jack up the expenses until it is paid off.
If you have decided to work until 62-65 and are happy with the approximate values that the other posters corrected for you, then you can back off some. I personally would still max my Roth IRA every year, and reduce my 401K down some to offset that, but my goals might not match yours. Is there a risk you might lose your job over the next two decades?
>it’s a safe assumption that my money will double every 7 years.
No. That’s just an average of historical returns, but there are a lot of variations on the short term (like 7 years).
Also, you have $500k => $1MM doubling over 5 years. Is that a typo or did I miss something? If a mistake, that changes all of the subsequent numbers. Also, as others mentioned, it looks like you’re using 10% returns, which is optimistic.
My 2 cents with the given info is that you should keep contributing. You’re 23-28 years away from your target number with 6% to 7% inflation adjusted market returns, based on historical averages. You’re doing great financially, but far from FI.
It’s definitely not a safe assumption in the sense that it’s not guaranteed. However, as the time horizon increases, you’ll approach the long-run average and have lower variability (than shorter time horizons).
Ten years is almost always positive at least, and it gets better on average from there.
Also consider that doubling every seven years is generally a nominal dollar estimate (i.e. dollars by name; not adjusted for inflation). Ten years is a more conventional “doubling” estimate in real dollars (i.e. equivalent buying power).
If it’s easy enough to keep contributing, that’s generally the best option. Continuous investing generates gains, even in flat markets over longer stretches. That’s because they aren’t usually flat all along the way; your average cost is generally below the flat line from those dips. Plus, there are limits to tax deferred space, so there’s more optionality from continuing to max as you see what future returns actually turn out to be.
All time highs are also very common, at nearly 20 days per year on average. I wouldn’t change behavior around that. Just about the only thing I do when we keep running highs for a while is to assess whether (i) I want to take some gains and pay off anything as a way of de-risking (only a sub-3 mortgage left now, though), and (ii) monitor how our allocation is drifting and do some rebalancing (we’re 80/20 and very close to FI and still thinking about RE; you might be heavier in equities with a longer timeline).
I can’t fathom looking around the current economy and not understanding there’s a solid chance of experiencing unemployment or needing to take a paycut for various reasons. Don’t forget potential health challenges like cancer could disrupt years of employment
You don’t have to delay all spending to a crazy level but I would always be making progress towards my retirement savings
You’re not considering inflation. If you use a 5% real rate of return and assume you continue to contribute $23k/year, you’ll get to your $2.5m figure at age 65. https://www.calculator.net/investment-calculator.html
I definitely wouldn’t stop contributing to your retirement account
I wouldn’t bet on being able to work til 63. The earlier you can “retire” (i.e survive after being forced out of your profession) the better.
At a certain point when compounding is really kicking in, saving for retirement becomes less about getting there faster and more about keeping your spending in check.
Every dollar you don’t save is by definition a dollar you spend. Every dollar you spend is another 25 dollars you’d need saved to retire. If you want to keep spending it anyway – but once you get used to a thing it can be hard to return to doing without that thing. I wouldn’t count on cutting out daily habits or ratcheting down your lifestyle as a retirement plan.
Assuming the market continues to grow at historic rates, and you want to work to those ages, then yes.
For me I’m 41, over $600k in my investment accounts, and I’m still dumping around $50k a year into them. At $800k invested (expect that to happen in 2 years) I’ll officially be an “on paper” millionaire, and I’ll reevaluate things. But current state I think I’ll continue full steam ahead until I hit $1 million invested, which is hopefully around age 45z
> I know stocks are at all time highs
Can you expand on why this matters?
> Curious to understand if it’s a safe assumption that my money will double every 7 years.
Define “safe”.
Based on historical data, it’s a *reasonable* assumption.
> I guess I’m just wondering if I need to contribute so much to retirement currently as I really would only need $2.5M in retirement to be very comfortable at a 4% withdrawal rate.
You haven’t stated your target retirement age, so we can’t answer that for you.