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Financial experts recommend people amass at least eight times their annual salary to retire. How exactly does this translate into 25-30x annual expenses (assum

by uiri 10y ago

Financial experts recommend people amass at least eight times their annual salary to retire. How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? Let's say that taxes eat 25% and these "experts" assume no mortgage (so, what, another 15%? 20%? of gross salary). Eight times will still only cover annual spending of ~30% their gross salary. If these people are spending 50% their gross salary (not unlikely given the abysmal savings rates) they're still in for quite a shock. low interest rates have diluted investment gains This is also quite the non-sequitur given the consistent bull market of the 5+ years. Interest rates go down means bonds go down and money moves to stocks. Interest rates go up means bonds go up and money moves out of stocks. In neither case do investment gains get "diluted" by interest rates being either high or low.

euphoria 10y ago
I think they are assuming that some type of social security will be included to make up the difference of that. If I go to ssa.gov's quick calculator and type information corresponding to a full retirement date this year, and a current salary of $80,000, then SSA estimates $2058 monthly benefits, or about $24,700 a year. If this person's personal savings was 8 times $80,000, it would be $640,000. If the safe withdrawal rate were 4%, this would be a withdrawal rate of $25,600 a year. Combining personal savings withdrawals and SSA would yield $50,300 a year, which is probably not far from what a person making $80,000 needs in retirement (62.8% of gross salary). Granted, 4% is maybe only a mostly-safe assumption, and SSA continuing at current levels is probably a mostly-unsafe assumption, but given these assumptions it seems reasonable. I myself would be more comfortable with 10-12x.
jogjayr 10y ago
> How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? It doesn't, as far as I can tell. Any rule of thumb that answers the question "How much should I save?" but doesn't take into account how much you spend right now, is useless.

by uiri 10y ago

euphoria 10y ago

I think they are assuming that some type of social security will be included to make up the difference of that. If I go to ssa.gov's quick calculator and type information corresponding to a full retirement date this year, and a current salary of $80,000, then SSA estimates $2058 monthly benefits, or about $24,700 a year. If this person's personal savings was 8 times $80,000, it would be $640,000. If the safe withdrawal rate were 4%, this would be a withdrawal rate of $25,600 a year. Combining personal savings withdrawals and SSA would yield $50,300 a year, which is probably not far from what a person making $80,000 needs in retirement (62.8% of gross salary). Granted, 4% is maybe only a mostly-safe assumption, and SSA continuing at current levels is probably a mostly-unsafe assumption, but given these assumptions it seems reasonable. I myself would be more comfortable with 10-12x.

jogjayr 10y ago

> How exactly does this translate into 25-30x annual expenses (assuming safe withdrawal rate of 3-4%) ? It doesn't, as far as I can tell. Any rule of thumb that answers the question "How much should I save?" but doesn't take into account how much you spend right now, is useless.