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April 25, 2007


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perfect tip!!

Well, if you aren't planning on any other income source, pension, or social security, and targeting a constant standard of living before and after retirement with a 100% income replacement level, investing for a real return of 6% for 40 years requires a savings rate of 13.9%. A real return of 7% will lower this to 11.1%. Will you invest in enough equities and will equities return enough in the future to achieve that return? Will you work for 40 years without any lengthy periods of unemployment, illness, or other mishap? Many uncertainties in life.

Unfortunately, I think there are too many unknowns to really make a decent estimate on your actual costs during retirement. What are your health costs going to be 45 years from now (in my case)? If you've saved pretax money in your 401K, what are the tax rates going to be in 45 years? Will your car last you, or will or need to buy a new car? If you plan on moving somewhere to retire, what will the property values be like in that location 45 years from now?

That's why, for me at least, estimating costs simply won't work. I just plan on saving "a lot" -- a lot being 10-15% of my income today. I figure I'll just continue to live within my means, even after I retire.

In my opinion a single person should be saving 20-25%, including retirement, debt repayments above minimums (mortgage or student loans, and should not have any credit card or other loan debt at all) and not including any matches.

A married couple should be saving 10% of the larger-earners income, plus 90%-100% of the second earners income, most of which should be going to paying down large loans such as mortgages. Once the mortgage is paid off they can reallocate those funds to retirement OR if they are making a lot of money, dedicate it to easily-revocable spending such as fancy dinners. I say this because in our present economy a two-income family should be prepared to live on one income without threat of financial ruin.

should be saving 20-25%

Ouch! But this is the route to financial independence and it is much easier to have your money working for you than you work for it.

I earn minimum wage and have student loan debt. How much REALISTICALLY should I be saving?


Just start saving. Open up a FREE sharebuilder brokerage account, which takes all of 5-minutes. Link it with your checking account or set up bill pay to your checking account. When I first started saving in a big way, I was sending $5 to my sharebuilder account. So if you have $3.67 cents you can spare, send it via bill pay (save the .41 cent stamp) and get your save on. Once you have some good paper in there, I might keep it very simple for you buy using ONE ETF and ONE bond fund. Only buy ETF's when you have, minimum, $250 to buy.

I would love to hear how much you make, how much you spend and what your expenses are.

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