How much saved for retirement?

Pretty straightforward question here - curious to know how much other users have saved for retirement so far. This includes IRA/401k/etc.

Age: 25
Retirement: 40k (Traditional)

 

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Start early and contribute often. Do monthly and occasional lump sums (bonus time). When you're 50, you want a couple of mil (minimum) socked away because then the compounding gets interesting. 10% gain = 200k growth in net worth even if you don't save any more. you can still have a lot of fun along the way. Pay yourself first, then your bills, then spend the rest on fun. You'll never miss it and still have fun.

 

^This!! I just went to see a consultant to buy a 60 sqm apartment close to downtown. I want to take the maximum loan payment my salary can afford. When she asked me that you should also start saving for retirement, I told her the monthly principal payment is my retirement. As soon as I have 20% down, I'll rent it out and use the down payment to raise a new loan. When you have the opportunity of others paying down your debt you should use it.

 

started at 22, but not aggressively (loans and credit cards), stepped it up aggressively in mid /late 20s.

for anyone who's a late starter, don't lose hope. I have several millionaire clients in their 40s who started late because of debt/spending too much. it's very possible assuming you have a strong career trajectory and get disciplined.

2 years into the first job I realized that my expenses don't have to grow along with my earnings. So now with every raise, I increase the % cut of my monthly pay that goes into my basket of ETFs, plus stashing cash for when "the right thing" pops into mind / comes around the corner (crisis with market bottoming, startup idea, kids and house).

 
Best Response

I have started proudly losing money on NYSE since I was 23

You killed the Greece spread goes up, spread goes down, from Wall Street they all play like a freak, Goldman Sachs 'o beat.
 

I started saving the minimum for my org's match when I first started working post college (~22/23).

After MBA, I started throwing the max into my sponsored retirement account.

Since then, I've done everything I can to keep my expense base level and have thrown all of my raises into a split between paying down my student debt early (balance is much lower than my mortgage, as is the interest rate....extra $$$ to the mortgage will be next one these are gone), into a taxable account of our own, and into the kids college fund.

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 

First day of my job post undergrad. My mentor told me "before your first paycheck comes, change your 401k to 15% (added with 3% company match) and I promise you that when you're 30, you'll thank me." So that's what I did and I'm just starting my second year of work and am already into 5 figures which feels great. The thought is that if you set it up at that percentage from the beginning, you will never know any different and will be used it. You can't miss money that never made it's way into that final line. I'd recommend the same for anyone just starting out.

 

In reality you should start saving as soon as you feel comfortable. But more important than saving for retirement at the early age is making sure you have control of your debt and building a budget you can truly live by.

I see too many people who have excessive debt but save for retirement. This is just my personal opinion but I recommend becoming debt free, with the exception of a mortgage, as soon as you can. [Pro Tip: I am not saying debt is bad, you need it to build credit]. Then build a budget that includes things like birthday and Christmas shopping. Also, stop lying to yourself, you cannot live in ramen and water. Now here is the trick, part of your budget should be allocated to savings. Also your company's 401K match is an instant ROI and should be maximized before any of the above.

This is all just my opinion. thebrofessor knows how to manage finances better than anyone on this forum from what I have seen. So if he says I am wrong, then I am wrong. But definitely listen to his advice when you see it.

 

I'm a little OCD about saving for retirement. Here are some not-so-obvious tips that I have learned. Caveat: I am not a financial adviser nor a tax professional.

-Max out your 401k. If you cannot afford to stuff away $18k, at least put in enough to get your employer match.

-Max out your traditional IRA.

-Read this article about the "mega backdoor Roth".

-Max out your HSA contribution. At the age 65, you can withdraw money for non-medical purposes, but you will be taxed on these withdrawels. This is essentially a backdoor IRA. Many employers will even match part of your HSA contributions. It's free money...take it.

-Make traditional contributions while you work and then convert them to Roth if you retire early and find yourself in a low tax bracket.

 

 Currently I split my savings between company pension (8% gross salary + 12% company match = 20% of base salary), c.40% of net into a ISA (Roth IRA equivalent..?) split between a variety of index funds and another 10% of net into a 'discretionary spending' account which I have lying around so I can spend on holidays etc. So I'm getting 50% of my base salary tucked away each month, meaning every month I work is effectively 1 month I don't have to.

I would suggest having c.3 months of living expenses sitting around in a cash account and then a decent amount of liquid investments in case that 3 months isn't enough. Personally I have 2 months living expenses cash but a large proportion of my assets are in highly liquid investments (admittedly taking some risk here that the value of these will crash when I need them most).

As others have said, start as early as you possibly can. A lot of people use the argument that they'll be earning a lot more in 10 years so they can contribute the same amount much faster, i.e. you'd be better off spending $1k extra a month now because you'll be able to put away $12k a month easily in 10 years. This is a stupid argument. Compounding is the most important factor in your personal finances, both for debt and assets. Start early and save heavily.

I max out my 401k, I'm not a banker but I live in a low cost of living town this year so I am doing everything I can to save as much as possible. I am normally left with a decent amount to spend on whatever I want after paying for my necessities. I'm big on savings and although I enjoy splurging on techy items and clothes, you would be surprised how much useless crap you will end up buying in one year. My basic tip is to think twice about if you WANT something or NEED it. I think my check out pricing at Target has dropped in half just by doing that :)

...
 

One of the rare people that started in high school. My parents forced me to open a Roth IRA my junior year of HS (age 16) and set aside some money I earned from cleaning pools. I didn't make enough to hit the max contribution but it was a good start and got me in the right habit.

First real job, I maxed out my Roth 401k every year and also benefited from my employer's profit share plan which contributed 15% of comp to a 401k-style retirement fund. My current employer offers the same feature. The first employer also deferred half of my bonus for a few years which was basically a mandatory savings feature. During this time, I also maxed out my annual IRA contributions.

In general, my goal has been to save 40-50% of my annual pretax income. I didn't hit that my first few years of work (didn't make enough) but can hit it now and still enjoy life. Though I still watch our spending, I genuinely have not worried about money in 5+ years even including when I was getting my MBA. My goal is to be financially independent by 40, though I plan to keep working after since I enjoy my job.

Do yourself a favor and set up automatic savings draw. A lot of people throw a 15% savings rate out there but really you need to save closer to 30% to have a great retirement.

 

In my first year now. 15% of my salary goes into my pension. Will max my ISA annually with my bonus. Whatever is left, I will invest in a mix of low-risk assets (3-6 months worth of expenses) and the rest into equities. By the end of my first year, I should have a comfortable safety buffer in case there's a bad downturn and shit happens.

 

I don't know anything about the rules for Roth IRAs. However, you may be able to loophole this one due to the nature of the tax year. As a first year analyst in the class of 2007, your gross income for TAX YEAR 2007 will almost definitely NOT exceed 110,000. See illustration:

2007 tax year begins Jan 1------- January: 10k signing July-Dec: ~5k/month 2007 tax year ends Dec 31------- TOTAL = 40k

2008 tax year begins Jan 1------- Jan-July: ~5k/month Summer: ~~$50-95k bonus Aug-Dec: ~5k+/month (second year salary) 2008 tax year ends Dec 31------ TOTAL = 115-160k

Anyway, if the 110k cap only applies to when you START the account, then you've got a shot at it. If your Roth shuts down as soon as you file taxes on over 110k for the first time, then this theory is toast.

 
justanotherbanker:
I don't know anything about the rules for Roth IRAs. However, you may be able to loophole this one due to the nature of the tax year. As a first year analyst in the class of 2007, your gross income for TAX YEAR 2007 will almost definitely NOT exceed 110,000. See illustration:

2007 tax year begins Jan 1------- January: 10k signing July-Dec: ~5k/month 2007 tax year ends Dec 31------- TOTAL = 40k

2008 tax year begins Jan 1------- Jan-July: ~5k/month Summer: ~~$50-95k bonus Aug-Dec: ~5k+/month (second year salary) 2008 tax year ends Dec 31------ TOTAL = 115-160k

Anyway, if the 110k cap only applies to when you START the account, then you've got a shot at it. If your Roth shuts down as soon as you file taxes on over 110k for the first time, then this theory is toast.

The $110k limit applies in any given year. If you make less than the limit during the year, you can contribute. If you make more, you can't contribute.

If you can't contribute one year and then your income falls next year, you're allowed to contribute again.

 

1) That $110K limit will not apply in your first calendar year so you can save a bit then... not much and since you're just starting out you'll probably have to spend a lot on other expenses, but nevertheless.

2) I would max out your 401(k) up to whatever level the firm matches(assuming they do a match). If they don't do a match that's a a different story and I'm not even sure it's worth putting in anything (people debate this point endlessly).

3) Aside from the 401(k) and Roth, you can just invest a portion of your money in a personal account buying ETFs/index funds etc... obviously up to you how much you actually save this way. I know some people who invest everything into these and others who spend it all on new cars.

It's probably best to do something in the middle. If you save and NEVER spend money on yourself you will be miserable in this job, guaranteed. But if you don't save enough you'll be screwed if some kind of disaster happens... or if things get really bad and there are layoffs for example.

 

Correct me if I'm wrong, but isn't the only advantage to having a Roth IRA that your savings can be withdrawn for specific purposes (e.g., buying a home) at any time without penalties (since the initial investment was not fully tax deductible)?

For the purpose of long-term saving, a traditional IRA seems far superior to a Roth IRA (although it unfortunately maxes out at a really low annual contribution).

There are probably people on here with more clever investment ideas, but I generally just put excess savings into domestic equity and fixed-income ETFs.

 
smuguy97:
Correct me if I'm wrong, but isn't the only advantage to having a Roth IRA that your savings can be withdrawn for specific purposes (e.g., buying a home) at any time without penalties (since the initial investment was not fully tax deductible)?

For the purpose of long-term saving, a traditional IRA seems far superior to a Roth IRA (although it unfortunately maxes out at a really low annual contribution).

There are probably people on here with more clever investment ideas, but I generally just put excess savings into domestic equity and fixed-income ETFs.

the advantage of a roth is that the eventual withdrawal is not taxed. a regular IRA is not necessarily superior, it just has to do with your view of what taxes will look like vs now, when you retire.

 
smuguy97:
Correct me if I'm wrong, but isn't the only advantage to having a Roth IRA that your savings can be withdrawn for specific purposes (e.g., buying a home) at any time without penalties (since the initial investment was not fully tax deductible)?

For the purpose of long-term saving, a traditional IRA seems far superior to a Roth IRA (although it unfortunately maxes out at a really low annual contribution).

There are probably people on here with more clever investment ideas, but I generally just put excess savings into domestic equity and fixed-income ETFs.

I think you are missing something here. For the Roth IRA, all earnings (cap gains, etc. are not taxable when you withdraw them. In an normal IRA everything is taxed at your marginal rate when you withdraw. Also, in the Roth IRA you can withdraw your initial contributions at anytime for any reason (don't need to be buying a home).

 

I think there are varying schools of thought as to what makes the most sense in terms of a savings plan. However, I am a firm believer that one should simply contribute to his/her 401(k) and not worry about setting up additional retirement accounts. Unless you're in a huge rush to sock away all of your earnings, a simple 401(k) should be fine. 4k saved at age 23 "will" turn into $256,000 by age 65 (assumes doubling every seven years). As long as you regularly contribute a significant amount every year, you will be fine. My personal recommendation would be 10% though. Almost everyone I ever talk to on the subject always tells me "I wish I had maxed out my 401(k)." I think this is one of those times people should take the advice of folks wiser than they.

CompBanker’s Career Guidance Services: https://www.rossettiadvisors.com/
 

Don't forget about employee stock ownership plans. Most companies will let you buy stock at a discount to market prices, some even throw in some options with your stock purchases. Granted bank stocks might be dead money for a while, but slowly building up a position in your company at below market prices can be a great way to save money, especially in the coming years as financials are starting to look pretty good on a valuation basis.

 

def max out your 401k if you can. 15k a year is not that unreasonable when 1st yr analysts end up making close to 150k a year including bonus. you have to assume you will end up saving at least 15k of your bonus, so why not put it into a 401k from your paycheck and avoid paying taxes.

 

No single investment strategy is likely to outperform consistently through the duration of your accumulation period (unless you're going to stop work in 10 years).

Incentives to save, such as IRAs, have a value that needs to be taken into account in your investment decisions but remember that they only help by reducing the tax you might pay - they don't increase the gains that you might make.

 

It's best, in my humble opinion, to max your 401K... take the initial heat to do it. Remember, if you throw 15K in a 401 at age 22, 23, 25, 25... you've got 60K going into b-school or any other pursuit.

I'm only able to currently put 10K in each year, but I think that's still ahead of the curve.

When you start to get scared about being able to afford it, start thinking about the joys of compound returns and that will ease your anxiety.

Best of luck.

 

Roth 401K are great...but usually don't get a company match.

The current federal tax rate is probably the lowest it's going to be for the near future. Taxes are only going to go up. If the 401K Roth 'promise' holds up, you're in a very tax diversified situation.

 

There are two good tax advantaged methods of retirement savings, the Roth IRA and a 401k. The roth being advantaged coming out and the 401k going in.

Save the $5,500 you can your first year into a Roth, you won't be able to afterwards for a very long time if you stick around in this industry.

Save the max into your 401k, its tax advantaged and matched by your firm (in most cases). Its an excellent exercise in self control and saving discipline over the long term. If you run the numbers on a 401k you can do things like contribute for the first 5 years and have it grow tax free till you're 59.5 and its a ton of money.

Aside from that, save what you can in mutuals, stocks, bonds, ESOP (if your company has it and you believe they will do well in the future). The more you save now while you roll in the bucks the better off you will be later. First year analysts pulled in $130-$150 (plus 10k signing) this past year, if you can't max out a 401k and Roth with that you should reevaluate your lifestyle.

--There are stupid questions, so think first.
 

I know it's a bit out there, but I inherited a house from a relative and between my brother and I, we are managing to make payments and rent it out. We're looking to turn it over in a few years for some cash. Anyway, during the purchase of the house, I sat down with a retirement planner who really showed me a lot. It was such a good learning experience.

You all should really sit down with someone who knows about retirement plans and discuss how much they think you should be saving for your retirement. There's a lot more than just IRA's and 401k to take into consideration.

In fact, you all should check out this link!

http://money.cnn.com/magazines/moneymag/money101/lesson13/

********"Babies don't cost money, they MAKE money." - Jerri Blank********

********"Babies don't cost money, they MAKE money." - Jerri Blank********
 

Great article atropolation, but I've always wondered about something.

What would/should people do if they plan to retire before 59.5 years of age and be able to withdraw freely from their 401k. I guess they would be living off of general savings?

 

Kools - should you plan to retire before the minimum age to draw down your tax-advantaged investment vehicles (401(k) and/or Roth IRA), you should have planned in advance to have further non tax-advantaged investment options at your disposal. I would suggest maxing out the tax-advantaged retirement options at your disposal in this order, depending on your personal financial situation: 1) 401(k) up to the max matching (if your employer happens to match, take advantage of this 50% or 100% immediate return on investment), 2) Roth IRA up to the max ($4,000 in 2007 and $5,000 in 2008, and you are able to invest for 2007 until the tax deadline of April 15th, 2008), depending on your views of current tax liabilities versus future estimated retirement tax liabilities, 3) 401(k) up the total max of $15,500, 4) other investments such as real estate (a house/condo or even commercial, though I wouldn't recommend that investment unless you are of a high net worth and need to diversify your total portfolio to include a larger portion of alternative investments) or a personal investment account that is non tax-advantaged (to use to draw down during your early retirement years until you reach the threshold to start drawing from your tax-advantaged investments).

I would suggest you use your tax-advantaged investment vehicles to hold positions that you might like to trade (specifically in your Roth IRA) because the taxes created by taking gains through trading aren't taxable events in that account, while in your personal account or 401(k) they would be, or eventually would be. Try holding your long-term positions in your 401(k), and focus more on low front-end expense non-trading ETFs, or low cost mutual funds, especially for your non tax-advantaged personal account.

I am by no means an investment expert, in fact I don't even have more than $1,000 invested in the markets, however, when I someday do have excess income that I will be able to invest, I know how I will put it to good use.

I highly recommend learning as much as you can about investing basics because retirement, for most people, is why you work so hard in the first place. The power of compounding and the effects of a well-diversified and low-expense ratio portfolio will pay off over a long period of time.

Good luck!

 

It's dependent on the given situation for the individual, but you also have to factor the return that you're getting on your contributions, as well as considering the time value of money. With all that kept in mind, in addition to how old you are, 10% doesn't seem that bad. What you may also want to consider, however, would be the contributions that are in addition to your income, such as bonuses, inheritances, etc.

 

Personally I feel that the extent of a 401k tops out after you reach the limit for co match.

Most folks will not have multiple revenue streams, cash yielding investments, etc. However, that's not to stop you from building an empire. With reasonable saving and smart investing you will achieve financial independence. The real question is at what age?

I'm on the pursuit of happiness and I know everything that shine ain't always gonna be gold. I'll be fine once I get it
 

I think people were misunderstanding my question. I'm not asking how much I should personally save for retirement. I'm a compulsive saver. While in the military making probably half of what an IB Analyst makes I still saved 35%-40% of my income every month.

My question was about the conventional wisdom and if it really makes sense as a general rule. If you look on sites like Yahoo Finance or basic financial planning books they all say you should save 10% of your income for retirement and that number feels really low to me. My question wasn't, how much should I save for retirement? My question was, can you really save enough for retirement by only saving 10%? My gut instinct is no but I'm obsessive about saving and investing so it's entirely possible my perception is skewed and maybe 10% would be enough for most people.

 

it's sort of an arbitrary rule that's a good guideline for people that aren't motivated to save and thus need guidelines. let's run some numbers quickly though just for the helluvit. let's use a nice round number of 50k starting salary and have some assumptions:

5% raise annually save 10% of income regardless of level 7% rate of return 3% inflation (close to long term average) work for 45 years (22 to 67)

in future dollars, that's about $6.8mm (in today's dollars, that's about $1.8mm). another arbitrary rule of thumb is you shouldn't spend more than 4% of your nest egg annually in order to maintain your purchasing power. and yet another arbitrary rule is you should plan on living off 70-80% of your final salary in retirement (this assumes that your expenses are lower because of no kids, mortgage, etc).

by my numbers, your final salary is roughly 450k in future dollars, so 80% (your retirement budget) of that is 360k. what's 4% of your nest egg though? 272k.

Houston, we have a problem.

here's the deal: all of those arbitrary rules of thumb were written during a time where people did not have to live off of their nest eggs for 100% of their retirement income. if you were to add in an inflated assumption of social security, it'd probably close the gap, but the children of the baby boomers can't count on that, so the rules have to be rewritten.

What's more, I used simple annual compounding and some interesting assumptions. you can probably guess that if you get more exponential growth in your salary the results would look different, also if your salary increases did not come in a stairstep but were more random the results would differ. I don't think I have to mention the importance of rate of return, but over a 45 year time period, it's nearly impossible to predict with precision.

You could also see the impact of inflation is huge. the 100 year average is around 3.25% but during that time we've had negative inflation, 0 inflation, 10% inflation, 10 years of >7% inflation (70s), etc. since the end of the 80s, no 10 year time period has experienced over 3% inflation, but who's to say that won't happen in the future? no one knows. furthermore, CPI is usually not indicative of actual out of pocket costs. assuming you pay for doctors and send your kids to school, tuition and healthcare costs rise at least twice as fast as CPI in some cases.

what would I advise a young person today? max out your savings, and I don't just mean whatever's left, I mean structure your budget for savings. eat out less often, opt for CT shirts instead of thomas pink, live in the burbs/outside the city center, have roommates, have hand me down furniture, drink maker's mark instead of 20yo Macallan, buy cole haan instead of ferragamo. I'm not saying you should be a shut-in and never have any fun, but you can make smart decisions from the get-go to maximize savings and still enjoy your 20s.

tldr: this rule is arbitrary and based on assumptions that are unrealistic in my opinion. going forward, save as much as you possibly can because guaranteed sources of income will have gone the way of the horse-drawn carriage by the time people in your generation are retiring.

 

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