Here's the hard number picture I'm looking at. Where are we off? Lets assume a 7% annual return.
$40k earner spends $20k and saves $20k per year, a 50% savings rate. After 15 years, he's saved $537K. He retires with a 3.72% WR
$100k earner spends $50k and saves $50k per year, a 50% savings rate. After 15 years, he's saved $1344K. He retires with a 3.72% WR
Now obviously the larger earner has more money, but he had to work the same number of working years and has the same withdrawal rate. This is why I considered them both to be in the same boat.
That's not entirely right... Correct me if I'm totally misunderstanding taxes...
3 earners living off 50% of their income.A 100k earner putting $13k/year in a 401k (and no other tax shelters) would owe a $35,873.44 total tax bill, no? Assuming Iowa state taxes, and if the earner is single, head of household.
$87k taxable income
$16,162.5 Federal taxes
$1295 in the 10% bracket
$5467.50 in the 15% bracket
$9400 in the 25% bracket
$12,060.94 state taxes
Iowa tax bracket: For earnings over $67,230.00, you'll pay 8.98% plus $4,248.34
$6,200 social security
$1450 medicare
That's $100k - $50k expenses - $35,873.44 taxes - $13k retirement savings = $1126.56 left over savings ....
total annual savings $14,126.56 (of course they could live off 20k and save $44,126.56)
100k dude - 50% spending, 35.87% taxes, 14% savings(or 20% spending, 35.87% taxes, 44.13% savings, if he lived off 20k)
A 60k earner putting 12k/year in a 401k would only owe a $17,417.57 tax bill.
$48k taxable income
$6552.50 Federal taxes
$1295 in the 10% bracket
$5257.50 in the 15% bracket
$6275.07 State taxes
Iowa tax bracket: For earnings between $44,820.00 and $67,230, you'll pay 7.92% plus $2,473.47
$3720 social security
$870 medicare
That's $60k - $30k expenses - $17,417.57 taxes - $12k retirement savings = 582.43 left over savings ....
total annual savings $12,582.43 (of course they could live off 20k and save $22,582.43)
60k dude - 50% spending, 29.03% taxes, 20.97% savings(or 33.33% spending, 29.03% taxes, 37.64% savings, if he lived off 20k)
A 40k earner putting 9k/year in a 401k would only owe a $10,628.05 tax bill.
$31k taxable income
$4002.5 Federal taxes
$1295 in the 10% bracket
$2707.50 in the 15% bracket
$3565.55 state taxes
Iowa Tax Bracket: For earnings between $29,880.00 and $44,820, you'll pay 6.80% plus $1,457.55
$2480 social security
$580 medicare
That's 40k - 20k expenses - $10,628.05 taxes - 9k retirement savings = $371.95 left over savings ....
total annual savings $9,371.9540k dude - 50% spending, 26.57% taxes, 23.43% savings.