Wash Post article on "nesting families" and paying for college

[Anonymous]

and retirement. If the following figures are right, how can anyone plan to retire?

"A family earning the Washington area's median household income of about $85,000 must earn more than $2.7 million from its investments if it wants to maintain the same standard of living in retirement and not run out of money, according to an analysis conducted by Fidelity at the request of The Washington Post. To meet that goal, such a family would need to sock away 11 percent of its earnings each year, though it should consider saving more in case the markets perform poorly, Fidelity said."

[Anonymous]

DH and I together earn $120K. We both max out our 401ks and we have a 15-year mortgage that will be paid off when DC#1 goes away to college.

[Anonymous]

Those numbers in the OP sound off to me.

On the one hand, I don't think you need $2.7 million to support a standard of living of 85,000. If you just withdraw 4% a year from $2.7 million, that would give you $108,000, plus figure another $15,000 or so from Social Security (even if it somehow ends up paying a reduced benefit), and that doesn't even address whether you need $85,000 a year to maintain the same standard of living in retirement (especially if you manage to pay off your house).

On the other hand, I think you are unlikely to save $2.7 million if you simply save 11% of 85,000 a year (plus increases). Even if you start at age 30, you'd need to get an annual return of maybe 12% (is anyone still expecting that?) and if you started at age 40, you'd need something more like 18%.

[Anonymous]

I'll be working til the day I die.

[Anonymous]

14:05 is correct. She uses a 4% withdrawal rate which is pretty standard, and gets $108,000 per year. And this is before Social Security and other pensions.

For somebody who earns $85,000 now, Social Security would replace maybe 30% of your pre-retirement income (I'm guessing here, so I've gone on the low side). Even if nothing is done to address Social Security's financing problems, which seems unlikely, it will still be able to pay 75% of benefits from incoming tax revenues even after the trust funds are exhausted (i.e., it's not "going bankrupt").

You may or may not also get a traditional pension in addition to your 401(k), although traditional pensions are dying out.

One thing to remember is that Fidelity is in the business of getting you to invest with them. This isn't to say you shouldn't save - it's crucial to save - but maybe $2.7 M is a bit of an overstatement.

[Anonymous]

Anonymous wrote:I'll be working til the day I die.

Ditto, because I enjoy working.

[Anonymous]

Anonymous wrote:I'll be working til the day I die.

Ditto, because I enjoy working.

[Anonymous]

Assuming your house is paid off, I always thought you needed about half of working income to survive comfortably (meaning no extras). That's what my parents are doing and what my grandparents did. Is it predicted to be significantly different in the future?

Plus, what if you have true pensions with cost of living increases each year? How does that factor into retirement savings goals?

[Anonymous]

I don't consider surviving comfortably = life with no extras. I'm going without extras now to afford retirement and college.

[Anonymous]

Actually, my husband and I have done the math and, if you want to be sure that your money will last through your retirement, these numbers look accurate to me. We have estimated that we will need to save around $2.5 to 3 million for just over 100,000 in NET income in retirement AFTER inflation (which many forget to think about) (and we do have small pensions). Remember, you pay taxes on retirement income, too (unless you've figured out how to get all of your money into a Roth). I also am not willing to bet on social security not being means tested by the time I retire. I would also recommend that you sit down and do a serious "retirement" budget. Yes, some expenses go down in retirement, such as commuting costs, but how much do you seriously want to scale down your lifestyle? Unless you live in a very urban area, you'll still need a car. Do you never want to take trips, or go to the theater, or buy gifts for your grandchildren? Want to play golf, or have a boat? Furthermore, particularly if you want to retire to some hurricane or other natural disaster-prone area, you will be shocked at how much your insurance and tax bill will be each month for your "paid off". Take a look at your mortgage bill and see how much goes to "escrow." That doesn't go away when your mortgage is paid off.

Look at what you are actually spending now, not what your income is. I think the "replace 50% of your income" thing assumes that a significant portion of your earnings are going into savings while you are working. In our case, it happens to be true, because we live well beneath our means and save a lot. On the other hand, if you live at the limit of your income now, you're probably not going to be happy living on half your income in retirement.

[Anonymous]

pp here -- sorry, I meant "you will be shocked at how much your insurance and tax bill will be each month for your "paid off" home."

[Anonymous]

A few of the retirement websites I've read cite needing 25 times your wages at retirement. So for someone earning 85,000 that would mean at least 2.1 million in retirement.