I know, this is a really stupid question from somebody who ought to know better! But we’re Talking About Money before the wedding and I HATE Talking About Money and we want to settle everything and set everything up and just forget about it, ugh, money.
I know I should have worked all this out a long time ago, when I got my first real post-masters’ job and all, but I somehow never did. Partly because I know I’ll be getting some sort of inheritance (much smaller now because of my idiot brother!), partly because I do get the state retirement benefits, but mostly because I’ve put it off and put it off and put it off.
So. I do have a Roth IRA, but I don’t put a ton into it. My certificate matures this year, and I was reading up and considering changing it to one of those Vanguard Target Retirement Funds that changes investments as you get closer to retirement age. (Sounds like a good idea with regards to the “set it and forget it” plan we want.)
We need to think about both of us, though. He blew his 401K after his divorce and is essentially starting over, and I have, like, $5,000 in my IRA, so we’re both essentially at square one. He’s 40, I’m 32.
His company matches some 401K, so of course he wants to make sure he doesn’t leave that lying on the table. I’m getting the State Retirement thing, which is also matched by my company. So how do you figure all those things and figure out how much money you need to have to retire? Especially since I have absolutely no idea how much it will cost to live in 2045? Is there a formula or something?
Most investment sites like Fidelity, Harford, etc. have retirement calculators. I’m sure if you Googled “retirement calculator”, you’d get some decent hits.
My goal in life was/is not to work for anybody if I can help it. Another goal was/is to pay as little in taxes as possible. So I’m not that keen on 401K’s and IRA’s. What I’m good with is living well and efficiently. This means making as much money as possible and spending as little without hurting. It’s a nebulous concept that very few people ever understand. Depending on a retirement system is for the birds.
Best advice I was given was to focus on being debt free. Putting too much money into a retirement fund when you are paying out higher interest rates on debt doesn`t make sense. So develop a budget with one of your goals to be debt free and a small amount monthly into a retirement fund would be one way of looking at it.
Frankly this is always the toughest question about retirement. How much is enough? Are you planning on living 5 years or 40 years after your retire? Healthy or sick? Since there is no way to know that you have to sort of work backwards and arrive at a number that is comfortable.
One way is to honestly think about how much you think you will need each year. Let’s say the hypothetical number you come up with is $40k a year. Take out your SS and your pension projections–let’s use $15k for SS and $10k for your pension for grins, so that means you will need another $15k from your investments.
You then have to take into account inflation and the number of years you intend to draw. There are several good retirement calculators out there but I found this one to be the best.
It allows you to add SS in, your pension, any inheritance, lets you adjust date of retirement, what you plan on adding each year, etc. Then you determine a figure you want to draw and it runs that against ALL the past years to see how historically your investments would have done. It doesn’t mean you will have that success in the future, but it is somewhat reassuring to know that if you retired in 1929 with your porfolio that you had a say 85% chance of still having money after 35 years. Of course the future could have a worse year than 1929, but again it is all speculation and finding a comfort level.
That being said, the best (and only way in my opinion) to get to a comfortable retirement is living below your means. The earlier you start the easier it will be in the long run, but it is never too late to start! Good luck!
It’s kind of hard to tell without specifying your expectations, and your philosophy. My wife and I will never settle this out. I want to enjoy life while I can, and don’t expect to enjoy a real retirement at all. To me a real retirement means basically that I can’t do what I want anymore, and no amount of money is going to help that out. In the mean time, my wife lives out of the fear of ending up impoverished for some reason, and I’m willing to put enough away to make sure that won’t be a problem, but I’m not going to do without now so she can imagine a life of world travel and conspicuous luxury some day that may never come. (All while finally managing to convince her she would live past the age fifty, only taking a few years past her fiftieth birthday to do so).
I have relatives who scrupulously saved everything they could for their retirement. Within 3 years of moving to a retirement community with it’s own golf course and tennis courts they both became disabled, unable to enjoy their favorite activities or withstand any significant amount of travel. They’ll leave their daughter a very nice inheritance though.
If ever there was a need to compromise in marriage, IMHO, this would be the area to do so. Pick your figure, and let your soon to be spouse pick theirs, settle on the average of the two.
That is why I like that calculator I listed. It allows you to run a bunch of scenarios including different rates of inflation. While I don’t disagree with **TriPolar’s **position about spending now and not worrying about retirement, I personally think you have to find a compromise you are comfortable with. Everyone has a different comfort level on risk and his advice is good in that respect. Find out where you are your future husband stand and find a number you can both agree to.
My father is 85, and his oldest brother died last year at 96, same long lived history on my wife’s side too. So I plan my retirement to 100. But if you have a history of heart disease, etc you might not take it out that long. Again it will be different for everyone, you have to figure out your risk level and go from there. Some people ready to retire, kept too much in stock in 2008 right before things crashed, and they got a harsh lesson in risk. Conventional wisdom is that the closer you get to retirement the less you have in stocks, etc. But they got greedy for the good returns, but that has risk associated with it.
So without knowing your comfort level on risk I honestly don’t think anyone can help you. I think that would be a good conversation for you guys to have and go forward from there.
Try to think in terms of present dollars and then you can easily use an inflation calculator to adjust that to a future value basis. The bigger question is what your living expenses will be like. Take your budget today and look at how it would be different if you were retired. Will you be free of mortgage payments and student loan payments? You won’t have a big chunk of your income going to retirement savings once you’re actually retired. What will you spend more on? Travel, hobbies you don’t have time for now?
In 30 years, 40K will not go far enough. You need to adjust it for inflation, say by 3% a year.
Current thoughts on safe withdrawal rates say 3.5 to 4% each year. To retire today with 15K plus the assumed pensions HK used to make it to 40K you would need $325K (25 x 15K).
You can do it, I did it in 20 years - several times over - with no pensions.
There is an old thread somewhere around here where HK and I discussed this.
Well, depending on a pension / SSN, maybe - but obviously you’re saving… and the 401(k) / IRA is a way to increase those savings.
Are you putting the difference between what you make, and your expenses, in any kind of tax-deferred account? If not, why not? Why not put it into a Roth vehicle where there won’t be any taxes at all?
This is a bit scary-sounding: your attitude, that is. You want to enjoy life now, which suggests to me not saving. What about 20 years from now (or whatever), when you’ve enjoyed life, aren’t planning on retiring, but Something Happens and you can’t work any more, but aren’t dead yet??? I must be misunderstanding.
The relatives: Yeah, they scrimped, and now they’re disabled… but the scrimping means that they can afford the care they need. They may not be having as much fun as they’d planned, but it’s a hella lot better having the cash, than to be dumped into a Medicaid-funded nursing home as a friend’s mother is facing (Alzheimer’s, gone through all her retirement savings, friend doesn’t have money to help…).
I did not mean to imply that anyone should not save. And we do save. The disagreement with my wife is about how much, and when. It’s also a bit more complicated than that (as any married person would understand). But my philosophy is that I would like to enjoy life now, and to prepare for the future based on reason, not fear.