Here’s a good one, that doesn’t require a CPA to interpret.
Thanks! Guess I need to start saving more.
Spending less is almost as valuable an activity. Consider the money you spend in terms of what it could be worth at retirement age.
The calculator assumes people are actually vested in a retirement program. The stats are pretty dismal people are actually saving for retirement.
When I was 25, I worked for 5 years at a place that put $35/month into a retirement fund for me. A grand total of around $2100. I forgot about it and just let it sit. Thirty-three years later, it is worth $55,000.
I could have afforded to also contribute $35/week at that point in my life - if I had, I’d have a cool quarter of a million for 5 years of retirement savings.
Starting early, even if small amounts, is very powerful because of compound interest.
Thanks to compound interest, investing a fixed amount monthly from ages 20-30 gives you more money at 65 than investing the same amount from ages 30-65.
Don’t worry about the money invested - time is on your side. The ups and downs in the market will happen but ups have historically won out. Let it sit.
You don’t have to learn to invest. My $2100 was in the equivalent of a “Target Date” fund at Vanguard or Fidelity.
edit: No, I just have to work until I’m 75.
As long as I get 4% after inflation I should be OK. Thing is, I only really expect to get 1-2%. Money is too cheap these days and the discount rate really needs to be adjusted.
Yeah, I used the calculator, which defaults to a four-percent return. Given that return I should have enough. But if I lower the return to two percent, I’m out of money by 86. (At a three percent return, I’d leave some at death.)
The link in the OP didn’t work for me, but this link did: http://www.nbcnews.com/id/21563675/ns/business-your_retirement/t/retirement-calculator/#.Ug1Wcm3OCD4
The thing didn’t even give me an age at which I can retire. That’s how bad/unlucky I am with money/jobs/life/whatever, I guess.
[Requires Flash. Ugh.]
If I’m not forced to retire early due to my retinal degeneration, I should be good.
Four percent after inflation is not all that high, if you are invested at least 50% in equities (and don’t panic sell on the inevitable market corrections). I’m running about 6% annualized (unadjusted) over the past 10 years, which probably works out to about 4% after adjustments.
Damn straight. Every single day of my life I talk to people about saving for retirement and such, more than half aren’t doing anything and - more importantly - don’t believe they CAN do anything.
That said, the tool linked is a blunt instrument. There are better that I’ve seen.
Who gets 4% after inflation nowadays? The world is awash in trillions of idle capital, nobody is offering those kinds of rates (which is actually 5-7% since inflation is 1-3%).
Plus inflation varies. Medical costs grow far faster than inflation, and will make up a bigger % of the budget in old age. Other costs like food and transportation should go down. When I was a kid a 24 pack of coke cost $6. Now, 25 years later it still costs $6.
Either way, I’m planning to move to a middle income country when I retire. Affordable housing and affordable health care. This countries health care is a time bomb waiting to happen. However maybe I’ll move to a state like vermont which will have a functioning single payer system by the time I retire. I’m sure other states like NY or CA or the new england states will have meaningful health reform by then too. So maybe I can stay in the US. yay.
If when you retire you live in a low cost of living area, pay off your house, no longer save for retirement, have a lower tax bracket (little/no income tax) and no longer have to support children then you can cut your living expenses fairly well.
I like this one, because it gives me a really good idea about how much I can draw out every year. I won’t have heirs I need to consider, so I can leave $0. The trouble, of course, is if I live longer than the projection (90 in my case). I’ll just have to set aside some money in that last year for some cyanide pills, I guess.
Something that absolutely blew my mind, actually left me speechless:
According to a manager, only 21% of eligible employees at our company contribute to their 401(k). :eek:
I work for a mid-size chemical company. The company has a pretty decent (though not fantastic) 401(k) program.
Company matches up to 5%
The mix of mutual funds (:mad:), index funds (:D), bonds and miscellaneous (:dubious:) is pretty decent. I’m mostly in the index funds myself, for the low management fees. Plus the company does profit sharing into 401(k) every year - usually works out to 1-2 paychecks, once a year, directly into 401(k)
I just do…not…get it. The company match - that’s as close to “free money” as us poor bastards get. Why wouldn’t you take it? It takes 5 years to get fully vested in this free money, 20% per year…but jeez, you would be hard-pressed to get returns like that on any other investment. I started working for this company at age 25. I managed to hit a goal I’d seen quoted before - “Have your age 30 salary equivalent in your 401(k) by age 30”, and damned if I’m not well past that by age 32. And yes, I was in the market when everything went to shit 2007-2009. By staying in, same dollar-cost-averaged investments, I’m back up. Way back up.
Worst case I’ve heard - there’s a guy here who worked for the company for nearly 35 years now. The market crashed, 2008 or so, he decided: “No more of this. I’m cashing out my 401(k) completely.” So he took the 50% or so market drop hit, then on top of that another 10% tax hit because he wasn’t 59.5. :smack:
No one in history has ever beaten inflation with bank deposits (or money markets). At best you can tread water with US I-Bonds. The 4% figure assumes a significant fraction of savings in equities (which do historically outperform inflation).
This is about the most optimistic of these calculators I’ve ever seen. But then I have been saving for retirement. Pretty much no matter what I do I’m going to leave way too much for my kids at 90.
You don’t have to outpace inflation. That’s a business-think myth. (And fostered by the earn-spend-buy-BE HAPPY! hucksters.)
Saving money in a growth account that will multiply it over decades, irrespective of inflation, is the goal. It doesn’t matter that the $1M you retire with isn’t the same as $1M when you’re 25. It is - or should be - enough to keep you comfortable in your later years.
We’re in a dismal time for investments, but accepting some risk in down times like this means most people can look at an average 5% return over the span of their retirement planning.
Yeah, the only way I’d expect to get 4% after inflation is if one is very heavily weighted toward equities (though not entirely), and the market performs at historical rates.
ETA: by historical rates I mean current expected weights based on historical valuations, returns, considering the current market conditions. Because right now the market is overvalued historically so you would expect its returns to lag slightly behind historical rates which would produce a 4% return. But it could very well underperform for myriad reasons like resource depletion.
I second jasg thoughts about retirement and savings, man if I hadn’t blown an early 401k I had…well that is for another thread. As for the OP’s calculator I have used that calculator BUT the one I prefer is called FireCalc
This one doesn’t require you to be a CPA but it does require you to have a fundamental understanding of financial matters. What I like about this calculator is that it runs your portfolio against all the past markets for the number of years you plan for retirement. All it shows is how your portfolio would have done in the past as a tool to guide you in your retirement. No calculator can guarantee a success rate and this one doesn’t pretend to, it just tells you how your portfolio and withdrawal rate would have done in the past. I find it a very helpful tool.
It also allows you to put in a pension, social security, a line for year future retirement funding, change rate of return, change inflation, etc. I find tools that allow you to adjust the variables more useful than a one tool fits all situation like the OP calculator.