Author Topic: Retirement: I feel like I'm doing the math wrong  (Read 3083 times)

ETBen

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Retirement: I feel like I'm doing the math wrong
« on: May 15, 2016, 08:45:07 AM »
Or using the calculators incorrectly.  Maybe it's just the mental contrast of hearing how no one is saving enough and we will all be poor in retirement.  I'm not totally new to the topic, but taking another look at it to make sure I'm setting myself up for success.

I'd say I'm frugal for my income bracket (130k).  And not even that frugal.  It seems reasonable to say 40k in yearly retirement spending, since I won't have kids or a mortgage.

I'm 38.  Here is my "safe bet" situation:

I would want to retire in 20 years.  Calculating for 30 years retirement. 
I am currently maxing out my 401K and see no reason to not (or not be able to) keep doing the same. 
If you look at Firecalc, not including company match, SSI, and any extra contribution, that still puts me at 77% success rate. 
(In reality I'll be contributing more $ to have 100% success and hopefully for an even earlier retirement.)

So if I can start this "late in the game" and contribute a reasonable 401k amount... it seems to go against what the gen pop talks about retirement being unattainable. 


gecko10x

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #1 on: May 15, 2016, 09:18:33 AM »
Because you make 2.5x the median household income?

ETBen

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #2 on: May 15, 2016, 09:30:48 AM »
Because you make 2.5x the median household income?

True. And there is only one of me to support in retirement. I guess I'm thinking that $18k per year isn't an outrageous amount to save.

Note: this isn't a "why can't others do it?" post. It's a post more like "the media and general belief is that I need to save way more than the math shows". And I knew that but it still seems off.

Murse

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #3 on: May 15, 2016, 09:32:04 AM »
In my humble opinion there is no such thing as "frugal for my income bracket." That is like saying I am fit for my activity level. I personally wouldn't call spending of over 50k per year frugal in any income bracket, that is what the average US household gets to work with and we are always face punching the general community.

 77% success is pretty easy to hit. if you are starting from 0 you are saving roughly 14% of your (gross) income . Shockingly simple math says it will take you over 43 years to get the a 4% SW rate (based on his assumptions.) if you want to retire in 20 years (starting from 0) you will need to save around 45% of net income according to the shockingly simple math post.

SeaEhm

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #4 on: May 15, 2016, 09:44:23 AM »
In my humble opinion there is no such thing as "frugal for my income bracket." That is like saying I am fit for my activity level. I personally wouldn't call spending of over 50k per year frugal in any income bracket, that is what the average US household gets to work with and we are always face punching the general community.

 77% success is pretty easy to hit. if you are starting from 0 you are saving roughly 14% of your (gross) income . Shockingly simple math says it will take you over 43 years to get the a 4% SW rate (based on his assumptions.) if you want to retire in 20 years (starting from 0) you will need to save around 45% of net income according to the shockingly simple math post.

Maybe he meant frugal relative to his income.

I totally understand your post though. 

Tyson

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #5 on: May 15, 2016, 09:51:42 AM »
I make about the same, but with a wife and kid.  When you first start reading MMM, it seems crazy that people can save so much per year.  But go after your recurring expenses and get them down.  Then hit your "one time" spending category and dial it down too.  Pretty soon  you are at 50% savings and your lifestyle really hasn't changed that much. 

Retire-Canada

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #6 on: May 15, 2016, 10:27:27 AM »
To get to FIRE in ~20yrs at a $40K/yr FIRE income using the 4% SWR rule you need to save:

- $25K/yr @ 7% after inflation
- $30K/yr @ 5% after inflation

If you had 40yrs to work with it would be:

- $5K/yr @ 7% after inflation
- $8K/yr @ 5% after inflation

None of these numbers are an issue if you are making $100K/yr+, but if you are making a low wage and supporting a family it's a lot harder. Especially because few people starting saving when they are in their 20's.

ETBen

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #7 on: May 15, 2016, 11:13:57 AM »
All good points and ways to look at it!

Frugal compared to peers in my income bracket is what i mean.

Murse

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #8 on: May 15, 2016, 11:32:10 AM »
All good points and ways to look at it!

Frugal compared to peers in my income bracket is what i mean.

I understand what you mean. My post was meant to show you that you have much more you can cut and have a much earlier retirement than you are anticipating.

ETBen

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #9 on: May 15, 2016, 11:54:01 AM »
All good points and ways to look at it!

Frugal compared to peers in my income bracket is what i mean.

I understand what you mean. My post was meant to show you that you have much more you can cut and have a much earlier retirement than you are anticipating.

Definitely. Like most people, I waste money in the small daily luxuries like eating out or trip to target or new shoes etc. Stupid spending basically. I enjoy a few vacations too. Some could be done cheaper for sure.

What is also surprising to me is that I didn't save much from age 23-37.  Maybe 5% to 401k. And 6 years ago I made less than half of what I do now. You know what has always struck me?  Things like cars, restaurants, those kind of luxuries and what % of your income they would be. Bc people assume something like a new Camry or dinner at an average sit down chain restaurant are kind of standard middle class living. And everyone thinks they are middle class. Yet that % of your income for that cost could vary so widely.

ETBen

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Re: Retirement: I feel like I'm doing the math wrong
« Reply #10 on: May 15, 2016, 01:00:15 PM »
To get to FIRE in ~20yrs at a $40K/yr FIRE income using the 4% SWR rule you need to save:

- $25K/yr @ 7% after inflation
- $30K/yr @ 5% after inflation

If you had 40yrs to work with it would be:

- $5K/yr @ 7% after inflation
- $8K/yr @ 5% after inflation

None of these numbers are an issue if you are making $100K/yr+, but if you are making a low wage and supporting a family it's a lot harder. Especially because few people starting saving when they are in their 20's.


I like simple math lol. I'm not bad at math but if I'm trying to visualize and really grasp it, then this really helps!