Saving for 100% income replacement...

[Deleted]

I crunched in some numbers and it's unattainable for us. 

It's very important to me to retire mid-50s.  To stick with that goal, a conservative estimate gives only 57% of preretirement income.  I mentioned in one of the retirement thread that we are shooting for 100%.  But, that's not going to happen if we want to retire in mid-50s and has our savings as our only source.

Fact:  current savings = 2.5x income (I thought we were ahead but this is not enough)

Assumptions:
Retire at 55
7% ROR
2% salary increases
20% retirement contributions for 22yrs

This gives --> 4% withdrawal rate = 57% income

Ways to get to 100%:
1.  Getting at least 10.4% ROR --->  I think this is wishful thinking.
2.  Increase retirement savings to 49%  --->  That's a lot!  At some point, we were saving 50-60% when we were DINKS.  With 2 kids, it's not going to happen.  Not an option
3.  Retire 10 yrs later at 65 ---> I prefer not to give up retiring at 55.  I'd rather live on less. 

The only thing that would realistically push us to 100% at 55 would be our pensions.  I'm 99% confident both pensions will be there.

Are you saving for 100% income replacement?  Good luck!  I'm somewhat glad knowing it's impossible for us to save 100% by 55, so now my expectations are lower.  We'll still save as much as we can to hopefully come out higher than projected. 

[Deleted]

Jan 27, 2013 9:25:30 GMT -5 suzubell said:

How old are you now?

33. So we only have 22yrs left to save if we stick with the goal of retiring at 55.

[chessie]

We are saying for 50-60%. At the time of retirement we hope to be completely debt free no mortgage/SL's, which is primarily 28% of our bills right there. At one point we wanted to retire at 55, but 65-67 seems like the best choice figuring since there will be more money there. We are sticking with 2050. I am more concerned with health care myself, I have grandparents in their 80's still working since veteran care/medicare suck completely.

[Deleted]

What calculator are you using?

[Deleted]

Why do you want to retire so early?

My grandfather worked until he was in his late 80s (and he didn't have to) and FIL still works (he's 86 and still gets funding for his lab).

[Deleted]

Jan 27, 2013 9:45:16 GMT -5 @septimus said:

Why do you want to retire so early?

My grandfather worked until he was in his late 80s (and he didn't have to) and FIL still works (he's 86 and still gets funding for his lab).

I think the better question is why you would want to retire so late.

Not working is awesome.

[Deleted]

Jan 27, 2013 9:39:37 GMT -5 suzubell said:

We will likely retire in our mid to late 50s, but my pension will be approximately 80% of my highest three year average salary. I absolutely count what I already have that is mine to keep due to being vested. I don't consider future earnings on it, if that makes sense.

We plan to have our house paid off before retirement, so we aren't aiming for 100% replacement.

Is there a particular reason that you want to retire that early or is it just a goal?

The age 55 has always been based on being eligible for full retirement benefits at work. After having that number in my head, 55 sounds like a great time to retire. Young enough to do tons of travel.

We'll see. Who knows, I may feel too young to retire then and continue working. OR retire, but find a job that may feel more fulfilling.

To answer your question, yes I guess it's just a goal.

[mmmomof2]

When you say 100% of salary, do you really mean 80% since you are currently saving 20% of your salary? What about your housing/childcare costs? I think it's OK to be less agressive in retirement savings while you have multiple(?) children in childcare.

Plus you have your pensions. Time to take a chill pill!

[nonsenseabound]

I don't understand why you need 100% income at retirement, arguably if you mortgage and student loans are gone in 25 years, then you have significantly less costs

[2boys2danes]

What a great goal to have! What struck me was that you are 22 years from retirement and also pregnant. So by the time that kid gets out of college, you will be mostly done supporting him/her...good timing!

[Deleted]

Jan 27, 2013 9:42:48 GMT -5 chessie said:

We are saying for 50-60%. At the time of retirement we hope to be completely debt free no mortgage/SL's, which is primarily 28% of our bills right there. At one point we wanted to retire at 55, but 65-67 seems like the best choice figuring since there will be more money there. We are sticking with 2050. I am more concerned with health care myself, I have grandparents in their 80's still working since veteran care/medicare suck completely.

I'm not familiar with Medicare and possible health expenses. So I don't know how much these would affect how much we need in retirement. Last time I estimated, we can live well on only 30% of preretirement income but that was considering my employer's health plan.

[Deleted]

Jan 27, 2013 9:43:50 GMT -5 v said:

What calculator are you using?

I created one in excel. I don't think there's any online calculator that takes the criteria I used.

[CloudBee]

On another note - putting off things like travel for retirement would make me nervous. You never know what tomorrow brings. If I had the choice, I would rather retire at 60 and go on a few fabulous trips now, vs. safe travel until I retire at 55. Or maybe scale back and move on to a less demanding job, or go PT? You have a lot of options.

I have no clue when we'll retire. We've done really well investing and live beneath our means now yet still spend enough to have fun. I don't think we'll need 100% replacement, but who knows, maybe we'll find ourselves there based on financial growth if we keep our current standards level. We're also traveling left and right now, because there's so much I want to do while we're younger and active. I'm sure we'll have some amazing adventures in retirement, but who knows if we'll be healthy enough, or even around then.

Knowing my husband, I see us retiring and having a small business on the side.

[Deleted]

Jan 27, 2013 9:46:34 GMT -5 v said:

Jan 27, 2013 9:45:16 GMT -5 @septimus said:

Why do you want to retire so early?

My grandfather worked until he was in his late 80s (and he didn't have to) and FIL still works (he's 86 and still gets funding for his lab).

I think the better question is why you would want to retire so late.

Not working is awesome.

Yes who wants to work? LOL.

Why is retiring early a goal? Because I want to have that option. The more options, the better.

[Deleted]

Jan 27, 2013 9:54:28 GMT -5 mmmomof2 said:

When you say 100% of salary, do you really mean 80% since you are currently saving 20% of your salary? What about your housing/childcare costs? I think it's OK to be less agressive in retirement savings while you have multiple(?) children in childcare.

Plus you have your pensions. Time to take a chill pill!

I already calculated how much we will need to live well in retirement. It's only 30% of HHI. I was trying to see if it's possible for us to save for 100%. The goal to save more is to cover expensive healthcare stuff in the future and a $70-100k per year nursing home. Ha!

[Deleted]

Jan 27, 2013 10:01:18 GMT -5 CloudBee said:

On another note - putting off things like travel for retirement would make me nervous. You never know what tomorrow brings. If I had the choice, I would rather retire at 60 and go on a few fabulous trips now, vs. safe travel until I retire at 55. Or maybe scale back and move on to a less demanding job, or go PT? You have a lot of options.

I have no clue when we'll retire. We've done really well investing and live beneath our means now yet still spend enough to have fun. I don't think we'll need 100% replacement, but who knows, maybe we'll find ourselves there based on financial growth if we keep our current standards level. We're also traveling left and right now, because there's so much I want to do while we're younger and active. I'm sure we'll have some amazing adventures in retirement, but who knows if we'll be healthy enough, or even around then.

Knowing my husband, I see us retiring and having a small business on the side.

When I said tons of travel, I meant 2-3mos here and there. Our travel right now is not much because of the kid/s. I want us to start traveling more when baby #2 is at least 3. More means 2wks in Hawaii every year, 1 wk in Florida, and 1 more somewhere. So no, we're not sacrificing travel now to travel tons later.

[doobeedoo]

Random thoughts/questions in no particular order.

When you are in your twenties/thirties, 55 seems pretty old and plenty old enough to retire.  But, assuming good health, the older you get, the less old 55 really is.  I am 43 now and can't imagine just stopping work entirely at 55, it just seems way too young now.  My retirement goal is to scale back to part time/project oriented work at some point in my 50s.  That way, I get to keep earning income, but also as importanly, stay vibrant/connected/interesting by continuing to work.  Can you consider going part time at 55 for 5 years instead?  Is that an option?

Also, perhaps you can look into different kinds of investments/income.  Real estate, for example.  My dad was able to retire VERY young (initially not by his choice) and leave his retirement portfolio untapped because of the income his rental properties generated.  In his case, they've funded ALL of his retirement for 25+ years now and most of my mom's disability/assisted living expenses for the last 10 years.

And finally, what about replacing 80% of your income?  I think 100% income replacement would be awesome, but probably not realistic for most people. Nor necessary.

GL

[Deleted]

Jan 27, 2013 10:01:18 GMT -5 CloudBee said:

On another note - putting off things like travel for retirement would make me nervous.

It makes me nervous also. Mostly because the large majority of old people I know who made plans of that nature never got to go through with them.

I'd like to see the world before then. Our health isn't that great right now, so I'm not banking on either of us being well enough to trek around the world at 55-60.

[chessie]

Do the things you want to do now. I hear it from so many people, I should of done X, traveled to Y and they cannot for health reasons. You don't know what will happen as you get older. So yes save, but do't save to the point you cannot live your life fully now and enjoy everything around you. My parents are in their later 50's, still working and neither of them can travel a lot due to health issues.

[chessie]

Jan 27, 2013 9:59:10 GMT -5 d0ri said:

Jan 27, 2013 9:42:48 GMT -5 chessie said:

We are saying for 50-60%. At the time of retirement we hope to be completely debt free no mortgage/SL's, which is primarily 28% of our bills right there. At one point we wanted to retire at 55, but 65-67 seems like the best choice figuring since there will be more money there. We are sticking with 2050. I am more concerned with health care myself, I have grandparents in their 80's still working since veteran care/medicare suck completely.

I'm not familiar with Medicare and possible health expenses. So I don't know how much these would affect how much we need in retirement. Last time I estimated, we can live well on only 30% of preretirement income but that was considering my employer's health plan.

I would do some research on it.  Its amazing how much some of the pills costs on this plan, you will need a supplement plan since its just not enough.  My grandfather works at a local grocery part time since they offer a nice medical plan that pays 80% of this pills, thats how bad the coverage is.  Veteran assistance is ever worse, they will make you wait months for procedures that you need.

[Deleted]

Jan 27, 2013 10:18:16 GMT -5 chessie said:

Do the things you want to do now. I hear it from so many people, I should of done X, traveled to Y and they cannot for health reasons. You don't know what will happen as you get older. So yes save, but do't save to the point you cannot live your life fully now and enjoy everything around you. My parents are in their later 50's, still working and neither of them can travel a lot due to health issues.

Just to clarify, I don't think we're sacrificing travel now. The only reason we have not travel much lately are the kid/s. Flying 15+hrs with DD at 20mos was hell!

[kadams767]

I don't think it's possible for us to save for 100% replacement either. Luckily, that's not my goal, lol. As I mentioned in that thread the other day, we currently save about 30% of our income, and another 15-20% is taken up by bills that we won't have in retirement, like mortgage, student loans, car payment, etc.

Our goal retirement age is 60. I'm not opposed to working an easy part time job at that point, but that's more for something to do rather than necessity. I really, really don't want to be practicing still at that point.

[Deleted]

Jan 27, 2013 11:13:29 GMT -5 kadams767 said:

I don't think it's possible for us to save for 100% replacement either. Luckily, that's not my goal, lol. As I mentioned in that thread the other day, we currently save about 30% of our income, and another 15-20% is taken up by bills that we won't have in retirement, like mortgage, student loans, car payment, etc.

Our goal retirement age is 60. I'm not opposed to working an easy part time job at that point, but that's more for something to do rather than necessity. I really, really don't want to be practicing still at that point.

.

I was actually thinking it may be better to look at take home pay percentage instead. Then I can see saving for 100+% of take home being possible.

[Deleted]

That was my goal for a long time (not the 100% of income, but the retiring at 55). My parents retired in their mid 50's, but they worked physically demanding, blue collar jobs. FIL hates his job but has to work until 65. He's miserable. We don't want to be like him either.

So, we made the decision we are going to aim for retirement from FT work around age 55/60, and then we can work PT, consult, etc., until we are ready to retire completely. We are going to have an advantage at that point because the baby boomers not be working any more.. Our skills should be in high demand.

[Deleted]

Jan 27, 2013 11:19:02 GMT -5 ribollita said:

Not to be a downer but I wouldn't get too set on your employer's "full retirement benefits" at 55. A LOT will change regarding health insurance before then. Your pension could change as well. It's good to set goals but medical care is a huge unknown for all of us.

.

I agree. We could live well on employer retirement benefits (pensions, healhcare plan) alone. But the future is full of unknowns so we're saving as if there's 0 employer benefits.

[gt7301b]

I'm not really sure why you are shocked that you can't reach 100% of your preretirement income if you retire at 55. Compound interest is a wonderful thing and if you retire at 55 time just isn't on your side. Personally, I don't see how you can live on 57% of your income retiring at 55 and spending 2-3 months a year traveling, but if you believe you can more power to you.

In theory, DH can retire at 53 and as it currently stands he would lose money by working more. But we aren't planning for that as we expect the retirement plans to change at some point in the next 20 years.

[magdala]

My parents' generation is retiring, getting bored and then going back to work at a fun job. Mom is taking care of my nephew (her grandson) part time while B & SIL work. Dad is handling logistics for the town youth sports league. My aunt has retired four separate times. My uncle, a retired long haul truck driver, delivers flower for a local flower shop 2 days a week. They are all in good health in the 60s. They don't need the money but like the daily interaction. They work on their own terms and take vacations when they want. When one of aunt's employers wanted her to work the day of her granddaughter's play, she retired again. I expect that I will be doing something similar when I reach that age.

[Deleted]

Jan 27, 2013 12:26:02 GMT -5 gt7301b said:

I'm not really sure why you are shocked that you can't reach 100% of your preretirement income if you retire at 55. Compound interest is a wonderful thing and if you retire at 55 time just isn't on your side. Personally, I don't see how you can live on 57% of your income retiring at 55 and spending 2-3 months a year traveling, but if you believe you can more power to you.

In theory, DH can retire at 53 and as it currently stands he would lose money by working more. But we aren't planning for that as we expect the retirement plans to change at some point in the next 20 years.

I wasn't shocked but a little disappointed. I somewhat thought we had a good chance to reach 100% at 55 since we're saving above recommended savings rate and well above the 1x at 35 guidelines.

The sample retirement budget I created at 28% income would allow almost $25k for travel/food/etc. So 29% (to get to 57%) more available income would probably triple that if we use that extra 29% for travel.

[starlily]

I have a pension, and would reach 100% income replacement at age 62. I plan on retiring at 57/58 though; I'll be around 75% of income at that point.

[sillygoosegirl]

I think one of the great things about planning to retire early is that you have flexibility. You think you can retire at age 55 on a small fraction of your current income. Maybe so and maybe not, there are a lot of unknowns. When you are in your 50s, you'll have a much better idea of where your finances stand, what your pension really looks like, how your health is, and your job satisfaction could be much different than it is now. Maybe you will choose to retire at 55 on the smaller nest egg, or maybe you'll wait and let it grow another 5-10 years. It's all still a really long way off.

Do remember that if you are only planning on replacing your expenses in retirement, you will still have to pay taxes. And who knows what the tax code will look like by then...