To Dave in Denver:
I actually just started the cash flow deal a year ago. Bought a rental condo, and as long as it’s occupied, it generates a 12% after tax return. Loving the extra cash flow too. Didn’t finance the place. Didn’t want to pay the closing cost and get leveraged. All profits get turned around and invested in high yielding, good free cash flow companies with histories of increasing their dividends and those dividends are reinvested too. Hopefully it will pay off. If I find another rental, I’ll be doing it again.

To LB in Temecula:
My parents didn’t pay for my college education. I turned out alright, actually managed to finish college without debt. My friends who’s parents footed the bill are debt ridden and living pay check to pay check. Teach them the value of money and make them chip in towards their own education.

Cash is king.

If I had $850,000 to draw on I would quit work tomorrow

Last years retirement plans are no longer valid with home prices dropping, energy, food, taxes and medical costs going sky high.

Flexibility is an excellent asset!

K.FOos in AR:
kudos.
I can recall a joke I heard once. It goes like this: “Just when I think I can finish the race,someone moves the finish line on me!”
Funny, but true.

In my dads case, he retired from American Airlines as a Mechanic.

Yet 3-5 years later he was making as much in one day as a independent locksmith than he made all month at AA.

Point, retirement in his case gave him the flexibility to do and take risks for things he wanted to try.

If not for his retirement funds (savings, investments) he never would have tried.

I figure by age 60 (10 more years) I will be doing similar.

Those who are poor can still become closer to un-poor by doing slow builidng of wealth.

Example:
Doing DRIPs is how I will be worth $2m by age 70.

I only started 2 years ago and can now project positively what I will be worth soley due to DRIP activity.

There are so many quality comments here I feel compelled to post my own plans for comment. I am 45, single, no kids and will be taking severance from my job of 25 years November 1. My desire is to stop working or at least redirect my time to personal interest and rewards -not necessarily pay. My assets are (will be after tax Nov.1) ~$450k tax differed accounts (only 8K is roth, 5k HSA) , another $450k in investments, a Naperville home I paid $350k for in ’05 (present estimate $375k but you see the headlines) and still owe $206k on (15yr 4.875%). My intent is to slip into unemployment, sniff around for dream jobs while I unload my crap, try to sell my home next spring and, if I succeed, take a year or two of travel to find my next home (life). If the home does not sell I consider roommates, and local work. I have done some calculations and it seems the hard part will be getting to 65 on the taxed investments. If I can do that, the tax deferred accounts will rise to the occasion with reasonable real returns. My spending is already under control. I have lived for the past 3 years on less than $3500/mo with a $2400 motg.,tax,ins bill. On the other hand I am retiring to improve lifestyle (mo money) and will lose health care from employment. I am figuring 100 for life expectancy.

Questions;
-What should I do about health insurance? My plan is to go high deductible and continue to contribute to HAS. Better ideas?

-My portfolio needs a lot of work to get current income. Recommendations?

-Is $40k/year just too little to make a worthwhile retirement? I read about sailing couples spending less and loving it.

-Inflation scares the poop out of me -Any bright ideas for solid real returns?

-Is there room in my finances to start a business? How much dare I risk? How do I account for it? Is it possible to start this year and cut down my current income to reduce taxes? (I get severance in a lump this year).

I know that in my own case… when it comes time to ‘truely retire’ I have no intention of going to FLORIDA OR CALIFORNIA to live.

Even with $$, only a fool would move to two of the worst places to live.

Neither have been the best choices for years.

In my own case, I will be worth $2mil by age 70. And If I die before then my spouse will be worth at least 25% of that.

To Gebe:

You may not want to live a miser’s life now, so you live it up. But when you’re old and retired, I’m sure you’ll regret not having saved more to make your golden years more secure. (Unless you know you’ll be financially secure, like $5M+ minimum in savings. In that case, disregard this post.)

All of you young (under 35) people busy planning your retirement should not forget to live now. Sometimes current circumstances are more important than sitting in a condo in Florida when you are 75.

How many wealthy people do we see having only 1 or maybe no children because they “cannot afford it”?

And those condescending comments about Wal-Mart greeters are offensive. Those old people are probably much much happier than the savers sitting alone in their condos checking their mutual funds.

Gebe in VA,

If yo want to spend our money and that makes you happy. Then do it. But I’ll repeat what I said before. A high income does not necessarilly translate into high net worth. KNOW THE DIFFERENCE.

To Mike in Chicago re: LB in Temecula

I would say that if LB cannot afford to adequately fund his (her?) childrens’ education AND his own retirement, then he cannot afford to retire at 60. When you choose to become a parent, you owe your kids the very best shot in life you can give them. And why wouldn’t you want to give them that?

If your retirement plan relies on sticking your kids with part of the bill (either directly or through loans for educations that you chose not to pay for), then either you’ve had more kids than you can afford or you’re living a bigger lifestyle than you can afford.

(And no, I’m not bitter about student loans of my own. I got a scholarship, but I don’t know what I would have done if I hadn’t.)

Those of us who are fortunate to be dual citizens, I am retiring in Windor, across the border from Detroit where I worked. I am covered under health insurance and I spend the winter in India where my wife is from. Significantly less costs for 6 months.

To have a decent post-retirement life you need to make sacrifice during your golden years of life when you are more energetic and more ambitious. You should make good money but not spend rather save every penny possible just so you have a “SAME” lifestyle as you ENJOYED (rather suffered) pre-retirement life.
Now may I ask, for whom are we earning? when we are not supposed to spend money on what we like to enjoy? it is obvious after retirement we will not LIKE to spend lavishly and rather live low. So by this means we would never enjoy the high-end lifestyle. And I hate that part, rather, I would say, I like to treat myself better, if I make good because of my hard earned skills so I would treat myself better too. Why should I cook myself, laundry clothes myself, clean house myself, stay in 2 star hotel, drive Ford/Chevy/Toyota/Honda etc etc..
I make good money and will use dry-cleaner, maid service, fine dining, 4-5 star hotels, BMW/Mercedes and business class Air, and enjoy the best available that I can afford, and not think about post-retirement life. At least by doing so I will have a satisfaction that I had a good life.

Yes, I don’t want to live miser’s life when I make good money.

By the way. Here is an excellent article that gives a very simple straight forward explanation/example of the time value of money.

http://beginnersinvest.about.com/cs/personalfinance1/a/101303a.htm

To answer your question LB in California. I would start by saying you own too much house for your income. 360K mortgage on 90K a year is a stretch. I would guess you have little left to save. I would suggest putting 15% of your salary in your 401K and then make your house buying and large ticket item purchases based on your take home pay AFTER paying yourself first ! You would be surprised to find out you never miss it. You might end up in a smaller house initially but you can trade up with equity later. If not save until you can get a mortgage that will not drain your income. My house has gone down in value like everyone else’s but it is not my largest asset, I have plenty of equity and at 6% fixed interest rate with 4% inflation my net cost on my loan is 2%. Why would I ever pay it off? Especially if I include the tax advantage. If I can make more than 2% with that money it would be foolish.

I think a great rule of thumb is to put enough money into a 401k so your company will match. This should be done at a relatively young age, say 22, to make sure you start early and continue doing it.

If your company does a 1:1 matching, then investing $500 a month (plus another $500 from your companies matching), over a course of 40+ years will lead to a 401k of over 10 million dollars. This is assuming the total investment each month is $1000 and your money it put into a mutual fund averaging 12% (like Vanguard). A goal like this isn’t totally outlandish, considering that’s a constant $500 you are investing each month. Just imagine what would happen if you invested more towards the latter half your career when you probably make more than the first half.

I find these comments more useful than the usual punditry from the “financial writers”, since it comes from real people grappling with this issue.

My own experience: I’ve used Monte Carlo models, including my own constructions, using the historical returns (best info we got, but no guarantee!=> 3.9% real return for my particular mix) and US life expectancy tables with a 3% flat inflation rate to come up with a 2.5% withdrawal rate. This gives a 90% probability both my wife and I will be dead before it’s exhausted (we’re both 55 and in good health). This withdrawal is much more conservative than anything I have seen proposed by the “writers” but pleased to see someone else in this thread agreed: perhaps the sellers of mutual funds and 401k plans don’t want to scare anyone off with the grim facts!

Points made on average returns of 8% being only a part of the whole story, and the dangers of inflation are well taken. Certainly one could put everything in SPYs and stock mutual funds for higher return, but then one will inevitably get hammered by the volatility. Diversifying into bonds and cash reduces volatility (and return), but you still can’t forget their vulnerability to inflation. Basically you must have a nominal rate of return that is consistently higher than inflation; both historically have fluctuated quite a bit. It ain’t a simple problem!!

As an aside regarding inflation, interestingly here in Russia as an expat we get taxed on any loans or mortgages we have in the US that have interest rates less than the Russian inflation rate (8 to 10% per annum); the tax authorities view the difference as income!

Many here use the phrase “don’t forget the power of compound interest”, usually meaning a favorable aspect of saving. Let me add “don’t forget the power of compound inflation”. Inflation is actually much higher than the CPI or other phony numbers put out by the government. That’s because the things real people MUST use -gasoline, food, medical care, heating, etc., are rising much faster than the 3% or so in the government figures (they conveniently exclude most of the above items). Presently it’s probably more like 10%. Our present national debt, the mountain of future government entitlement spending, declining energy resources, all assure inflation will continue and probably get worse. Real returns on fixed income investments (CDs bonds, annuities, etc) are negative. Don’t be too optimistic about compound interest without taking into account compound inflation.

To LB in Temecula, CA,

The emergency fund was the first indication for me that you are on the right track for retirement. The mortgage is a real headache though for a 90K per year income. Since you live in CA, I doubt there is little you can do about that. Have you or your spouse considered a second part-time job? Stashing an extra 5K per year into savings or, better yet, paying off your mortgage early, will substantially benefit your situation in the long run. Retirement is not just about saving money, but reducing expenses. Good luck to you and your family! P.S. Google ‘diehards’. Your first hit should take you to a discussion board where you can obtain, at no cost, further financial guidance. This website has been a great influence in shaping my financial strategies.

To the many other comments,

Some of you already appreciate this, but others I suspect do not — life is not a sprint, but a marathon. Unfortunately it’s a marathon where some start the race and at the finish line while others must run a 10K just to get to the starting line. That’s life. It may not be fair, but it’s the one you have so make it a good one. If you wish to have the opportunity to retire (it’s a privelege, not a constitutional right), work hard, save (i.e. skip the latte and big screen tv), and with some luck, you might be able to relax, travel, and enjoy some of the finer things in life during your golden years. Regardless of where you end up though, be thankful for what you have, because it could always be worse, and for many, it is.

If anyone does not know what the term “time value of money” means then I suggest you look it up and memorize the definition for it is the key to answering your questions on how you can attain the amount of money that some of the posters have saved. Some of the younger people that have posted here have figured it out. Good for them! (I likewise figured it out when I was 22 and now turning 50 this year) The key is NOT HOW MUCH YOU MAKE or even HOW MUCH YOU SAVE, but WHEN you start to save. I have never made a six figure income but I will be a millionaire by the end of this year. The key……….START EARLY and stick with the plan. It is difficult to see the light at the end of the tunnel when you are just entering. But its very satisfying when the earnings are far exceeding your contributions. But still contribute. Luckily I married a wonderful woman who also understood (grudgingly) how important that she save some of her income too. Also to some of the other posters, don’t worry if your not making 8% return today, your goal is to AVERAGE 8% over time. Does it take discipline? Absolutely! Do you have to sacrifice enjoying life. Nope. Will you have worry free retirement? Thats the goal of “the plan”. Finally, realize that a high income does not always translate into a high net worth. Know the difference. I have to teach my children that constantly when they hit me the Sarah has this and Jenny has that syndrome. When Sarah’s mother confides in my wife the truth is she is 2 payments behind on their house payment. I just ask them if Sarah gets to go to northern California staying at resort hotels for 10 days this year with her family and they usually don’t know what to say. Other than, Oh yeah. LOL.

Mike in Detroit,

Many authors, including Mr Updegrave, have written books about retirement planning that include some excellent advice for people who are getting a late start. Cliff’s notes version.. make every effort to save as much as you possibly can each month, and take full advantage of any tax-advantaged retirement accounts that are available to you. It may hurt now, but if you don’t it will hurt a whole lot more when you are older. Tax-free compounding over the course of 10-15 years can make a huge difference. Consider postponing your retirement date. Every year that you can continue working will boost your savings and reduce the length of time that your savings will have to last. Don’t discount Social Security. You won’t get as good a deal as your parents did, but it will still be there. Resist the temptation to speculate in high-risk investments. Most of the people who do this end up worse off than before. Consider working at least part time after you retire - many retirees are doing this even if they don’t have to, because it gives your life some structure and purpose. Playing golf every morning and drinking Cutty Sark in the clubhouse all afternoon gets old in a hurry. If you have home equity, consider a reverse mortgage or moving into a smaller house. Consider moving to another part of the country where the cost of living is lower. If you live on the east or west coast, this can cut your living expenses by 25-50%. Many retired Americans are living abroad in expat communities where the cost of living, including good health care, is a fraction of what they would be paying in the US. Some of this may sound drastic, but so is eating cat food the last 10 years of your life. Stop complaining about wealthy boomers. Most boomers have been living beyond their means for the last 30 years and are financially illiterate. Take a trip to the library and start taking advantage of the opportunities that are still available to you.

Anyone living above the poverty line can afford to save enough to retire comfortably (based on their current lifestyle) without much effort or sacrifice. Here’s a couple examples:

Hard luck Joe makes $30,000/year his whole life and never gets a raise. He contributes 6% of his pay to an IRA or Roth IRA starting at age 18. Assuming a conservative 8% stock market return, he’s got $880,437 when he’s 65. This for a piddly $1800/year investment.

If he instead worked for a company with a standard 401k match (50% of the first 6%) got a 3% raise every year, and made the same 6% contribution to his 401k, he’d have $1,651,268 when he retired.

Imagine what you could do if you save more than the bare minimum? Say 10-15%?

Personally, I max out both my 401k and Roth IRA plus a bit extra but I’m hoping to do my part to drive wages up by removing myself from the labor force at 45. So far I’m on track.

An interesting combination of analysis, bragging, whining, and I suspect, in a few instances, fabrication. I would like to brag about my own situation, and a comfort level I have developed through hard work, saving, initiative and a little providential provision. I finished college in 1971, having paid all my own expenses through a working scholarship and part time jobs. After about 3 months looking for and not finding a good job, I joined the Army in Feb 0f 73. Was supposed to go to OCS after basic training, but they cancelled OCS for a period of about a year, so I had the choice of staying enlisted or getting out. I stayed in, and liked it. Served 12 years, then got out and went in the National Guard. I have stayed in the guard, and will retire at age 60 with about a $30K pension. I went to work for the federal Govt, and over 23 years, worked myself to a GS 14 position, earning about $110K. Have maxxed out my TSP (401K) which is worth about 600K. Non retirement savings of about 150K and home equity of about 150K. Plan to retire at 62 with about a $43-45K pension. TSP should be $700-750. Social Security for me and my wife about $25K. Survivor benefit plans giving my wife 50% of each pension costs about 10%. Military retirement benefit includes health care a little better than medicare which turns into medicare with supplements and costs about $1200 annually (actually less). I will also have the option of retaining FEHB into retirement at a cost of about 5K - have to run the numbers and evaluate depending on where we live. Bottom line looks like this:
Mil 30K less SBP= $27K
Civ 44K less $4.5 = $39K
SS (minimum) $25K
Sub Total: $91K
TSP $700K@3% withdrawal $21K

Grand Total $112K

Current Income ~ $120K
less TSP/IRA contrib $ 25K
SS/FICA $ 9K
Total less expenses $ 86K

Not adjusting for commuting and lunches etc, I will still have a $26K net increase in pre-tax income when I retire.
I have often thought of retiring earlier, but I still love both of my jobs, and the extra certainty is comforting. Leaving the fed gov job at age 60 would mean a net loss of nearly 10K in retirement income because of the way the plan works, plus at least $70K less in the TSP. It has been a struggle at times, and I have not always liked working two demanding jobs, but I am pretty happy with where I will be in 3 years!

Great topic, some informative responses as well, thanks all.

My two-cents:

Saving is nice, and everybody wants a nice, active retirement, but I think something is missing in all these discussions….CASHFLOW!

No, this isn’t an infomercial, it’s just that the concept of raiding the ole’ nest-egg every year for your ‘extras’ over-and-above your measley social security income seems risky.

If you are still relatively young (say between 25-45) it’s definitely time to get your hands on some INCOME PROPERTY. No, I’m not a long-suffering real estate agent either!

I started buying multi-family properties almost 10 years ago (when I was 30) and it’s a great hedge against retirement. Yeah, sometimes the tenants are a real pain in the ass, and sometimes my weekend are not 100% my own…but with 20 units my retirement is looking pretty good.

The trick of it is to get your hands on in-expensive, older buildings (hey, everything’s relative!) in great locations (I bought 4 buildings over time 2-3 blocks from the ocean in OC and up in the Rockies in Denver). No, I’m not a trust-fund kid and don’t have any inheritance…I just bought one building every 2-3 years.

The key is living in your buildings when you’re younger (and don’t have such big responsibilities). This keeps expenses and outside contractors to a minimum. Once you get to your late 30’s, find a cool lady and live together in one of your buildings. Once she starts helping you with little things (painting, collecting rent from the ‘nice’ tenants, banking), then you know you’ve found a real gem and marry her!

Besides that, the MOST important things to do are keep 100% occupancy, collect ALL late fees immediately, keep a good, regular w-4 job going at least 90% of the time and watch your credit score…you’ll need it.

Also, do all the other “regular guy” retirement stuff….I do it, but I don’t even think about my 401 K stuff…it’s just funny money anyway til 59.5!

If you pursue both strategies (i.e., income properties, 401K, etc), then in the end YOU’LL be that classy older couple that gets to take all their grandkids to Europe and the Caymans every-other year instead of sitting home comtemplating your navel!!

Best of luck-

Dave in Denver

To LB in Temecula-

As a quick follow-up, focus first on your retirement. While saving for the kids education is important, it shouldn’t come at the expense of your retirement. Money for education is plentiful in the forms of scholarships, grants, and at the very least, loans. You can always find money for education, but nobody is out there looking to fund your retirement. When the time comes, if you’re in a great situation, help the kids out all you can. But honestly, it’s a much bigger burden to them if they have to worry about taking care of their parents than to have to worry about paying back student loans.

To LB in Temecula-

There are a lot of factors to consider that I don’t have from you to be able to give you a complete answer. First of all, I’m not sure how old you currently are. Second, what do you envision your lifestyle to be in retirement? You seem to be off to a good start, most don’t even have your emergency fund set aside. Without more info, all I can give is the generic answer of making sure to maximize your 401k and your ROTH IRA. If you do that until you’re 60, assuming you’ve got time on your side, you have a good shot of being comfortable. Spend some time with one of the many calculators here to help get a better idea for your situation…and quite honestly, if that doesn’t help, search out an honest financial planner who can tailor something specific for you.

Has anyone thought about the posibilities if you could invest the money you waste on social security. You get only a measly 1-2% return which is less than inflation. Then figure that the government isn’t even actually saving your money in a fund, but is blowing it on something else instead. Seems to me that a blind monkey could do a better job investing than that. I just figured out what my social security contribution COULD be worth with a conservative estimate of a 7% return over the 42 years until I retire, and I must say it makes me quite mad to think about this legal theft any more.

My husband and I are 33 and 34. We have almost $140K in our retirement accounts, $60K savings set aside to buy a house this year, and two newer (2005 & 2006) fully paid for cars.

If someone is 55 and doesn’t have $100K set aside for retirement, then shame on them. I started out saving for retirement at 26, putting aside just enough to make the company match. I slowly raised that amount to 17% of my income over the course of 2 years (a few percentages every few months and whenever raises/promotions came around).

My husband and I travel frequently with our son (11 months old), go out to movies and eat out a couple of times a month. It can be done, but you have to plan and be diligent about saving. You also have to remember that you can’t have everything you want, right now, just because you want it.

I am so overwhelmed by the comments; I get the gist though - it is possible, even for people who don’t have 6-digit incomes to accumulate wealth and live a comfortable life after retirement. Now, if some of the math whiz could help lead me to the right direction: Our combined earning is $90K/yr, we have $25K set aside for emergency fund, $15K in 401K, $15K in the 2 kids’ ESA’s (kids are 7 and 3), $10k in Roth IRA. We have a $360K mortgage and no other debts. Our monthly expenses total $5k. 1) how much do we need to save to send both children to college? 2)how much do we need to save to ensure we can support our lifestyle even after retirement at age 60? Thank you for your input…

To Del in Tampa-

You say “I make over 65k/yr (greater than the median US family income) and save 12% of my salary and assuming 8% return on those savings I won’t have 850k when I retire. This is not an average couple and 850k by the age of 55 is not achievable for greater than 90% of the USA.”

Over 40 years, given your assumptions, you should save around $2 million. Either your math was wrong, or you simply started saving too late!! That is the problem with most, they think they can start saving late and catch up easily. Sorry, that’s not the facts. The fact remains that if people lived according to their incomes, more than 90% of us would be able to retire comfortably. Comfort being a relative term, but comfort nonetheless.

Cook your own food, wash your own clothes, mow your own lawn, clean your own house including the toilets, buy your dry goods and everyday clothes like jeans and tees at the big warehouse clubs, pay off credit cards monthly or cut them up, don’t listen to realtors buy a comfortable home with payments you can afford, pay cash for your cars, buy a nice Stanley thermose for your commute and take your breakfast with you, pack your own lunch, you don’t need and investment guru - follow the index fund strategy with John C. Bogle, contribute the maximum to get your employer’s match in the 401K, don’t loan money to relatives, reward yourself once in awhile with a good bottle of California Cabernet and a nice grilled tenderloin steak, both can be had for under 20 bucks vs 60 or 70 per person at Outback, plus you can enjoy the entire bottle of wine and walk peacefully to your bedroom with no risk of a DUI and sleep peacefully knowing you will end up with a nice retirement nest egg of a few million to take care of you for the rest of your life. I guarantee success!

To Al from NY, NY:
You are right on showing the different returns during a number of years. Your example shows why mutual funds should be for the long term, not short term.

As an investor, we have to believe that we are investing for the long term and can count on the market to work, as it has.

Other “safe choices” are not that safe either. Your saving account or CD will not give much less return that is not enough to buy food later.
The long time range will still bring up 10 to 12 % per year on average on good mutual funds.

To Dave from San Diego,

8% annual return in good growth stock mutual funds or an index fund over 10+ years is not unreasonable to expect; it is in fact even on the conservative side. The market has done between 11-12% annually on average since the 1930s (same percentage also since late 70s), and that time includes recessions, downturns, etc.

If you are new to investing (within the last two years), you have likely seen very poor or even negative returns on your investments. Just happens to be a down time (though the DOW has risen over 1,100 points in the last few months). If you look at returns following the DOT COM bust, for a few years there they were AMAZING. The rule of thumb is that in any 10-year period, 3 years will be outstanding, 3 will be negative and 4 will be average.

So, where to put your money? Hard to beat index funds. I’d put it there.

Alex, Portland, OR,

I just want to echo what you said and add to it. Getting a good job can go a long way toward improving your retirement outlook. But it is also just an amazing investment. The money you put into your education is generally not as large as the monetary value you get from increased earning potential, and that increased earning potential is practically guaranteed (low risk / high reward).

Oh, and for those of you who are about to complain that you didn’t have the opportunities, there is only a small segment I am willing to hear. If you are a minority, the bar is so much lower for you to be admitted to med school, law school, etc. Some schools will practically hand you an admission letter just for being a minority, and you can get into great schools like Harvard and Yale with credentials that would barely qualify you for the local state professional school. The opportunities are out there. You just have to make the sacrifices to go after them.

Sorry, slipped a gear on my calculations

600K at 3% inflation:

2009 - 618,000
2010 - 636,540
2011 - 655,636
2012 - 675,305

So, the net value of their portfolio should be viewed in todays dollars as
$806,291, rather than the 880K number

To Larry from Michigan -

While I do believe it’s possible for these folks to make it, you need to understand inflation.

At 8% per year, these folks’ expected earnings would be:

this time in 2009 - 648,000
2010 - 699,840
2011 - 755,827
2012 - 816,293
2013 - 881,596

But what is that number worth? To calculate that, take the 600K, and figure 3% per year

this time in 2009 - 630,000
2010 - 661,500
2011 - 694,575
2012 - 729,304
2013 - 765,769

So, in terms of how they ‘feel’ about their money, the question is how they’d feel if they had 115,828 more than today (or $715,828)- because that’s what they’ll have in 2008 dollars. Not a bad number, but NOT 880K

Stocks aren’t the only investment you can make with your savings. We have 4 houses, the first one bought at 24 years old. Even with the latest downturn in the market, if you buy a house that is a good value and not in an overpriced market, you can leverage your money over time. We have about 900K in equity in the houses plus 401K and retirement at an average of 52 yrs old.

Steve from Washington wrote:

“I currently am 25 yrs old and plan on retiring at 55 with closer to $3 mil and I see that as an attainable goal.”

Remember, $3M 30 years from now may not be as much as you think it would be…

Planning on age 36. But then again, I’ve been investing since about age 15, and live a very simple life style and have no expenses or debt compared to my friends and most folks overall. I’d much rather pop an extra couple grand in retirment and brokerage accounts than eating out all the time. Plus I learned early in life that I don’t enjoy working for someone else.

PS. Alot of those financial calculator suck. Fractions and percentages have an asymetrical property to them that would never get taken into account for the calculators. For example, you have an investment go down 50%, to get back to break even, you need the investment to go up 100%. Geometric Averages are much better to use compared to Arithmatic Averages. Geometric takes better into account negative returns. Most calculators and numbers used in the real world are based on Arithmatic averages. Monte Carlo simulation is another step to use in calculating your goals.

“What about the other 90% of the population who at 50-55 doesn’t have $100,000 in the bank because they have average paying jobs or single incomes and can not afford to save buckets of money. Lets here about the real people and what they need to do to afford to retire at 65 if they are lucky.”

The simple answer is that they cannot retire.. It is a very brutal answer but what else is there if one does not have enough money? This happen a lot in third world country as well (people work until they die). The truth is that if someone cannot save enough nest egg for their retirement, they live a life that is beyond their mean and they are paying the consequence. People make choice on their life without considering money (want a kid, want a car, don’t want to study hard while they can, don’t try to haggle when spending their money….) and they are paying for the choice at the end..

I am 48 and I retired 2 yrs ago and after reading through all the comments, look like there is a lot of misconception about what it means to be retire (or financial independent) and how to invest their money.

1) Retirement spending - you need to have a very realistic plan for you spending (at least the first 3-5 yrs). Health care cost is a big part of retirement cost. Would it shock you to know that it will cost about 800-1K a months for medical insurance if you want to retire early (before qualify for medic care)?

2) I ran most of the retirement planners available (Money, Smartmong, T. Rowe price, Vanguard, Fidelity). They recommend an initial draw between 2.5% to 4% of your nest egg and raise the amount each year following the inflation.. So with 500K portfolio (not include your equity in the house), one can have an initial draw 12.5K to 20K a year. And each one of us can decide if you can live with this much money (don’t forget healthcare cost of 10K to 12K a year if you retire early. The health care cost make early retirement a very problematic proposition for small nest egg). And the earlier you retire, the less you should draw closer to the 2.5% of nest egg..

3) 8% return is a mirage.. There is no such thing as 8% constant risk free return in a world of 2% Fed fund. Investment return fluctuate as the market going up and down by a considerable percentage each year. There is something call Monte Carlo simulation in the retirement planning tool that account for the market gyrations (Fidelity, vanguare and T.Row Price planner use it). It basically takes the last 80 or so years of S&P return and put you nest egg going through a sequence of calculation (using a premix percentage of cash, bond, index fund etc.) by changing your starting year of drawing your money. At the end of the simulation they give you a probability that you money can last until 80 or 85 or 90 years old. The math is complicated but the concept is simply. If you retire in 2008 and market crash in 2009 and loss 40% of your principle, but you still need to draw you 20K a year to live. Even thought the market rebound in 2010, you have a lot less pricinple (compare to your yearly draw) working for you in 2009. If the same crash happen 20 years from now in 2029, you nest egg already grow a lot bigger compare to your yearly draw, so the crash is no big deal to your retirement. That make retiring early a real crap shot (depending on the fluctation of market return) if you try to maintain a constant standard of living. Each big market drop has some possibility of derailing your retirement draw. For most of us, making 8% average a year need a lot of research in picking the right mutual fund. Most mutual fund don’t make this long term average but some exceed it handsomely. So research and hand on management of your mutual fund is a must.

So after doing all these research, I come to the conclusion that I will do initial draw of 2.5%. If I don’t have enough capital with the 2.5% draw to support my spending then I cannot retire. Fortunately I met that test in 06 and I retired just in time to spend a year with my two kids at home before they headed to college. And I will adjust my draw (and standard of living) every 5 years based on investment result. If I do well, I will draw the same 2.5%. If my return did poorly, I will draw less and if drawing less mean lower standard living, so be it.. If the money is not enough even for minimal standard of living, I will go to find a job to supplement the income.. Once I get pass 65 or so I will start raising my draw percentange (may be 3% or 3.5% ). I am pretty sure when I get to 75 years old, I will be willing to withdraw 6-7% of the nestegg to support my living given that I don’t think I will live pass 85 years onld

From all the retirement articles that I read, it is interesting that everyone is concerned only about their own retirement. My husband and I took a different approach. On the first day we started working, we were concerned about our parents’ retirement as well. Both of us came from very poor families where our parents did not have even high school degrees. They washed dishes and picked over left over foods from restaurants to raise us and send us to very expensive Ivy League college. Needless to say, they have little (if any) savings for their retirement. They are now in early 60’s and we just turned 40’s. We saw it as our responsibilities to take care of them financially to make sure they enjoy their retirement. We are fortunate enough to have saved about 8 to 9millions in the last 15yrs that we worked very hard, so hard that we delayed having children. Today, we are not a traditional family by some standard. We have paid cash to buy 3 moderate houses for each set of parents and for ourselves. My husband stays home to take care of our children and our parents who are in poor health, while managing the family’s portfolio of assets. I work full time in the corporate world because I am not as successful as he is in managing the household and the family finance. Because our parents have a lot of health issues and doctor appointments and our children are all young under 10yrs old, we actually need to hire babysitters and household helps from time to time. In any case, having my husband in charge at home makes me feel good about working outside home and allows me to bring home a decent six figure salary and healthcare coverage. I don’t have to worry about our children and our parents because I know they are in good hand. We live modestly but we enjoy a lot of family travels with our parents. They love to take vacations with our children even to Disney World. To us, it is priceless to see our parents enjoying life now at their retirement. We want to make up to them everything that they missed when they were struggling to raise us and educate us. We feel so fortunate that we learned to save aggressively early so we can afford the financial security today to take care of our families. We will continue to live modestly but comfortably. And we will continue to save and invest prudently for our children and for our parents!

Correction to my last post:

With 3% inflation, the teacher would start with a $7855 yearly salary, not $14,000. He would then need to maintain a 5.4% annual interest rate over 66 years to reach $2.1 million with the same rate of saving.

I love that people are assuming 8% returns for these folks over the next 5 years. Historically, it really depends on which 5 period span.

S&P500
01/99-01/04 - lost ~13.1% or -2.6%/yr
01/00-01/05 - lost ~18% or -3.6%/yr
01/01-01/06 - lost ~6.7% or -1.3%/yr
01/02-01/07 - gained 21.4% or +4.3%/yr
01/03-01/08 - gained 37.9% or +7.6%/yr

An 8% return is not only attainable in the longer term (5+ years), it is likely. The stock market as a whole has returned far more than this over most 5-year periods. Heck, SPY (an index fund based on the SP500) has returned about 7% in the last quarter and 52% over the past five years (an annualized return of almost 9%).

I always find it interesting when people choose a low paying career, compound the problem by spending whatever money they make, and then complain that they will never be able to retire.

Huh?

This country is awash with possibilities…there are many ways to make a lot of money. There are people who choose the more lucrative careers, do the hard work required in those careers(making money isn’t easy), and then reap the rewards the rest of their lives.

Everybody wants everything…only a few people have what it takes to go out and do something about it.

If you want 8% a year…invest in Brazil…

You guys are very optimistic about the future of the stock market, when I read these posts, I wonder about the ‘01 crash, returns depend on the in and out time of the stock market. 8% is possible but in no way is it a minimum gaurantee and a loss is always a possibility (wcom, ahm, enron etc.), don’t be naive the stock market is a risk even if your in a mutual fund, Warren Buffet said very recently ‘don’t expect the same returns as in the past’ RE Berkshire??

Quickest way to save money? Start early, ofcourse…..but ALSO take a HARD look at your lifestyle at any age.
I can’t tell you how many people I know who make “average” salaries yet seem to always be broke……let alone
able to save. A simple thing such as going out every weekend at the bars (ya hear, kiddies?!?!?) could rack up as much as $90 a weekend. Total that up and think of what that same money would do in a good mutual fund over 10 years. That’s a small fortune in pricipal alone, let alone compounding interest.

Yet, time after time, I see people who complain about “how hard they have it,” while they are standing in line with enough beer and cigarettes to keep a frathouse happy. Go figure.

Steve from Washington, you do realize that $3M thirty years from now is worth approximately $1.07M today, right? I imagine in 30 years some naive kid will be like, “$3M!? I’m going to retire with $9M!,” because $3M will not be a very big amount of money by the time you retire, just like $1M is not now.

Have to say that I am VERY proud of some of the younger people’s commitments to planning for their retirements, no matter what age. Shortly after he received a small inheritance, my husband planned TO retire early, not plan FOR retirement and did so at age 53 with a pension (paid the buyout to 30yrs service). I was a housewife (raised 4 kids) for our entire marriage and we had no savings. Now we struggle to live month to month. I wish I knew what the future held, as I am only 53. I hope people take this article and comments to heart and take a strong hard look at their future.

Just to clarify a point…my dog could figure out how to get 8% return…and he doesn’t even speak English.

Re: Paul from Madeira

I was wondering if anyone would catch that. That is correct - a schoolteacher would not have been earning $28,000 a year in 1936. My “quick-and-dirty” calculation was meant to show that it was possible to save $2.1 million on a $28,000 salary, without taking extreme risks or winning the lottery.

A more realistic scenario would be to assume 3% inflation every year with salary raises to match, so our teacher would start with $14,000 and work his way up to $28,000 when he retires. $750 a month is about 30% of the $28,000 annual salary, so if he saved 30% of his salary for the 43 years he worked and then sat on it, he would still end up with about $2.1 million if he could maintain 4-5% return on interest.

You can make the scenario more and more complex to model the real world better, but it doesn’t change the fact that it is possible to save a lot of money over time for retirement, even with “little” money.

Quibble with the scenarios all you want, but the simple truth remains the same - you can save up enough money for retirement, if you make the effort to save.

The variation inherent in the market makes a very large number of outcomes possible, even with the same average annual returns. It depends on the order in which your returns vary over time.

Anyone who uses any set percentage as an “average” return needs a statistics class and a lesson in stats.

I can give you lots of lists of returns that have the same mean value, but the results on the other end will vary.

I also don’t think the previous 60 years means a darn thing about the next 60 years. YMMV

I do not find that many of these bloggers are bragging, but that instead they are very proud of their financial discipline.

Coming from the family of a poor dairy farm with income around the poverty level, I can tell you that even small amounts of savings add up over time.

In my father’s case, he never made more than $12K a year, hence paid no income taxes and received grants for his 5 children to attend college. All of of us are immensely successful-and we are all good savers. We understand that leaving the lights on costs money. We understand to stock up on necessities when they are on sale. My father used to talk about his family walking a mile down the road to get the neighbor’s already read paper- but over time, this saved not only the few pennies the paper cost, but expenses with medical bills, etc. You can have a very simple life and amass relative wealth without the stress that causes most people wanting to retire early.

The problem with these columns is that they talk to the upper 10% of wage earners, not those making around the median $37K for a family of four. These poorer folks get overwhelmed with these $850K and comments like “2 million is the new 1 million” and they walk away, further digging their financial grave. My advice to the other 90% of Americans, start saving as soon as you can, and what you’re not putting in your gas tank, put in your investments. One of the best creations for most Americans is the auto-adjustments for increases to 401(k). Even 1% increase per year will help you put away a few more pennies, that will turn into hundreds, which will compound to thousands and hundreds of thousands. This would be a lot more plausible if real wages (outside inflation) were headed in the right direction.

First off, most people simply CAN NOT save enough for retirement, even if you saved 50%+ of your salary. You need to save well along with very good investments. If fact the closer you get to retirement or the larger your nest egg, the amount you save becomes less important. The returns on your investments starts to take a much great precedence over your current savings.

Example:
You have 600K.
You currently make 50K/year
Saving 25% of salary = 12.5k/year
Difference between 4% and 8% return = 28k
(As you near the end, choosing good investments is more important than even having a 50% saving rate)

Don’t forget the effect of compound interest. Good investments and just a moderate savings will outperform large savings with poor to no investments.
Example 2:
a)You currently make 50K/year
Save 25% of salary = 12.5k/year
Continue savings rate for 30 years = 375k

b) You currently make 50K/year
Save 10% of salary = 5k/year
Continue savings rate for 30 years PLUS
annual return of 8% = 608K

Thus spending the extra time to find good investments is just as important if not more important than large savings. 8% is not unrealistic if you have are willing to take the time and research investments. Just for fun of it take a look at Example 2.b. Assume a 15% return (unrealistic for probably most w/ exception of elite few) after 30 years give you 2.45M. In short working to achive a good return is just as important if not more than a high savings rate.

Plus you need to consider inflation. Assuming a very modest 3% inflation.
You will need have 132k/year to have the same standard of living as 50K/year will provide now. Without any employer sponsored pension or Social security is virtually impossible to retire by just saving.

I find it very humerous that some people see $1 mil as a lot of money. I currently am 25 yrs old and plan on retiring at 55 with closer to $3 mil and I see that as an attainable goal. I have maxed out my 401(K) for the last two years and plan on doing so for the next 30. Maxing out my 401(K) doesn’t leave me with a huge amount of spending money after you take into account expenses (rent, car, etc) and savings (a high yield saving account 3% is far better than 0.1%). I have enough left over to spend roughly $400 for play money per month. I personally limit myself to under $50 a week for spending money and that’s plenty for hitting up a few bars for happy hour once or twice a week and heading out one night on the weekend. Alotting to only spending $50 leaves room for accidentally spending more and sets aside money to buy my girl something or take her out to dinner once or twice a month.

There are a ton of things one can do to enjoy life without spending money. My girlfriend and I go hiking in the mountains. We do a lot of sight seeing within an hours drive. I play football on weekends with friends. We meet up with friends/roommates to play poker ($10 buy-in) and have cookouts on Sundays.

I used to be of the same mind set as some people posting here are, that fun = spending $$. It took me almost a year out of college to realize my mistake and I’m glad I did. Spending money on expensive bar tabs, random clothes, jewelry, etc that you only see or use once is a waste of money and once I realized that my spending nearly halted. I spend on things that matter or I truly need, not on things that I want for the sake of wanting.

To Dave from San Diego.

Go look at most of the mutual funds with Vanguard. Go check them historically and you will see that stock indexes in the U.S. have returned over 10% yearly. Just because the recent past has been hard on stocks does not mean they won’t go back up. This has happened many times and will almost certainly continue to happen.

Power of Compounding - My daughter at 17 had her first part-time job and then worked enough hours each year during college so that $2,000 could be put into a Roth IRA (annual gift from her parents - we brown bag so that’s just lunch money). If she never saves another penny (very poor choice, but used here for emphasis), has the money in equity mutual funds that average 8% return per year, and retires at 67 - drumroll please - she will have about $412,000. Not bad from $10,000 seed money. If she continues to save $2,000 for another 5 years, the total jumps to $687,000. Just think of the possibilities if someone can save the Roth max each of these 10 years! And then, what if deposits continue after 10 years …

to have a lot of money late in life-do this– Save 10% of your gross income every week; Join a 401K if available;Initiate a ROTH IRA plan with Vangard;re-invest dividends and index funds UNTIL you get smart then Dividend paying stocks in the roth account. Save 25% OF BONUSES/GIFTS ETC DEPOSIT SAVINGS IN THE ROTH ACCT. Inhertence- invisit 50% in the above and spend the rest.Tax free investments and long life with moderate expenses you will reach your goal.

To Bob Des Moines, Iowa who just want to enjoy your life and don’t care about saving:

You sounds like a 2 years old standing in a candy store saying “I want it. I want it. And I don’t Care.”

What a whiner!

You think you will die soon after you retire (or simply out of a job). The statistics is against you. More people are living longer these days. Sadly, you won’t die. Then,what? You may be a greeter at Wal Mart.

Honestly all the things you mentioned– traveling, golfing, eating out, etc., we do it as we save. We were very mindful and still managed to save and invest. And our house is paid for.

For the Daves (SC, San Diego) the 8% return people are citing is not a short-term return. If you want to be able to put your money somewhere and get 8% next year, it’s not going to happen. The 8% return is a long-term return that considers decades of peaks and troughs.

“Saving” goes beyond what you make and how much of a return you get on your CDs and 401Ks.

My wife and I (both 28, almost 29) are lucky enough to have a household income of approximately $160,000. While we realize that this is much higher than the national average, we also have housing expenses that are much higher than the national average too. (e.g. $700,000 home, $8,000 yr in house taxes, etc). Of course, we chose to have a good size house so I can’t really complain about that.

Anyways, my point is that we are in a comfortable position right now, but we also save money however possible. My wife and I coupon clip like crazy, try to get whatever items that are offered free (for anyone who has seen CVS bucks, you know what I’m talking about :-). We always buy things on sale or clearance. We do all our own work including the outside landscaping, any housework including remodelling, clogs, etc.

The lack of discipline that people have drives me crazy! I think you’ve all seen it!

I guess the point is that I see people at work who complain about not having enough money, yet they can’t be bothered to make their own lunches, or they can’t be smart and stock up on deoderant when it’s on sale vs. just getting it when they need it.

It drives me crazy to see people who go into a drug store and spend $80 on random items. That’s crazy! Why spend $4.99 on the Pantene when it’s on sale for 3/$10 elsewhere?!

Or what about the people at work who are talking about getting new patio furniture from Home Depot for $600 in April? My wife and I bought a $800 set on clearance at the end of summer (maybe it was more like end of Sept) for $250.

While it may not seem like it makes a big difference, each of those dollars add up to BIG money in a short period of time!

The people need to be educated and stop being lazy. Convenience is overrated!

A million at age 55 isnt close to cutting it unless you can live a decent lifestyle on $45/50K a year, whcih you cant. I think the minimum you would need is in the realm of 1.5, and thats cutting it too close to enjoy.

Here’s my problem with trying tobe frugal for 55 to 60 years of your life. Knowing me and the way my luck is is that after saving and scrimping, giving up traveling, golfing, eating out, and numerous other life enjoying tings in order to save for wonderful retirement at 55 or 60 years old that I would die about a year after I retire. So what did I accomplish? I just saying you got to enjoy life while you have the chance.

To Dave of Columbia, SC who wants to know how to get a 8 percent return:

You should understand a little bit on mutual fund investing. The commonly cited Vanguard Index fund started in August 3, 1976. Its average annual return is 11.55%. How about the Investment Company of America which started in 1934. It has the average annual return of 12.67%. You should know there is up’s and down’s but good mutual funds would be as safe as anything. Your CDs do not bring much which some called the certificate of depression.

My wife and I are age 47. We were in debt before 35 so we had to catch up quick. We have accumulated 940K to date in the last 17 years all via 401K and mutual funds. Yes we pretty much live on one income and safe the other but we are fine with it. Anybody can find excuses to spend money and we do that from time to time. We don’t bet on any crazy high risk funds, just mostly Index and value funds.

Go to your local library. Check out some mutual fund books. You can only feel comfortable when you study and understand it.

To Mike in Chicago

I make over 65k/yr (greater than the median US family income) and save 12% of my salary and assuming 8% return on those savings I won’t have 850k when I retire. This is not an average couple and 850k by the age of 55 is not achievable for greater than 90% of the USA.

Nobody has yet answered the question put forth by “Dave, San Diego”. I’m very interested in the answer myself. The question was, where can one get 8 percent return on their money these days? If I could get 8 percent I’d be ready for a comfortable retirement immediately.

To John from LA, CA, you are forgetting about compounding. You can save far less than $167,000 a year and end up with $4M in the bank. In fact, if you save $167,000 each year for 24 years, you end up somewhere just south of $13M (assuming reasonable returns).

To everyone else who is saying that they don’t want to sacrifice now to have money in the future, the power of compounding is the answer once again. The point is that you don’t have to save all that much right now. Saving 10% of your income year over year can balloon into a very nice (relative) retirement after 40 years. That’s a 10% smaller house, eating out 10% less, a 10% cheaper car, etc. now. If you don’t do this, you will have to live what, 50, 60, even 75% cheaper in retirement, or work during retirement just to get by? When you do the math, the choice seems pretty simple. Bleed a little now or hemorrhage a lot later.

Re: Leon from Syracuse.
He must be 23 years old to come up with that math. The ‘43′ years to save ‘$750 per month’ were from 1936 to 1979. My mother, a college graduate, was working in 1936…for 25 cents an hour, that’s $43 a month in gross income. She later did become a schoolteacher. Her avg. salary from 1950 to 1970 was probably about $3600/year or $400 per month, gross. It is a pretty tall order to save $750 per month for those years my friend.

To John in LA regarding Ash’s (Lincoln/NE) posting:

Don’t forget about the power of compound interest! Remember that only a portion of your $167K average was their income…so kudos to Ash~~~!

This morning NPR reported that, “This year is [was] supposed to be the beginning of the silver tsunami” of the “first wave” of “78 million” baby boomers scheduled to begin collecting Social Security.

http://www.npr.org/templates/story/story.php?storyId=90180155

This year I will be 55. I am going to join the silver wave of boomers who will retire. I will not collect social security. I do not have a 100K+ salary, or even a 50K+ salary. My salary is well below 50K. I will have a modest state civil service (clerical) pension which will cover my housing, living expenses, and food (with some left over for travel and entertainment). My pension benefits will include the cost of my medical insurance. My pension will allow me to pay for my LTC insurance. I am single. I do not have gobs of money saved. I have some. I do not owe money on credit cards. I do have a college degree (but that is not how I earn my living). If I want lots of extra money I will get a part-time job now and then.

I live in a very nice apartment, drive a five-year-old American car, travel, do not eat cat food, go out to eat (not fast food), buy books and music, go to museums, libraries, parks, festivals, and enjoy life and my friends (some of whom are wealthy). I plan to continue living this way when I retire.

I will enjoy my retirement, just as my parents did, just as my aunts and uncles did, just as many of my ex-coworkers do. My father was a blue collar worker. My mother was a housewife. They didn’t have a clue about a 401K. Ditto my relatives. My mother was a bookkeeper before she married. They used to call them bean counters. She taught me how to count my beans. She also taught me how to enjoy life and how to appreciate the old songs. Remember the song, “The Best Things in Life Are Free?” She also taught me the old saying, “Everything in moderation.” I do have expensive tastes. I love champagne; I also love tea or water with lemon. Sometimes I eat caviar; sometimes I eat beans.

An early and full retirement is possible for the working class.

It definitely is possible is to amass a great deal of wealth even with modest-paying jobs. Consistent saving, careful spending, and prudent investments are the building blocks.

Regarding Ash’s (Lincoln/NE) posting:

Is that even mathematically possible? $4M in 24 years would mean $167,000 per year. What kind of modest-paying job would let you save that much, let alone earn it?

The name of the retired schoolteacher is Whitlowe R. Green. He died at the age of 88 in 2002. He was a frugal man (some would say too frugal) who saved money so he could start a scholarship fund for Prairie View A&M, his alma mater. He graduated from Prairie View A&M in 1936.

I’m not sure how he invested or saved his money, but for those who think that this man needed to win the lottery or get a lucky break in the stock market to accomplish this: saving $750 a month at 4% a year for 43 years (from 22 to 65 years old), then holding it for 23 more years at 4% a year (from 65 to 88 years old) would have gotten him $2,575,431.61 by the time he died. The only thing required of the man would be to live on $14,800 a year while working (because of taxes), live only on his Social Security check and pension after retirement, and invest in long-term CDs and bonds to average a 4% return every year.

The point I wanted to make was this: anyone with a steady income can save enough money to live on in retirement, but you have to actually save money for retirement instead of spending it on things you don’t need. If that means buying secondhand clothing at the Goodwill store instead of Old Navy, or eating cabbage and beans instead of Porterhouse steak, then so be it.

As with so many other things in life, the right thing to do is simple, but many people find it hard.

I am a 52 year old, who immigrated to this country penniless about 24 years ago to attend college. With modest-paying jobs (between two of us), maximum savings, careful spending, and prudent investments, we are currently worth more than $4M. This is with two kids in college, and supporting our parents back home.

So, it’s a real possibility, and a simple formula: live like a pauper, you can retire like a king.

These articles are getting out of hand, you don’t have to save 90% of salary to retire comforatably. Why live cheap and have no fun for the first 60 years so you have money when you’re too senile to do anything with it and you end up looking like that old couple from Caddyshack, or you’re dead. I’m too tired to wake up in the morning and make my own lunch, like technology too much to not have the latest cell phone, and I spent money to travel the world when I was young so I can remember it and appreaciate it for most my life.

Its all about you’re personal values, but the value for me to not be “cheap” for 60 years is pretty high. Thanks for all your math calculations below, but just put about 8% of your salary in a life cycle fund and quit worrying about it.

If I’m reading this right, they have $850k now at age 50. This could easily be over $1M by the time he intends to retire at 55. With addition savings during those five working years and with maintaining a fair percentage of the nest egg in stocks for many years following retirement, the prospects are very good for a decent long retirement. And I’ll agree with many hear. This is not unachievable for the majority of people. Just disciplined savings and controlling expenditures.

Will someone please tell me where I can get this 8%. Give a real concrete example of where I can put money today that will give me this mythical rate of return. I’d happily park the bulk of my savings there. As far as I know that figure is unachievable these days.

I’d like to see a more realistic guideline as well. Someone mentioned:
“If a person starts saving $500 per month at age 25, then he/she can retire at age 55 with $745K (assuming a very reasonable 8% annual return).”
I’m 25. If I do this and have $745K in 2038, do you seriously think that’ll be enough to retire on? If I want to save a consistant amount of money monthly for the next 30 years, what would that need to be in order to have $1M (in today’s purchasing power) by 2038?

It appears that unless there is a big market crash in the next 5 years that they could retire when he is 55. In 5 years that 250,000 will be worth $367,332.01 (assuming 8% annual return). They need to be able to use that money until he is 59 1/2 before they can get at their retirement accounts without penalty. Let’s just make it 60. So, $367,332.01 needs to last them 5 years. That’s $73,466.40 per year. With a paid for house, they should be able to make that work in any area of the country. Now, the $600,000 in 10 years (remembering that they won’t get at it until he is 60) is worth $1,295,354.99 at 8% annual return. They take 4% of that when he’s 60 and that’s $51,814.19. Now, that’s a drop from their first 5 years of retirement, so either they could spend less is their first 5 years, OR just work one more year, OR make due from 60-62 at which time he can get Social Security — that will boost them back up to where they were the first 5 years. We’re not even considering that they will still invest at least for the next 5 years too, so these figures could be higher. With a paid for house, even 10 years from now, a couple could make it on $51,000 for a couple years before they add another $20,000+ from Social Security (which WILL still be there then). This is all easily done. They could even sell their house and possibly downsize or move to a cheaper area of the country for even more money. They won’t be rolling in money, but they have enough to retire early if they are smart about it.

The couple still has 5 years to go, so by continuing diciplined savings patterns (maxing out 401K, IRA’s) and contributing to any other retirement accounts they should be able to amass well over 1 million dolla