But that’s the bigger issue isn’t it, not the savings, but the keeping up with the joneses
We moved to the ME, it was fascinating to see how people behaved
Basically everyone gets a 100% pay rise; no tax and no housing costs so everyone is up on where they came from
I know people that arrived when I did, made exceptionally good money, six figures take home, no rent, no kids and they saved nothing. They lived like rock stars
We probably lived on a little more than we did when we left the UK, but saved and saved.
We live on far less than we ever made, always have, we live at ell enough but I don’t need a porsche, a 50k dollar kitchen, or this or that. I ski, ride my bike, other than travel we don’t spend much on going out and entertainment etc
I think there is a point where earning power outpaced spending power unless you want to travel business or first or eat at nobu or hakkasan each week
The more interesting question in my mind is what are you saving for?
I know a lot who save almost everything they make and wonder why they don’t just enjoy the money they have now. I think it often becomes such an obsession, a numbers game that they can’t actually answer that question.
Yes.
I currently have y in savings and I need z to live on
X has no bearing on z
If I make 500k a year (I don’t) but I only need 50k a year, the idea that how much I should have saved is related to current income not current need is pretty silly.
This is my thought as well. I am our family’s second income. We live on one income but my income has allowed us to be debt free.
This formula would say the more I make the more I need- but the way we have done things the more I make the less we need going forward because I invest in knocking down future liabilities.
I am above the formula - but I also went to part time work. Which with no change to my lifestyle totally boosted my stats on that formula.
If I quit I can take it to infinity! Although that would have zero bearing on my preparedness for retirement.
The formula is a target (not a requirement) based on typical spending habits and retirement ages. It more or less assumes that you are going to spend most of your money before you die, but that you won’t have a shitty retirement. It really is nothing more than a bar, and to see if you are above or below it, and more importantly, if you are below it to reevaluate your spending habits.
If I made $500/yr (I don’t) I might continue to live the way I do and either have a ton of money at retirement, or retire very early. I might also buy nice things and go on nice vacations, but if I do that I need to understand that the money will run out if I spend too much and that it will be difficult to adjust my lifestyle if I don’t plan for retirement. According to the formula, it says I should have 2.3 mil saved up if I’m making $500K per year. If I only have, say, $800,000 saved up, I might want to reevaluate my spending habits. If I have $8 million saved up, I might want to think about why I’m saving so much and if I want to retire early, or buy that sports car I’ve always wanted, or think about paying for my grandkids’ college, or maybe just enjoy life sleeping on a bed of money.
Both Cavewifey and I always lived well within our means. It helped that we both had high paying jobs. Honestly we really only spent on vacations. We have a nice house, but not crazy.
We were both great savers well on our way to financial security. I then had a major life event that really made all the savings somewhat minor (Employee #1 to public company).
Our only “Big Purchase” was paying off the mortgage. We now save that money. Our financial advisor says live large. I always felt we did. When we die, the National Parks Service can live large with the money.
Just to clarify, a lot of people misunderstand how interest works. You always pay interest on what you owe. The only reason why most of the money goes to interest early on is because you owe a lot early on, so the amount of interest is high. The banks don’t just decide to put the money toward the interest.
So, hypothetically, if you have a 30 year mortgage, sell your house in 10 years and buy a new one of exactly the same value, but get a 20 year mortgage, and then in 10 years do the same, but this time get a 10 year mortgage, there is no “starting over and paying interest up front.” Except for the realty fees, getting the new mortgages makes absolutely no difference than keeping the old one (assuming the rates are the same).
I am 35 and way behind the curve, but, my small business only really started making decent money a couple of years ago, wife paid off her student loans, only debt is mortgage and we live in one of the most unaffordable housing markets on the continent. We could probably sell and retire early in Thailand, but definitely not here!
I don’t think I know many people my age at or above of the bar who didn’t start out with sizeable inheritance, college paid for, or some kind of help like that.
the fear of adapting to a lifestyle that requires my current salary scares me into living on virtually nothing. It is a borderline mental problem i blame the most recent incarnation on being self-employed and perpetually three clients away from zero income.
This is one of the reasons none of these calculators work for me. First, I have been living off of about 1/2 or less of my annual income for over ten years. I just don’t need that much money to be happy. So, the estimate for how much I need to retire happily is not correct. Second, it doesn’t take into account family issues like the fact that I have two kids in college and I am 62. Also, my wife is ten years younger, so not only will she not be eligible for Medicare for a loooong time, but her life expectancy is a factor I have to address in our life planning. Last, I have worked for the same company for 37 years and have four different pension plans I will be able to take advantage of when I retire. These ‘quick & dirty’ calculators never seem to address people with pensions. Mine will return about $60K/year in addition to the 401k income I will receive. Then, there is the outside investment account where I have been depositing the excess savings that I couldn’t get into the 401k due to deposit limits.
Pension plans are assets. You have to figure out what they are worth and work that into the formula.
Also, I don’t understand your logic. It seems to contradict itself. You live off of half of your income (so you save a lot) but you have all these huge expenses (so…you don’t save a lot?).
It is a ridiculous, my wife and I should have $450,000 in savings by age 32? We haven’t even finished paying off college…
The formula indicates linear growth with age, but for most people who use tax-sheltered investment products with automatic interest/dividend re-investment (as opposed to just a savings account) retirement account growth should not be linear.
It is a ridiculous, my wife and I should have $450,000 in savings by age 32? We haven’t even finished paying off college…
No kidding.** I’m not sure where this rule of thumb came from but I’m pretty sure people who can hit those numbers are the exception, not the norm. **
Most people I know around aged 30 are barely out of their student loans, nevermind stashing away big chunks of savings.
When you look at these formulas they all shoot very high. So yeah, if you are at that number you will be perfectly fine.
But I have never seen one that looks realistic as to how much money you actually need. Somehow people retire happily all the time without coming anywhere close to these numbers. Usually they are put forth by people who want you to invest more money with them.
It is a ridiculous, my wife and I should have $450,000 in savings by age 32? We haven’t even finished paying off college…
The formula indicates linear growth with age, but for most people who use tax-sheltered investment products with automatic interest/dividend re-investment (as opposed to just a savings account) retirement account growth should not be linear.
What younger people have on their side is time…if they take advantage of it. Force yourself to put a little away every month even if you don’t think you can (you can) and it will compound over time to be as valuable as the bigger amounts you can put away when your 50…if not more so.
I’m 50 and very nearly hitting that formula. I started retirement savings 6 months after taking my first real job as an engineer at 21 and I’ve never stopped contributing. I was probably 35 before I could “max out” on 401K and after that I started after-tax accounts.
As others have said you have to take that formula with a grain of salt. I like figuring how much I want in retirement in annual income and then using the 4% rule to figure out how much I need to save. i’m not there yet.
