I am 33, single, no dependents, and plan to reitre in 32 years.
Currently I make 72K and will probably end my career making 110-130K
Everything I read online says to have in retirement a certain percentage of what you make. But, I live way below my means. My net income is 4.4K a month and I only spend 2.2K (except for the occasional one-offs).
I don't see my lifestyle changing a lot, except buying a house in a few years. But, when I retire I would plan to use part of my 401K to pay that off.
IDK, should I still plan based on what everything says online (even though what those projections calcualte is way more then what I will probably spend and I don't plan to pass on generational wealth) or should I plan based upon the lifestyle I live/will continue to live? And in my calcualtions based on my expsnes, I have taken into an account an annual inflation increase of 3% increasing my yearly expenses every year.
How Much Should I Plan For Retirement?
byu/Spiritual_Size_9997 inpersonalfinance
Posted by Spiritual_Size_9997
14 Comments
> I live way below my means
Then that means you can totally put more away for retirement.
And if you find you have a lot stored up for retirement, you can unlock the achievement of *early* retirement.
Anyways, what else would you do with the money? Spend it on stuff today? This would mean you no longer are living below your means. Which means you would need to consider raising your retirement expectations, yes?
Life has a way of throwing expenses at you that you did not realize exist. Like that house that you want to plan for. There’s a down payment to get going. There are home maintenance/repair stuff to store up.
And then perhaps dependents enter your life. Many people make the presumption that this means a child of their own. But perhaps you meet someone who wishes to stay at home. Perhaps you end up adopting. Perhaps you meet a significant other with pre-existing children. Or perhaps you become a victim of the cat distribution system.
its a lifestyle question not an earnings question (but for most those are one in the same). if you are very happy living a 40k lifestyle use that for projections; what you need to retire is different than if you want to retire on at 75k or 100k lifestyle.
if you save/invest a lot now, it just gives you more options later……you can stop working earlier; stop working a high paying stressful job, increase your lifestyle in retirement, donate heavily in retirement.
if none of those options sound great, spend a little more and work a little longer
Using your 401k to pay off a huge lump sum probably isn’t the most tax-efficient move but worry about that when the time comes (maybe the balance is really low by then and it’s OK).
Personally, I would save whatever you can afford to save, even if it’s more than you think you’ll need because life is unpredictable. What happens if you can’t work until you’re 65 and need to retire earlier than expected for whatever reason? Then your nest egg may be a lot smaller than whatever you project it be at 65 but OK for that forced early retirement (just an example).
It’s good that you’re looking ahead, but be cautious about locking yourself into a mindset that your life will be exactly as planned 30 years from now. “Life is what happens to you while you’re busy making other plans.”
I’d say keep following standard recommended practice right now and continually assess as the years go by.
If you don’t like the percentage of gross income rule of thumb, you can use the 25x annual expenses rule of thumb instead. Make sure you do account for the “occasional one-offs” though.
It’s better to have too much than too little when it comes to retirement funds
have 25x your expected annual spend. That’s the 4% rule.
If you live comfortably off 40k per year, you’ll be targeting $1m.
Retirement savings should not be based on your income, but rather your expenses.
If you have a 50% savings rates, screw retiring at 65. People saving much less than you are retiring in their 50’s or earlier (a savings rate of 50% should allow you to retire in <20 years even if you have no savings today). Head over to r/FIRE for more targeted advice/discussion.
Random note that you don’t need to really account for inflation of you use today’s dollars for everything, which I’d highly recommend as all future spending/income still has context with today’s dollars. If you expect your income to grow above inflation, then you can model that if you wish.
>should I still plan based on what everything says online (even though what those projections calcualte is way more then what I will probably spend and I don’t plan to pass on generational wealth) or should I plan based upon the lifestyle I live/will continue to live?
An actual personalized budget is better than generic recommendations every time. But don’t forget that a lot of costs change as you age. You may not need as many work clothes or need to spend as much on daily commute. But maybe you won’t be able to drive at all and will need to pay for cabs, and you might not be able to DIY around the house as much. Health care costs are hard to predict decades out. And so on.
A conservative approach is expected annual income needed per year and divide that by 0.04 (or 4%).
Eg: I expect to need $80,000/yr in retirement, so $80,000/0.04 = $2,000,000.00.
Meaning once I hit $2 million, I could withdraw 4% a year ($80k) with the expectation that it will last me 30 years.
This is a starting point and can adjusted as needed/needs/wants/circumstances change.
I started seriously saving when i got a good job and was married. In our case we had an employer that matched 6% of our 401k contributions. This made it easy for both of us to put money into our 401k and after 20 years, we retired with enough. And it is still enough even though we retired in 2007. Our nest egg kept growing thanks to index funds and a few tech stocks. I would suggest looking for an employer with that kind of plan for their employees. Moving to a no income tax state also helps like a few percent a year saved. Good luck!
LOL your 33. You could go through a life altering event and your whole financial situation change. Absolutely keep putting money away as much as possible as you can.
Also is there a reason why you don’t mention a possibility of spouse?
If you’re only spending 2.2k, then what are you currently doing with the other 2.2k? Wouldn’t it make sense to just invest everything you don’t spend early so you have the benefits of compound growth. You can always ease up on investing later in life if you get a very strong head start right now.