I’m almost 40 and according to the wisdom found everywhere on the internet, I don’t have enough saved for retirement. Which worries me because I’ve been saving for as long as I’ve had a proper job with access to a retirement vehicle. But also because the internet wisdom doesn’t make sense or sound feasible.
According to what I’ve read, you’re supposed to have:
- 1x your income when you’re 30
- 3x your income when you’re 40
- 6x at 50
- 8x at 60
- 10x when you retire
I’m almost 40 and I have just barely over 1x saved. So it feels like I’m 10 years behind. However, my income has grown substantially over the course of my 30s, more than doubling. So accounting for growth in income, I do have almost 3x my salary in my late 20s. But similarly, the above advice could be interpreted as needing 6x the income you had when you were 30 by they time you’re 40. And by that metric, I’m doing even worse!
I’m in a similar place to you, and I’ve resigned to it being an impossible feat. I’m pretty close to the number for 40, but the curve is flattening. There’s no way I retire at 65 with enough to survive to 80.
Those numbers were established during boomer economy years and assume a few things that aren’t true anymore:
- infinite 7-9 percent stock market growth, but the modern market crashes every decade or so now.
- linear year over year wage increases that outpace inflation. Really is either flat wages or OP situation of huge jumps. The former makes saving impossible, the latter throws the x percent by decade curve off.
- you should count your home equity in that number, but fewer people own homes, or are underwater on them for far longer.
- the x/decade number assumes a certain amount of income from social security, but that’s likely to be stolen by the time we retire.
- those numbers were made before the entire American population was crushed with debt. Student loans and medical, even just modern insurance premiums dig deep into the ability to hit retirement goals.
Basically, good luck OP. We’re all going to work till we die.
Yeah, boomer math was my #1 theory for why this isn’t working. This sounds like post WWII advice in a post 9/11, post financial-crisis, post-pandemic world.
You omitted post-college affordability and post housing affordability.
The housing issue is actually so bad it’s making things simpler; people will just save for retirement instead as housing isn’t even in the same galaxy as most people’s wages.
“Higher ed” will probably go the same direction and just be reserved for a few elites.
The people I know who’ve given up on housing affordability unfortunately are not shifting in to retirement. They’re so hopeless they blow their money on hobbies because they don’t foresee any possible path to homeownership or retirement and value a few bucks here and there on discretionary spending more.
Totally agree with the nihilistic take, that is happening for folks too.
infinite 7-9 percent stock market growth, but the modern market crashes every decade or so now.
My savings into index funds has seen an average growth of 9% a year for the past three years. 11% since the start of this year. Granted I jumped in at the bottom of the corona dip.
Yeah, and you’ll lose a shitload when the next crisis pops off in a few years, taking a few more years to recover that loss. The 401k management firms only ever seem to rebalance quarterly or semi annually, so there’s no way to react to those downturns in time to mitigate.
I got hit by 9/11, 2008, and Covid, plus I’ve seen my SS benefits reduced a couple times.
React? You’re not supposed to react, that’s how you lose money. When the next crisis hits it just means I get more for the same price.
You know, that’s what they say, and it makes sense. You can’t play the market. But I’m not saying play the market. I’m saying that when crises come up, the indexes should rebalance before those crises flush our savings, rather than 3 months later.
Send to me that’s what the rich people with big portfolios seem to do. The market tanks, they all move somewhere safer.
Meanwhile, us chumps absorb the losses.
I’m saying that when crises come up, the indexes should rebalance before those crises flush our savings, rather than 3 months later.
I don’t even know what that means. Market crashes don’t flush anyone’s savings. You only lose money if you start selling when they’re going down. You don’t. You just hold and wait untill it comes back up again. It has always came back up again no matter how deep it dips.
When you hear stories about people losing their savings during market crashes it’s either people who got nervous watching the value of their investments going down and they started selling at a loss or they were invested into individual companies that went bankrupt.
Or they lost their job and their emergency fund wasn’t enough to tide them over. A lot of people were out of work for YEARS after 08.
But yes, your overall point is correct, can’t lose if you don’t sell.
Income is the wrong focus for retirement, and I’d be suspicious of any benchmarks that talk about replacing income. Spending is the number you need to pay attention to, because you’re not going to be paying as much in taxes, and you’re not going to be saving for retirement after you retire. Those tend to take a pretty big bite out of your nominal working-life income, and the difference can make retirement seem like an even bigger hurdle than it actually is.
Exactly. Many expenses will go way down, especially if you retire at normal retirement age and take Medicare, assuming you have a mediocre health plan at work.
You can estimate how much money you’ll have at retirement with any investment calculator, or you can DIY with a spreadsheet using the
FV()formula. Just be careful to take inflation into account (somewhere around 6-7% returns in the market is reasonable). Then look at Social Security or whatever your country offers to get an idea of the rest of the picture (SSA has an estimator).That said, nobody ever complained about having too much saved, so just make sure your analysis encourages you to save instead of coast.
The FIRE way is 25x the salary you want to have in retirement. If you’re in the US, make an account with the SSA to check your estimated social security benefits. Take the number with a large grain of salt.
Truth be told, it’s all pretty bleak. I save and invest 50% of my income but when I do the numbers for retirement I’ll still be retiring ~65. Personally I’m a skeptic and don’t factor in social security, though. The depressing reality is if you’re saving for retirement then you’re already better off than most.
I think that talking about the “salary” you want in retirement is misleading. When you’re working, you have a top-line salary that’s really easy to access and pin your concepts of lifestyle to, but actually has very little to do with your lifestyle. Example: if you’ve got $100k salary, you’re probably paying something like $30k between federal, state, and SS taxes. If you’re maxing your retirement contributions, there goes another $20k, and you’re only taking home $50k.
If you’re saving 50% of a $100k top-line, including that 401k contribution, then you’re probably living on something more like $30k after taxes, and it’s a lot easier to save enough to pay yourself $30k than $100k. If you’re living on $30k/year withdrawals from savings, you’re not going to pay taxes. You’re not going to need to save $50k/year. You only need to replace that $30k, and 25*$30k is just $750k.
The 25x rule includes $0 social security. Reasonable for FIRE people, who may aim not to work enough to qualify for SS, but if you will, then you can calculate the savings equivalent to your estimated income. eg, if they say you’ll probably qualify for $1500/month = $18k/year, that’s equivalent to 18k*25 = $450k savings.
Edit: I used the 2nd calculator on this page to adjust for future inflation.
Thanks for the breakdown. I definitely look at retirement in a pessimistic light. Honestly I’d love feedback so let me know what you think. Here’s the assumptions I make:
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I work 30 years and retire around 50, die around 85. Let’s also say I’m just starting to work and have those 30 yrs ahead of me to make the math easier. So 30 yrs work, 35 years retirement.
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Inflation based off 2000-present, ~2%. That $30k becomes ~$54k at the beginning of retirement [bor], ~$108k at the end of life [eol].
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Health insurance starts around $600/mo in my area so $1k/mo at bor, $1.46k/mo at 65 when Medicare kicks in. $54k -> $66k
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I’d like to travel more. Currently my ideal trips cost $7k/person. With inflation becomes $12k bor. $66k -> $78k/yr bor.
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I have had an up-close view of end-of-life for 4 close relatives. I’ve been a caregiver before and don’t wish that for my children. My bloodline is shit and if I live to 85 then I can optimistically guarantee at least 2 years of nursing home care and maybe 5 years of an in-home caregiver part time. Currently in my LCOL city nursing homes start at $70k/yr and in-home caregivers are ~$20/hr. Adjusting for inflation each year of nursing home is $243k. $20 for 8 hrs a day is $58.4k with inflation $184k on top of living expenses. I really just expect EOL to soak up any cash I have left.
There are things like I won’t have a mortgage, and savings will be minimal. I don’t take that into account though because I know 1) I will need more help maintaining my current house (I hope to pass the house to my children), 2) seeing how the economy is trending now I may want to help my children financially.
There definitely are ways that spending can increase after retirement to take up money previously used for taxes and savings. The key thing is to focus on the spending side. You have to know how much you’re actually spending, today, before you can sensibly add new expectations. Then you can sensibly plan for how to meet those expenses. You’ve hit on probably the two most popular categories - healthcare and travel.
In the US, healthcare is a huge unknown anti-lottery, but the ACA has been a great boon for early retirees. Early retirees generally have very little declarable income - spending from taxable savings, so only the gains or dividends are taxable - and the ACA tax credit effectively caps your premiums at a sliding percentage of that income. The nominal premium may be $600/month, but you’ll only pay $80 at $30k income (which might allow you $60k spending). Biden changed the formula for Covid to be even more generous, but I believe that’s temporary. Obviously still have to pay care costs, but ACA plans have annual out-of-pocket caps, currently in the $6-12k range, so you (theoretically) won’t face total disaster if you need a $250k liver transplant. You still have the lottery system of whether you have significant costs or not, but having a limit on your losses helps. Definitely learn how the ACA and Health Savings Accounts work if you’re planning to retire early.
EOL care is a big part of that unknown. There is insurance for long-term care that can, if nothing else, convert the unpredictable anti-lottery to a predictable expense. It’s also worth noting that when you need to transition to assisted living, you no longer need your primary residence, so it’s fair to plan to sell the house to pay for the nursing home.
If you plan on passing the house on, then maybe the kids can earn that house by helping with care. My parents planned on passing their house on to the kids, but none of us want it. Us kids needed help when our parents were 50 - college, starting households, etc - but by the time they retired, let alone approach end-of-life, we’re now 40s, 50s, established in careers, and starting to think of our own retirements and legacies. By the time my parents (probably) pass, their kids will mostly be retired and their grandkids well on the way of their own lives. Passing at 85 is very different for the surviving generations than passing at 65.
For me, using the future value of the costs exacerbates my fear. I prefer to work in inflation-adjusted numbers and reduce expected investment returns by inflation. Mathematically, it’s the same - add 2%/year to all your costs or subtract 2%/year from all your savings - and I have a much better intuitive feel for today’s costs & spending. SS income gets an annual inflation-rate increase.
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FIRE is based on 25x expenses, not income. The difference is particularly important for FIRE folks since they tend to save a much greater portion of their income rather than spending it.
How is that possible? Savings rate is the only variable that matters and 50% should be well into early retirement range. Normal retirement is more like 20-25%.
Try this calculator https://networthify.com/calculator/earlyretirement
Normal retirement is like 10-15%, depending on lifestyle in retirement and whatnot.
Really retirement is pretty much anything above that.
I made a very lengthy reply here using the example of $30k/year actual salary. Ultimately it hinges on this assumption from the calculator you linked: “Your current annual expenses equal your annual expenses in retirement”. I think I will need higher annual expenses than what I have now.
This advice is kinda strange in my opinion .The easiest way for me to think of it is that 4% withdrawals are considered safe and you could do them forever. So take the income you want in retirement and multiply by 25. That’s what you’d ideally have saved. You probably need less considering you don’t live forever and you’ll likely collect social security or some other pension.
You can’t do 4% withdrawals forever, especially not inflation adjusted. That number is intended to have a 95% chance of success in a 30 year retirement. If that fits your situation, then it’s a good number to use.
I personally use about 3.5% because I want some longevity insurance. My mom’s parents lived into their 90s, so a 30 year retirement is cutting it a bit close, and I want the option to retire early.
I think this depends on your lifestyle. These calculations contain an assumption that your lifestyle lines up with your income and that you will want to continue spending at the same rates when you retire.
Many people (especially in the US) will get a raise and buy bigger houses, cars, etc. If you’re disciplined about living beneath your means then a raise just means you can save more.
I bought a house at 23 and paid it off in 10years. (Maybe not the best financial decision given what happened in the stock market over that same period). When I retire I plan to have another paid off property and rental income from the first. I won’t have a mortgage, and should have rental income instead. Things like that change the picture in ways that these targets likely don’t account for.
I’ve never got any of those milestones and I think I’m on track with my career/retirement planning. Every situation is personal. You might be doing other things that are not showing up on that score card, but never the less has a huge impact on your ability to retire.
I’ve always found James Shack a good intro to the subject: https://youtu.be/Jm6d7UdSCsk?si=Sj5WECVllkfI1A27
