Ask HN: How much have you saved for retirement? This blog post says as a Software Engineer working in the US you should have $4 Million in savings to have the same income, in retirement, as a fresh software engineer. http://chase-seibert.github.io/blog/2014/01/01/saving-for-retirement-as-a-software-engineer.html How much have you saved for retirement, and at what age? |
It makes more sense to take big risks with money and then use any big payoffs to help geoengineering efforts or prepare for living in a bunker. That may sound silly but some rich people are already doing that: http://www.newyorker.com/magazine/2017/01/30/doomsday-prep-f...
I also don't dispute man-made climate change bringing about more extreme weather and raising sea levels, which are catastrophic things by themselves.
However, it's when you wrote about the "end of human civilization" that I got skeptical. There is no scientific consensus for that, and no compeling reason to believe such exaggerated claims, even if "rich people" took precautions against it, or some lone climate researcher claims it in a blogspot post.
Do not plan your retirement thinking that human civilization will end before you retire, because much more likely than not, it won't. This is so absurd that you're setting yourself up to have your end-of-life tragedy be in the future a pretty good joke about taking conspiracy theories seriously.
1. Owning a home in the Bay Area by the time you retire. No mortgage, no rent. Just bills.
2. Sell that place when you retire in order to move to a cheaper location. Use whatever's left from the sale of your home as an income for the rest of your life. Let's take a $800K home for example, if you make $150K per year, you may qualify after 2-3 years by saving as much cash as you can for a down payment. That house/condo might be worth 1.5 to 2 million dollars in 30 years from now, who knows? Despite the inflation, if you sale it for say $1.5, after tax and real estate fee you might end up with $1.2 net. This is not income money. You could then buy a $500K house somewhere cheap, then use the remaining $700K as part of your retirement money, which brings in $35K net per year for 20 years. This is roughly the equivalent of $50K gross income per year.
3. Make sure to add a little bit in your personal saving account every month, even if it's $100-$500 it's fair enough on a 30 year period.
4. Make sure you add up a little bit in your 401K.
The combination of all 4 will maximize your retirement while leaving in your own place. Real estate in a place like the Bay Area is the best investment because of the location. It doesn't matter if it's a tiny 1 bedroom in San Francisco or a crappy old house in South Bay, it will hold its value over the years and will most likely help you moving to a cheaper place with a lot of cash in hands.
How do you know this? What you're saying sounds just like all the bankers and mortgage salesmen in 2007 promising that real estate prices will never fall. If you want to bet on SV real estate being the best investment, go ahead. But call it what it is: a speculative bet.
For those who would prefer not to speculate on their retirement savings, professionals have already put together very sophisticated calculators that tell you whether it's better to buy-or-rent. Check it out and run the numbers yourself, before trusting uncited blanket recommendations given in a HN comment.
http://www.nytimes.com/interactive/business/buy-rent-calcula...
All housing went down in the bubble bursts, but bay area still enjoyed nice 7-8% yoy growth so far.
There are couple things that could make it pop badly - like detroit like situation where it goes bankrupt, or the other is tech companies decide to move elsewhere.
I think this is where you should eiversify either way. Buying properties where tech is currently strong is a nice way to diversify
Austin, bay area, ny might be good spots for this.
If you adopt a buy-and-hold investment strategy over the course of 20-30 years, with a good mix of index funds, the above should be easily within reach.
WS tells me I'll have ~$5,222,649 when I'm 65 if I continually add $5k/mo to my invesments.
They say "We include your scheduled contributions into this projection and assume a return of 5.1-5.45% on stocks and 0.74-1.05% on bonds after 0.5% fees. The impact of taxes is not included. Actual returns may differ."
My ideal plan is to have ~$600k+ in investments and withdraw 1-2%/yr to cover food costs. I'm looking at some 200-300 acre stretches of land for around $150k~ in Canada where I plan to build a house myself. Looking to hookup solar and for a freshwater lake to be running through the land. The goal is to self sustain for however long I need to so I can think and work on my hobbies without the overhead of rent/career.
I feel like trying to scrape together an hour or two here and there for a hobby doesn't do anything for me because I'm working on things that require large stretches of uninterrupted time over the span of weeks/months.
I would expect to have about 20 times whatever I wanted to live on per year, and that yearly amount would high enough above what I know is enough to be comfortable. The state pension should kick in something too.
However, I don't expect to completely retire at any point though legally I currently could in only 5 years' time (then another 10 years or so to state pension age). So if I'm not doing a reasonable amount of work and keeping my brain active at 70 I would be disappointed.
I think it's the numbers that are suspect in this analysis.
1. The calculator asks for your salary, then uses your current salary to determine your need for money in retirement. If you're saving 20% of your salary, then really you are only living on 80%, and that 80% should be used as your 'living expenses money'.
(fine print of calculator: We then assume you can live comfortably off of 85% of your pre-retirement income. So if you earn $100,000 the year you retire, we estimate you will need $85,000 during the first year of retirement.
I think it should be at least 85% of what you're not saving. For example, if you're making 100k, saving 20k, then really you should take 85% of 80k, which is 68 - not 85.
Also costs change as you get older. While you may spend more for health care, you hopefully won't have to pay rent, for raising children, etc.
Finally, they seem to say they want to take all the money and purchase an annuity. It seems like as soon as you retire, your money stops growing (other than for inflation) because of the annuity, but if you kept that money growing while you were retired, it would probably be even less.
Really the big trouble is you can't rely on ever increasing markets with some 7% yearly rate of return. It could be higher, it could be lower. If it's lower for a long time, basically the US retirement systems (both 401k and pension) are in huge trouble.
Fidelity is always telling me I need some ungodly amount of money saved in order to continue the lifestyle to which I've become accustomed. I don't need that much. Here's what my current income pays for that won't be an issue in retirement:
1. Maxed out 401K at $18K/year. The wife's doing the same.
2. $3K a month paid to mortgage principal, in addition to the house payment. (It is financially unwise to pay down a 2.5% loan quickly, but I'm not retiring with a house payment.)
3. Commuting expenses.
4. A hell of a lot more eating out than I plan to do in retirement.
5. My current tax rate. A lower tax rate in retirement is the whole basis of the appeal of tax-deferred accounts.
And let me give you some anecdata to work with as you ponder your starvation in retirement: my parents. Mom just bought a brand new Corvette last year. Dad is talking about a new $65K truck to replace the one they bought just a few years ago. The just bought a new $35K fifth wheel camper this year. A large, long-paid-off house on six acres in Florida. Lots of camping trips, which means feeding that hungry diesel truck that's pulling that fifth wheel, and camp spots with hook-ups ain't cheap. Maybe it's not how kings live, but I'd have no problem with the lifestyle. They're in their 70s now, I don't see the money running out any time soon.
And they retired in their 50s with about a million dollars.
You'll need $4 million if you still hold a mortgage in the Bay Area and you're stilling hitting the $EXPENSIVE_NIGHT_SPOT thrice a week, while having Uber Eats delivery your dinner every night. Which you won't be doing when you're 55 or 65 if you have any sense. Which means you don't need anywhere near $4 million.
To get to answering your question, I plan a minimum of $1 million, and a max of $2 million, when we retire. We're not going to continue to live in Redmond, WA, I don't think. Taxes are pretty good, IMO, but we'll sell the Redmond house and buy something in, say, Bellingham and pocket the difference. I have absolutely no reason to believe we'll be anything other than just fine and dandy. Especially considering that the median person of our mid-50s age has less than a tenth of our current savings, and you don't see masses of retired people starving in the streets, do you?
My approach is to actually contemplate what retirement looks like and develop a budget based on that to determine what our expenses will be, and subsequently how much income will be required to support that lifestyle.
I don't need anything approaching 100% income replacement, as it would make no sense to pay exorbitant rent for proximity to jobs as a retiree.
I doubt I'll save enough over my lifetime (outside of 401k) to scratch a down payment on a Bay Area 1-bedroom condo, but it'll be more than sufficient to buy a palace for cash anywhere else the moment I don't need to live here anymore.
(I have worked in Midwestern IT cost centers, never again).
Moving costs something, but would pay for itself very quickly. If I leave my furniture to the Craigslist scavengers, just the lease-break fee of 1 month's rent and a plane ticket with a couple of checked bags.
At some point it becomes important to start the ball rolling on that sweet compound interest, pick up the preferential tax treatment (saving the max of $18k to a 401k would only cost me about $10k), pay down student debt early for a guaranteed 4.5% return, and (yes) travel and enjoy being young.
Effectively, the fund I'm working on will be worth even more than a year, as long as I relocate.
Most people would consider it a LOT to save $20k a year, which would be well under a million by retirement.
CalPERS came to this conclusion a few months ago, and they're a bit behind the rest of Wall Street when it comes to returns estimation.
http://www.cnbc.com/2017/02/08/calperss-sees-58-percent-retu...
Some Wall Street veterans are predicting returns even lower.
https://www.bogleheads.org/wiki/Historical_and_expected_retu...
The biggest chunk of my income is eaten up by taxes and rent. Once you've retired and your only income is from long term capital gains, taxes are much less of an issue and hopefully you've purchased a home so you don't need to rent. It also ignores social security, which based on the quick calculator at ssa.gov seems to be not an insubstantial amount, though I get that people don't want to count on that.
On the flip side, it completely ignores inflation which may mean that while your savings may be very large compared to how much you need to live today, they may not be adequate 30-40 years from now.
Without a good estimate for what your expenses will actually be, the number you "need" turns out to be complete nonsense IMO.
You'll also likely be drawing down a 401K, and the government wants their deferred taxes back. So capital gains taxes aren't the only tax consideration. Granted, you most likely will in a lower tax bracket come retirement time.
I'm green with envy... With that much money i could have probably retire right now at 30, and i'm half way there.
Then again, i live in a country with free medicine, free education, no lawyers, a recently-ended oversupply of housing leaving me with 1.5 apartments and a house from grand-grand parents who "moved on", and all bills and necessities coverable by about $2k a year, so i'm not sure if i have a right to be envious.
More to the point, i keep the money scattered around - foreign currencies, gold, crypto, etc, to avoid losing all at once and staying ahead of the inflation. I don't expect to ever become a millionaire, barring a lucky investment or something.
https://docs.google.com/spreadsheets/d/1nV8N16sBFiqDtZqkORlh...
Feel free to point out bugs or copy and add features.
Why do you say that? I started saving for retirement at 16, and have never considered it anything but.
The only reason it will be lower is if income is lower.
Some people say to not contribute more than the match, because you end up paying more taxes in retirement (taxed as income) than if you just ate the taxes first and paid capital gains on it later.
https://investor.vanguard.com/home/
https://investor.vanguard.com/mutual-funds/target-retirement...
EDIT: Sweet jesus, wealthsimple charges 0.5% of your first 100k, Vanguard is like 0.16%. You might as well be stuck in a crap 401k at wealthsimple expense ratios.
Because I would have to know what any of that stuff is, hence: "can't be bothered to learn more about how to manage my investments myself right now"
Thanks for the links. Also I'm a Canadian and their MER is lower than everyone elses all things considering, even tangerine.
What can I do as a Canadian?
This calculator is often uses to demonstrate different savings rates : https://networthify.com/calculator/earlyretirement
The reason why saving more quite rapidly lowers your retirement age is because it's a twofold saving. Firstly you are saving more money which is good, and secondly you are learning to live on less.
To take a super simple example. Let's say you can live on 50k a year. And you can get 3.5% on term deposit rates (You can in NZ). Then you should need 50,000 * (100/3.5) = 1.4 million approx to retire and be able to earn 50k a year off interest alone.
But in the article, they link to the calculator that gave them the 4 mil figure, and that asks how much you make, and how much you are saving. But it doesn't take the savings out first. So it's saying you can live on 85% of what you need now, if you save 0% or 50%. Since they have the number you are saving, it doesn't make sense to me to bake that into the 85% number, when they can calculate it based on the info you provide. I really think it's that on average, you only need 85% of your income, likely due to some smaller cost of living changes, but also tax implications, etc.
Your calculator is much better, and assumes you have enough money to draw down only the gains, and not the principal, but that's not what the calculator in the article does (as they mentioned in the fine print), they buy a fixed income inflation adjusted annuity at 6%.
Half-true. You only need 3-25% down to purchase a home. No one is going to extend you credit at that leverage for equities, bonds, etc (you could trade futures and options, or even 3x/4x ETFs, but that's pretty exotic for your typical investor).
I suspect I'm somewhat older than you, and faults are already accumulating and have been significantly so for 20 years or more. I can see how it may eventually become too tiresome to carry on if some of the breakage can't be fixed. But there are often compensations...
I would consider places where you two could have reasonable careers.
For example, sf is good for tech, but ny might be good for both finance and tech. Now might not be the right time, but after her promo might be a better time.