How do you decide on a goal amount to have saved by the time you retire?

Discussion in '401k, IRA and Retirement' started by Penny, Jul 3, 2015.

  1. Penny

    Penny Well-Known Member

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    I am really confused about how you set the amount of money you are trying to have saved by the time you retire. I know the answer is "it depends", but what exactly does it depend on? And I know more is always better but what is the baseline "probably enough to scrape by"?

    I have heard that one rule of thumb is 8 times your annual salary. Is that a good enough target to aim for (or above)?

    Any insight appreciated. I am a late starter when it comes to 401ks, but I still have a reasonable period to save over--assuming nothing disastrous happens and I retire at or after 65 years of age.
     
  2. Thejamal

    Thejamal Guest

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    I'd mainly look at the lifestyle you imagine yourself living once you retire. Do you want to be someone who travels all over or stays at home? Want the ability to help kids/grandkids if you're someone with a family? If you think it'll be similar to what you do now, then you'll have a good idea what expenses will come up and what a reasonable saving would be.

    I'd start there and then maybe work with an expert to make that lifestyle happen and what you'll need to save to make it happen.
     
  3. gracer

    gracer Senior Investor

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    I'd have to agree with Thejamal. It depends on the kind of lifestyle you want to have when you retire. Whether you want a simple life or a grand one. It also depends on the amount you can afford to put for your retirement. If you are making a hefty sum right now, then it's good to start saving big so you'd have a grander retirement.
     
  4. crimsonghost747

    crimsonghost747 Senior Investor

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    You will just have to do the math. What do you expect your monthly expenses to be when you retire? You probably won't have a mortgage anymore, you will probably drive less etc. But you also have a lot more free time that you may spend traveling or doing other activities that cost $$$. So think carefully.

    Then when you know how much you need, add a good margin of error and then you can pretty much calculate how much you should have saved up. Don't forget to think about inflation at the end, for both what it will do to your expenses as well as your investments.
     
  5. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Good point about inflation. I'd assume a couple percent a year there just to be on the safe side.

    A good general rule is to take whatever figure you estimate you'll need per year and multiply that times 25. If you'll need $40k a year, ideally you'd want to have $1 mil saved up, or at least $800k or so.

    It's a good idea to work to become debt-free by the time you retire. Some people also downsize - they'll sell their big home and buy something smaller after retiring, and use the difference minus any taxes for more $ to use as retirement savings.
     
  6. Penny

    Penny Well-Known Member

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    Thank you JR.

    "It depends" doe snot help at all. I know that. I want to know how to calculate the amount "depending" on not wanting to live in the gutter and eat pigeons. I can then work upwards from there. But no one who says "it depends" seems to provide a method or tool to make the calculation regardless of what the outcome is "depending" on. To do "the math" I need to know what the equations is to account for how long I might live and what things might be like in a few more decades.

    I had arrived at the "no dead pigeon casserole" estimate of about 800,000 so it is nice to see that lining up with an independent estimate. While having not much in the way of assets I also do not have debts. So there is that.
     
  7. Rosyrain

    Rosyrain Senior Investor

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    You have to take a few things into consideration. How much money will you have saved in your bank account to help offset, how much will you receive each month from Social Security (if you live in the USA ) and what the cost of living will be by the time you retire. I am scrounging around really hard trying to find ways to put more money into my retirement account while I am still young.

    I want to have a small house and be able to travel when I retire so I won't need a lot of income for living expenses, but I will need money to travel with.
     
  8. crimsonghost747

    crimsonghost747 Senior Investor

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    It's impossible for us to give you an estimate because we don't know who you are or how you live. Like I said, take a look at the kind of life you expect to have and see what that would cost. You will probably want to have enough to last 30 years or so. That will give you an estimate of how much you will need. Then add a good margin of error. And never forget about inflation, you can look up the historical average for your country/area and use that as a guideline.
     
  9. Penny

    Penny Well-Known Member

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    I am not asking for the number, I am asking how the number should be calculated.

    If this is unknown, as it seems to be to most people here, how does anyone do it?

    Because "it depends" is like saying the way you calculate velocity "depends". Sure it does but we still have a formula you can enter those values into that will give an answer.

    If it is to complex to do by hand I assume there is software for it?
     
  10. Rosyrain

    Rosyrain Senior Investor

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    Saving for retirement is a scary thought because you do not want to short change yourself and end up working until you are 80 because you did not plan ahead and save enough. I am in my early 30s and I worry about retirement savings a lot. I am actually going to get in touch with some sort of financial planner to help me figure it out because the whole task is over my head. It might be worth your while not to try to do it all yourself and instead spend a little money and get professional planning help.
     

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