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October 15, 2012

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Looks and sounds like a good plan.

I like the idea of the variables in the plan in that nothing is for sure. Yes the wife may want to get a job or not, the real estate venture or the stock market may work out better or worse than expected.Kids can get scholarship money or not. All have an impact on money saved or spent.

All part of how they all will unfold will tell when you will be able to retire.


Ignoring the equity in my condo, I have about 2 times my expenses saved up. Considering that I save 50% of my monthy net pay and 100% of my bonuses, I should have about 3-4 times my expenses saved up in another year. And I'm nowhere near age 45!

I'm 58, recently retired and have about 13 x my salary.

Keep in mind, when you are counting your expenses, to include the full cost of insurance. My husband's employer pays 95% of his health insurance and 75% of mine. When we plan, we have to plan to pay for it all.

Retirement is a long way away for me, about 40 years if I retire at traditional age. I probably have about half a year's salary saved but that is probably close to a year's worth of expenses if I don't splurge on anything big.

I too am looking to the "safest retirement." My wife and I are working toward building an investment portfolio that will generate well over what we need to be comfortable, without having to sell assets to raise money. At age 28, our net worth is 1-2.5x our annual incomes depending on how you count it, and 2-5x our annual expenses. I expect that within 10 years our investment income will exceed at least our current W-2 incomes. We'll have lots of lifestyle flexibility once that happens.

Eight times your annual salary seems an awfully low target. If I recall correctly, the "4%" withdrawl guidelines suggest savings in the neighborhood of 25X annual expenses.

Most of us will live longer in retirement than generations before us, and we will so with ever increasing medical expenses. Cancer, dementia or one broken hip will make it awfully easy to burn through the 8X benchmark in very short order.

@theCase
You are in a remarkably good position having just retired at 58 with 13 times your salary.
I also retired in 1992 at 58 but with a portfolio of only 4.5 times my salary.
Now at 78 my portfolio is 96 times my retirement salary and my annual investment income is 4.2 times my retirement salary, in addition to my wife and I receiving two pensions and two SS checks every month.

My success was the result of two things.
1) Subscribing to a proprietary database of mutual funds that came with an excellent program for analyzing and ranking mutual fund performance. Then learning how to use it to invest wisely, practicing fund selection and market timing.

2) A great stockmarket between 12/28/92 and November 2007 when I went entirely into income investments. My software also helped me sell everything over 4 market days after the peak of the dot.com bubble.

Anyone that waits until they are 67 to retire is missing out on 9 years that could be spent having a wonderful time doing whatever turns you on the most. In our case it was overseas adventure travel.

I wish you many years of successful investing.

I am 26 and my husband is 27. I currently stay at home with our 2 year old. We have 1x annual income saved up which is about 2x spending.

Our current plan includes my husband's government pension along with our own savings. The struggle to save comes in balancing living today with saving for tomorrow.

My plan is to save up a nice amount in the retirement portfolio and let it sit for 20 years or so. The longer you put off withdrawal the more you will have in retirement. I quit my regular job this year and I won't be adding much to the retirement fund from now on. I'm not planning to withdraw until I'm 65 though so the fund has time to grow.
At the current take home, we probably have around 20x.

Here is our rough numbers.
Savings:
= 2.89 times annual salary (gross)
= 3.67 times annual salary (net)
= 4.68 times annual spending
(I'm 38, my wife is 37. Kids are still in grade school.)

I guess we are doing ok, but still have a long ways to go compared to the others here.

@FMF, 21 times annual spending saved is mind-boggling. :)

Good post. One thing to think about is how abnormally low interest rates (if they persist) might change a lot of traditional "rules of thumb" for how much money you need to have saved up. Lot harder to get income from your investments when long-term bonds are under 2%

I have a variable component to my pay but we have approximately 5 times earnings in savings and another .5 in home equity.

I am early 40s with a wife and one 4th grader.

I am 48 and have about 10 times our spending saved. Further, I have a pension plan that will cover a good portion of my expenses during retirement as well as retirement healthcare benefits. We also own a home that is fully paid for and would sell today for around $700,000. Once the last 2 kids are out of the house, we will move to a home that's about half the size of the current home. My early retirement plans have changed several times, but the financial end seems to be well on the way.

I realize that this is a back of the napkin type calculation but I think doing a multiple of expenses has some advantages and disadvantages. Clearly this is a more accurate sense of currently spending. On the down side, if a large portion of your money is pre-tax then you will need more of it to meet your expenses.

If you spend 5k/month or 60k/year then you may need 80k/year. This is just an approximate calculation but multiplying by expenses could cause an undervaluation of how much money you need.

I think I can make the goal for 35. I thought I saw somewhere that at 35 you should have 3 times your salary though. Perhaps I was mistaken. I will have to really try hard and catch a few breaks to hit 3 times my salary by 35 though.

@Catherine
My wife has had a colon surgery and two hip replacements several years ago that cost us nothing at all - we never even saw a bill. We are both on Medicare and are in a Medicare Advantage group plan run by United Healthcare for my ex employer, a large aerospace company. My monthly premium for both of us is $294. The plan has changed somewhat since her surgeries and today there is a $250/day charge for a hospital inpatient stay with a maximum charge per stay of $1,000. Prescription drugs are pretty cheap thanks to Medicare Part D, and doctor visits cost us $20 for our PCP and $40 for a specialist. After 4 days in the hospital they try to get you into a skilled nursing facility where you are charged $50/day for days 1-20 with a limit of 100 days per benefit period. Where it gets expensive is if you cannot take care of yourself longterm, often because of dementia, and need to go to a special facility that can provide the care you need. In two such cases I have heard of, the healthy partner had an attorney arrange a divorce, deplete the assets of the one that needs full time care, and then the state will take care of them because they are destitute - pretty sad!

Age 25 here. Total retirement savings is about 1/3 of yearly salary... that would have been a higher percentage even as of a month ago, but I recently got a raise which pumped the percentage down. I am not complaining :)

The total is probably about 2/3 of a year's expenses, and hopefully will surpass a year's worth of expenses early on next year. We are saving aggressively, because we want to reach the "safest retirement" level as well. With a lot of discipline and saving, hopefully within the next 15-20 years, but obviously there is a lot of life factors that will play into that.

I think we are off to a good start, but just want to keep working on growing those savings!

At 56 I have 15x income saved, and I have 35 x spending saved. I am ready to retire at any time. The only reason I haven't left yet is because this job is so easy. I have no stress and it allows me plenty of free time, and they are giving me over 6 weeks paid vacation a year. I'm planning on staying maybe until next June....or maybe a little longer. But no more than 2 more years. I feel really good being in this position. To know that I can walk away at anytime. Life is good!

@Limey - You've been very fortunate to have the level of insurance coverage you describe.

My eightyfive year old Aunt broke her hip and required a six month stay in an assisted living facility as her home was not accessible. The bill exceeded $8000 per month and she was responsible for the entire amount. If she'd lived in a single story home AND had a live in care-giver such as a spouse or adult child, the Assisted Living facility would probably not have been necessary. It is wonderful that she is now able to navigate steps and could return to her home. But this was her third extended period of infirmity in the past two decades. Had she retired with only 8X her last year's salary, she'd be flat broke by now.

I know of three women within our circle of friends and relations whose husbands suffered dementia beginning in late forties or early fifties. One was Alzheimers, one suffered a brain injury from a motorcycle accident and the other suffered loss of oxygen to the brain during a heart attack. Only one of the couples was able to leverage divorce in order to secure indigent care. Each of these men are still alive, a decade later. 8X annual earnings is nice, but would fall short for each of these families. It is only enough money if you are also lucky. Very lucky.

Periodically, I pop in to comment on and point out where some formula for becoming wealthy or a benchmark for having enough to fund a comfortable retirement presumes luck without ever stating it. This is one of those times.

Having a spouse is part of a financial plan.
Having children is part of a financial plan.
Chosing a home that will accomodate declining mobility is part of a financial plan.
Taking care of your health is part of a financial plan.
But relying on luck is not a financial plan.

@Catherine
My wife had her hip joints replaced at 70 and 71. We also live in a ranch style home so after a 3-4 day hospital stay she was able to come home and, with my help, recover nicely. She only used a walker for one week.

A woman friend of my daughter has very rapidly advancing Alzheimers at the age of 50. Both parents and the mother's siblings all died of it at an early age. The woman has visited our home twice and wasn't any problem, but I now hear about her rapid decline almost every day. She is very strong and active and has developed violent tendencies, as well as losing all of her short term memory, and even her speech has turned into incomprehensible babble. Taking her somewhere by car has become a problem because she has often jumped out at stop lights, since she is paranoid about being taken to some place that she probably won't like. Today in fact her husband is taking her to an Alzheimers care home, but it's a home not set up for patients like her so it probably isn't going to last long before he will have to find a much more expensive facility. Three years ago the woman was earning $150K/year at Adobe Systems doing software development. She and her husband lived right up to their income and now find themselves in a beautiful home in a posh development but cash poor, a lot of debt, and with expensive tastes, and a brilliant daughter that was planning on going to Harvard Law School. It's going to be a huge problem for the husband who seems to be in a daze and unwilling to accept the reality of what's in store for him.

@Catherine
I've enjoyed most of your comments and found many of them very thoughtful. I even bought the "Black Swan" book by Taleb based on one of your earlier posts. Do you have any other books or authors you'd recommend at the moment? :)

***
3x net annual salary, going on 27 (I have very inexpensive tastes!)

@oldlimey

I would like to know how Morningstar told you to sell out of stocks four days before the crash.

@JR -- 3X your earnings saved before age 30 is impressive. I'd like to know what you think of Taleb. Did you read his earlier book?

Thinking Fast and Slow, by Kahneman is superb. It is probably the most important thing published in the past ten years. No library is complete without The Intelligent Investor. It's a decades old classic that has proven it's worth. I like Bogle, but the best finance author of all time is Frank Fabozzi.

For fun, read the following in the order published:
When Genius Failed
Liars Poker
The Big Short

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