Convincing Spouse that Slow and Steady is ok

[RhythmKats]

My wife and I have been talking more about our retirement plan and she frequently gets frustrated that we're never going to have enough to retire. We don't make a lot of money, but we live a modest lifestyle and and regularly contribute to retirement accounts. We are in our late 30's.

Right now, between the two of us, we have:
401(k) from former employer - $60K
403(b) current job - $3k
Trad IRA - $20k
Roth IRA - $30k

I've run these number through a few different investment calculators over 25 years with a 5% rate of return. For contributions, I assume we ONLY max out our 2 IRAs and don't contribute to any 401(k), which probably won't be the case. Just trying to be conservative. The results vary, but all my results are about $1.1 million, which I feel good about given our lifestyle. I'd love to show these #'s to her to boost her confidence, but am wondering if I should try using a different rate of return? I am trying to be conservative with a 5% rate of return. Do others disagree? Also, do you have a favorite investment calculator?

[Scandium]

What are you trying to achieve? Is she putting money into her IRA? Sounds like she is so what's the problem?

Whenever I mention to my wife that we should have $X MM by 50 and can retire, or whatever, she just nods "yeah sure..". But since I got her to max her 401k without complaints I really don't care what she thinks or whether she believe it or not. Sure maybe she could be more frugal, but it's not bad so I don't need to push it.

[tawyer]

1. In terms of returns, 4% real rate of return is the basis for much of the calculations in this blog. If your calculators include inflation, then 7% is the rate of return used widely. So 5% may or may not be conservative depending on whether this rate is real or not.

2. Devil's advocate, these numbers would not give me confidence without knowing my expenses. When do your savings reach 25 times your annual expenses? Without knowing your expected annual expenses, no-one can say if you have enough or not.

3. For investment calculators, firecalc and cFIREsim are popular around here.

[MDM]

...do you have a favorite investment calculator?

The Lifetime Planner that comes with Quicken isn't bad, but you are probably talking about one of these.

[RhythmKats]

Thanks for your replies. I'll check out those calculators. I'm not sure if the ones I used included inflation, so good to have that feedback.

Right now our annual expenses are about $35k, which includes paying student loans. My wife will be clear of those loans in 1 year and I'll be clear of mine in 4-5.

[catccc]

I usually use 7%.  I know it's a little aggressive, but the results motivate me.  I think I'm going on year 2 or 3 of telling myself I can retire in 5 years.  ha ha!  (Don't worry, I won't pull the plug until I'm really good and FI, and even then it will more likely be a switch to part time work rather than RE.)

[RhythmKats]

Thanks catccc,

Just curious, what calculator are you using to estimate your gains?

[catccc]

I have everything in excel, but if I'm just doing plugging some numbers in on the fly to see how things shake out, I just use simple ones, like mustachecalc.com or networthify.com.

Occasionally I'll visit firecalc.

[Enigma]

I can understand her frustration.  Burdened with at least a student loan debt (possibly other debt), low wages, modest lifestyle, annual exp around 35k, and other unknown factors.  If the company offers a 401k match you should be putting in at least the match.  You stated that your calculator assumed maxing out the IRAs and nothing in the 401k.  This is completely backwards.

Debt...  It is a crippling blow to your future retirement.  Student loans almost 4% (according to other posts) and possibly undisclosed debt will work against your retirement goals.

If I was in your position I would grab an excel spreadsheet to record two primary Net Worth figures.  The first one is your immediate personal financial statement with all your assets and your liabilities.  This will give you a negative or positive Net Worth at any given moment.  The second sheet should show monthly progression or loss of Net Worth.  This will actually show a 'Slow and Steady' pace that is more accurate.

"Periodically calculating your net worth -- the value of your assets minus your liabilities -- is the best way to measure and track your financial well-being"

[RhythmKats]

Thanks Enigma,

Keeping a clear record of net worth is a good idea. I do have my stuff set up on Mint, but admittedly don't check it too often.

To be clear, student debt is the only debt we have. No consumer debt, etc. She will be free of it in about a year and I will be student debt free in about 4. We definitely have a positive net worth. But seeing the growth monthly or whenever will be good.

And she is contributing to her 403(b) as well. The match is 1%. This year her contribution will be about $4k. I'm just trying to be conservative in my estimates. She also does some freelance work, so we are working to set up a solo 401(k) for some of that income.

I'd say between our IRAs, and her 403(b) we can count on being able to invest $15k a year. In reality, I think we'll be able to do more once we have the solo 401(k) set up.

Thanks for your ideas.

[LLCoolDave]

Yes, you need to use a retirement calculator that takes inflation into account. In 25 years your $1.1 mil will be worth less than $500,000 in today's dollars. Not enough money for a couple to live on. From 1965-1980 inflation was 8% which means the stock market was basically flat. Your wife is right. Your version of slow and steady will not win the race. You either need to take a haircut in the expense dept. or increase income/retirement savings.

[Goldielocks]

My wife and I have been talking more about our retirement plan and she frequently gets frustrated that we're never going to have enough to retire. We don't make a lot of money, but we live a modest lifestyle and and regularly contribute to retirement accounts. We are in our late 30's.

Right now, between the two of us, we have:
401(k) from former employer - $60K
403(b) current job - $3k
Trad IRA - $20k
Roth IRA - $30k

I've run these number through a few different investment calculators over 25 years with a 5% rate of return. For contributions, I assume we ONLY max out our 2 IRAs and don't contribute to any 401(k), which probably won't be the case. Just trying to be conservative. The results vary, but all my results are about $1.1 million, which I feel good about given our lifestyle. I'd love to show these #'s to her to boost her confidence, but am wondering if I should try using a different rate of return? I am trying to be conservative with a 5% rate of return. Do others disagree? Also, do you have a favorite investment calculator?

I think that you are crazy -- I think that you should contribute to have your equivalent of 1.1 million for post 65 retirement within 10 years, (or $530k) by age 50, then plan to stop contributing if you want.

Why put risk onto requiring future earning potential when you can guarantee your retirement now?  Maybe your wife does not want to keep working except by choice?

Also, having the money earlier, gives you more flexibility if the real rate of return is less than expected.

(This is the MMM forum)

[69mach351]

How to handle the spouse really depends on the spouse.  I used to tell her that we need to be doing X, Y, and Z.  The more I talk about it, ask her opinion, the more annoyed she gets - it is just not her interest or something that she has a passion for.  When she got annoyed, I got frustrated.  She finally just said to do what I need to do and don't bother her with it.  I set up all of the investments, and it is out of sight, out of mind for her.  We are both happy. 

On the calculators, I would just take them all with a grain of salt.  You can only do what you can do, there will always be portions that are out of your control.  I typically look at conservative numbers (4-5%).  If I am fortunate enough to get better returns, I will not balk at extra money.

[RhythmKats]

Goldielocks,

To clarify, your suggestion is to contribute $530k in principal over the next 10 years? Just want to make sure I understand correctly. I agree, we'd rather have the $$ earlier and having it earlier gives one more options all around.

I understand this is MMM and lots of folks are after early retirement. That's not necessarily the goal for us, but certainly having more options is always a great.

[Goldielocks]

Goldielocks,

To clarify, your suggestion is to contribute $530k in principal over the next 10 years? Just want to make sure I understand correctly. I agree, we'd rather have the $$ earlier and having it earlier gives one more options all around.

I understand this is MMM and lots of folks are after early retirement. That's not necessarily the goal for us, but certainly having more options is always a great.

I just did the PV math ==> to have 1.1 million at age 65, (and no more payments after age 50 payments) you would need $530k at 5% at age 50.

As you are starting at over $110k... I think that's $2200/ month for 10 years.   

-->  OR   $4000 per month for 5 years, then stop, at age 45, etc.

etc.

[RhythmKats]

Thanks for running the numbers.