I know all of us love to dream about our retirement, right? I like to think about retirement all the time. Yes, I realize it’s forever away and it’s hard to know exactly what your life or the world will be like then. You also don’t know what you’ll like when you’re older or how you want to spend your retirement.
I’m not sure when I would want to retire, but hopefully somewhat young. 55 at the latest? I honestly have no clue. I think about retirement but it still seems so far away, and so many variables can change before I get to that age, or even just 10 years from now.
I typed in retirement calculators into Google, and a ton pop up. I set all of the variables in the chart, and I set our income replacement at 85%, even though I heard that you should set it at 95%, and some say 70%. What do you believe is best? I also set the return at a moderate 8% just to cover myself by a good percentage so that I have a good cushion.
I always love how on these retirement calculators they let you choose whether or not you want to factor in possible Social Security benefits into your retirement plan. We all know that will not exist 45 years from now.
“To provide the inflation-adjusted retirement income you desire, you may need to save 31.7% of your yearly income (less any employer match, if applicable). This year, for example, the amount would be $22,164 or $1,847 a month. The total amount needed for retirement, including amounts already saved, is $5,320,545.
If you wait just one year to start saving for retirement you may need to save 34.8% of your annual income, which amounts to $24,352 in the first year.”
Wow that number seems high! 31.7% also seems like a lot, but I’m sure if I don’t go to crazy with lifestyle inflation and also have good passive income, then I should be able to do this eventually in my life. That number just seems extremely high. I also don’t know if I’ll ever fully retire. I would like to have a source of passive income for way past when I eventually leave my career.
There are a lot of things we need to do in order to retire younger as well. Of course it would be nice to retire at 40 (but still have passive income), but that can be hard to attain. The things I am doing or want to do in order to retire before 65:
- Create passive income. This will help make our financial life more stable and secure if there’s another source of income coming in.
- Cut costs. If there are things that we can cut that won’t make us unhappy, then we should be doing them.
- Pay off debt. I don’t want interest compounded and I want to increase my cash flow by eliminating all debt. Student loans and mortgage debt should be gone within 5 years (as long as our plan works out!) so this is good! We should be completely debt free by time we’re 27 or 28.
- Not living beyond our means. Yes, there are things we buy that we probably shouldn’t. I have a bursting closet full of clothes that I hate. I realize I do have a problem and I wish I didn’t buy so many clothes. It’s honestly my weakness. I also don’t want us buying a bunch of things that we don’t need. Our friend’s family has 2 yachts and the yachts are over $1 million. They have a successful business, but I honestly could NEVER see myself spending that kind of money. However, we are going on a weekend trip with them in 2 months, so that will be nice! (I am not saying that I use people for their yachts, that sounds ridiculous)
- Take as many opportunities that I can. I went to college and I’m about to have my MBA. I try to say yes to any opportunities that come across my way, and to at least try new things. You never know where this will lead you! New sources of income, new networking, and so on. Maybe you’ll love what you learn more than what you’re doing now.
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Liquid Independence says
I love playing around with those calculators and plugging different numbers in to see what results I get. I plan to retire around my 50s as well and got similar numbers to you. I figure I'll need enough passive income to cover 120% of my current expenses when I stop working, which is roughly $30K in today's dollars. So a $3M nest egg by then should be enough, even after factoring in inflation. A lot can change between now and then but it's never too early to plan ahead.
cashflowmantra says
Five million seems like an awful lot. With $5 million, I would divide it equally between dividend stocks, yielding on average 3%, and real estate with net yield of about 6%. That would give me $225,000 in annual income which should be more than enough to live off provided all debts were paid off.
Inna xoxo says
Omg…i cant imagine being anywhere near where you are financially and your goals and i think we're the same age? I strongly regret not going to college when i had the opportunity to at 16, i could have a had a great degree in something i am passionate about, making really good money at the young age of 23. But i chose to be a lazy freakin butt. Sometimes i think about where i could be right now and what my life would have been like right now had i gone to school and been smart with my opportunities as well as the money i made working since i was 16. I've finally hit a point in my life where im starting to care about these things and saving towards the future! im just glad ive finally hit this point, as i know many people who didnt till much later :/ oh well, onward and upward! xoxo Inna 🙂 Inna's Daily Fix
Katie says
Wow…31.7% of your annual income seems like a lot to save. I think right now the most I would be able to save would be 10-15%, but I haven't even started saving yet. I need to get the ball rolling and go open up an IRA, because you're right social security will not be around in 25 years.
Alice @ Dont Debt says
I doubt you'll need that much of your current income to live on once retired. If you don't have any debt payments upon retirement, then you will actually need very little to live on. You'll obviously need more if you're going to travel and such, but just for the basics you will be able to survive on much less. I plan on retiring from my current employer when I am 53. That's when I'll have my 'time' in and will be eligible for retirement income with full benefits. When I first started, it seemed like forever away, but it's only 14 years now. I'll probably find other opportunities to fill my time after that.
Well Heeled Blog says
Those calculators are fun to play around with. I'd say just try to err on the side of over-saving than under-saving. That way you have options later on. I've been all over the place with % of income saved for retirement – from as low as 8% to as high as 40%.
Live Simply- Live We says
I feel like we will retire but still have to do some sort of part time work to bring in money.
Renee says
I hope to semi-retire and go part time one or two days a week by 59. We have about $24K in retirement savings so far. However, we also have three children to raise.
Becky Borgman says
My husband and I don't ever really plan to "retire". He is an eye doctor and honestly will probably work until he cannot remember what he is supposed to be doing and I always want to be working in some way…even part time at Hobby Lobby! But we want to be able to, in our early 60's, start traveling or buy a vacation home and not be worrying about HAVING to work.
debtntaxes says
I'm not sure on my retirement number, but I do want to retire by 50. Not totally out of the workforce, but just work whenever I feel like it. Preferrably that would be in a business that I start or something that I love doing. I want to replace 100% or more of my pre-retirement income, mainly because I don't want to have to cut back after retirement.
CeCe @Frugalista Mar says
I don't see myself ever being able to save 30% of my income so I don't think I'll ever retire. Sadly, I feel like I'll be working into my 70's. I contribute to 403b, I stay away debt, I have a personal savings, I am financially responsible and fairly frugal and that's about the best I can do for right now.
Invest It Wisely says
$22,000 a year? That's hefty. I think even if I earn a mid-range income I'll be socking away probably $14,000 – $15,000 a year unless I increase my income to a higher amount, but if the girlfriend contributes a similar amount then we can get there, too. We are lucky in that we are a DINK household (for now!)
Tabitha Mahoney says
39! But depending on what sort of career M has by then I may or may not have to work. Fingers crossed I wont have too, lol.
Katie says
i just want a job at this point, haha! i am sure i will appreciate this post later, when i am actually in the real-world and employed 😉
Anthony Thompson says
Saving 31.7% of annual income is a big, big number for most people. In the past, the suggestion was that we needed to save 7% of our annual disposable incomes. Then, that went up to 10%. Now, it's at 15%. It looks like we'll end up at 30% in the future. So, 31.7% looks like it's right around the corner.
Lena says
I think, we will never retire 🙁 We hardly contribute at all right now. Hubby tries hard to find another job. His company doesn't match contributions at all!
femmefrugality says
I love that…saying "yes." Those numbers add up quickly….lighting a fire under my butt! That much for waiting just on eyear…
SavvyFinancialLatina says
Nice to see someone young thinking about retirement. I have calculated similar goals regarding retirement, but I am so young, its really hard to visualize and calculate how much I will need. My plan is going to be putting a large percentage into 401K and IRA, as soon as we graduate. My hubby's too. Every year I will increase it based on on the raise. I think this will be a good strategy for the first five years.
Rafiki says
That's a crazy high number you have there. I'm planning to retire a bit later and I don't need that much, although if investing goes good I could end up with a lot more than I planned.
youngandthrifty says
Wow you'll be debt free by 28 thats awesome!Will you need to get another mortgage in case you guys have kids?
Tanner says
I honestly have no idea about retirement. I am saving, and I know it's nowhere near enough. But 31% of income?! No way. Those kinds of numbers scare me. My current employer doesn't match, and I am barely able to put 5% forth. Hopefully both things change soon.
Boba Money says
I think retirement is so easy to put off, so it's great to spend some brain cells on it once in awhile. While the numbers are fun to allocate for retirement, I have a harder time thinking about what I want* to do upon retirement. I'm a homebody at heart so I like to think about hobbies I might pick up and then I get distracted. Maybe a hobby that will earn income on the side?
Young Professional F says
Debt free by 28 is great! Retirement is definitely hard to plan for – I haven't been saving that much for retirement because I'm more focused on saving for my short term goals, but I know I need to start putting more into retirement accounts.
Jeff says
I think about retirement everyday. Sometimes it's what gets me through the day.
Ginny says
I think retirement comes up quicker than we think. I've been thinking about it a lot lately because I don't want to be 70 and working.
Bethany says
Gracious those calculators can drag a girl down. If I want to "retire" at 60, I am only a little behind you at 29%. That said, I'm also planning on living to be 100… the calculators I used wouldn't let me (!) live longer. 🙂 I'll be busy at something til I die for sure.
Brianna Tucker says
I got my retirement info from work the other day… it might have well been written in half spanish/half french and I couldn't tell the difference… But I agree with you better start early!
Andrea @ NickelbyNic says
I have no idea honestly.. I just started with my RSP and trying to get a full emergency fund together. I have no idea how I would/will save that high of a percentage of my income and still live… Yes I lived on less than half my income last year and put everything to debt… but I don't think it's sustainable. Getting pretty tired of it, those calculators make me depressed 🙁 Probably a sign that I have a lot left to learn with regards to investing and saving!
jefferson says
5 million sure does sound high.. But I admit.. I haven't even begun to look for myself.I am 33 years old, and have my 401k funded to take full advantage of my company match, but no more than that.Once we get out of debt, retirement planning will certainly head to the top of our list.
kimberly @ lush loun says
It certainly would be NICE to retire at 55! I hope I do too, or earlier haha. Retiring is scary coming from a generation where we aren't positive it will be there for us. A lot of pressure is on us to save NOW or work older and older.Some people don't retire because they like their job or they're bored, but I think I would love it. I would definitely travel a lot. I can see wanting something on the side for extra money though.
Laura @ No More Spen says
We plan on retiring on less than a $1m – we already need/live on a lot less than retirement planners estimate and when we move abroad we plan on downsizing even further. It's not for everyone but it's how we like it.Hubby is 32 and hopes to semi retire at 50. Me I'm already semi retired and old lol!! 🙂
lora kathleen says
Ugh, 31.7%??? This makes me feel like I'm totally in trouble. I thought I was doing well, but just have too much debt right now. If I can get that knocked out I'll feel MUCH better about retirement.But $5m? I feel like I am struggling to even stay at $25k with the crazy markets!
Super Frugalette says
I do not really have a retirement number. I have more of a retirement strategy. I am not afraid to downsize or move to a cheaper state. I feel that my ability to consider other options is more important than a number.
Marina K. Villatoro says
Living in Central America for the past ten years as an expat, your numbers completely change since you know what the reality is.I don't have any numbers set, but I also can't imagine ever retiring since I'm already living my dream life of an expat. but i do want to have more to travel and most importantly for health!!!
Sammyleia says
I've always thought that retirement was a long way off, but I'm 50 this year, so it's not that far away after all!Clothes, books and craft stuff are my weaknesses. I did a clothing inventory like you did and I have 21 dresses, 2 skirts, 1 pair of shorts, 33 long sleeves/jumpers/cardis, 21 jackets/ hoodies, 6 coats, 43 short sleeves/ tanks, 12 pairs of dress pants (some are 3/4 length), 2 pairs of jeans, 18 pairs of sweat pants, 4 pairs of heels, 4 pairs of boots, 4 pairs of flats, 1 pair of gym shoes and 7 pairs of sandals/ flip flops!!!
Rich Ryan says
One can never start too early and one can never save too much money for retirement. Thanks for the great insight on retirement planning!