Retirement thread

[CloneGuy8]

Most of us want to retire at some point, so I thought an ongoing thread about it could be useful. I know I'm not the only one with questions, so feel free to ask yours if you have some.

I guess my questions revolve around inflation. The figures do not include the IPERS my wife will get; without sending this thread to the cave, I know that isn't a guarantee by the time we retire.

I am 32. As of now, we have $68,000.00 in retirement savings split up between a roth 401k and two other roth accounts. Right now we contribute $750.00 a month to retirement accounts; $225.00 of that is from an employer match.

When typing in these figures on this calculator at the bottom of the page (keep in mind the $750.00 will go up over time, hopefully), and going with 11% on the annual return (what my hope it will end up being), this shows $4.88 million by the time I am 65 (compounding interest is a wonderful thing).

My question is how do you account for inflation by that time? I read somewhere you should do 7% as your annual return to account for this, but this seems awfully low (would reduce it from 4.88 million to 1.8 million). Does this look right?

https://www.daveramsey.com/smartvestor/investment-calculator

 

[Rabbuk]

11% seems like a really aggressive assumption to me. I think inflation is around ~2.2% now and historically 3.3%.

 

[CloneGuy8]

11% seems like a really aggressive assumption to me. I think inflation is around ~2.2% now and historically 3.3%.

The 30 year return for the S&P 500 is around 11%, which is why I went with that. Hopefully it remains this way; though I probably should not count on it.

 

[DurangoCy]

11% is probably a bit high, but I think a 6-8% spread is reasonable if you exclude inflation. I've been using 8% returns with 2% inflation with my numbers lately. I'm hoping for better, but don't want to assume returns are going to be that awesome. This is my way of trying to keep upping my contributions and saving more and more.


I have such a long way to go that continuing to save and get the house paid for are the first goals. Once I don't have housing costs, I'll start running more numbers on what I really need.

 

[ChrisMWilliams]

Most of us want to retire at some point, so I thought an ongoing thread about it could be useful. I know I'm not the only one with questions, so feel free to ask yours if you have some.

I guess my questions revolve around inflation. The figures do not include the IPERS my wife will get; without sending this thread to the cave, I know that isn't a guarantee by the time we retire.

I am 32. As of now, we have $68,000.00 in retirement savings split up between a roth 401k and two other roth accounts. Right now we contribute $750.00 a month to retirement accounts; $225.00 of that is from an employer match.

When typing in these figures on this calculator at the bottom of the page (keep in mind the $750.00 will go up over time, hopefully), and going with 11% on the annual return (what my hope it will end up being), this shows $4.88 million by the time I am 65 (compounding interest is a wonderful thing).

My question is how do you account for inflation by that time? I read somewhere you should do 7% as your annual return to account for this, but this seems awfully low (would reduce it from 4.88 million to 1.8 million). Does this look right?

https://www.daveramsey.com/smartvestor/investment-calculator

I am SUPER into finances. A hobby of mine. I'm kind of obsessed, actually. Seems like you and your wife are off to a great start. Keep it up.

 

[ChrisMWilliams]

I just got my truck paid off last month as well as the new floor we put in the house a few years ago. Big time for us. Only debt I have now is my wife's student loans, house and her Jeep. Been a grind but will be worth it, hopefully, in the long run.

Probably should get out of journalism if I ever want to retire though.

 

[SpokaneCY]

I just got my truck paid off last month as well as the new floor we put in the house a few years ago. Big time for us. Only debt I have now is my wife's student loans, house and her Jeep. Been a grind but will be worth it, hopefully, in the long run.

Probably should get out of journalism if I ever want to retire though.

You COULD write a book on early retirement?

 

[ChrisMWilliams]

Last thing from me: I found this cool site last week. What it does is you link your accounts to it and it invests spare change automatically. Very cool. Called Acorns. It's legit too. Not much but it does add up over time.

Use this invite code and we'll all get a free 5 bucks.

acorns.com/invite/HAHWAY

 

[CloneGuy8]

Last thing from me: I found this cool site last week. What it does is you link your accounts to it and it invests spare change automatically. Very cool. Called Acorns. It's legit too. Not much but it does add up over time.

Use this invite code and we'll all get a free 5 bucks.

acorns.com/invite/HAHWAY

That's awesome. I had no idea this existed. Thanks!

 

[CycloneErik]

You COULD write a book on early retirement?

Would this be considered a..............vacation?

 

[Cyched]

The 30 year return for the S&P 500 is around 11%, which is why I went with that. Hopefully it remains this way; though I probably should not count on it.

7-8% is the standard for planning the way I understand it.

 

[Cyched]

The 30 year return for the S&P 500 is around 11%, which is why I went with that. Hopefully it remains this way; though I probably should not count on it.

I think the 11% return you're quoting is either an average return or not adjusted for inflation. The 7-8% I previously said is based off of the annualized return adjusted for inflation.

 

[Deleted member 8507]

Last thing from me: I found this cool site last week. What it does is you link your accounts to it and it invests spare change automatically. Very cool. Called Acorns. It's legit too. Not much but it does add up over time.

Use this invite code and we'll all get a free 5 bucks.

acorns.com/invite/HAHWAY

Does the M in Chris M Williams stand for Maddoff?
Just Kidding!

 

[CloneGuy8]

I think the 11% return you're quoting is either an average return or not adjusted for inflation. The 7-8% I previously said is based off of the annualized return adjusted for inflation.

Thanks, that's a lot more clear to me. I got excited looking at that number w/ 11% return, haha.

 

[CyArob]

I know Principal's calculator has inflation and all that jazz in it.

 

[Rabbuk]

11% is probably a bit high, but I think a 6-8% spread is reasonable if you exclude inflation. I've been using 8% returns with 2% inflation with my numbers lately. I'm hoping for better, but don't want to assume returns are going to be that awesome. This is my way of trying to keep upping my contributions and saving more and more.


I have such a long way to go that continuing to save and get the house paid for are the first goals. Once I don't have housing costs, I'll start running more numbers on what I really need.

My philosophy as well. Plan for the worst hope for the best.

 

[Sigmapolis]

Mint is a lifesaver and my go-to agglomeration to manage all my finances. They can track all of your assets, accounts, debt, spending, and bills in one place, complete with some simple analytics, so you can watch everything at once and see the big picture and trends.

I highly recommend anybody opens up an account there -- completely free, too.

For those of you talking about historical returns to equities, there are plenty of reasons to believe those will be slower in the future than in the past. I usually plan on a real return of 5% or so.

There is more here, to provide one example...

https://blog.wealthfront.com/us-stock-long-term-returns/

...but to provide the punchline...

We have examined three widely-used methods of estimating future equity returns. They all suggest a similar conclusion. Future returns are very likely to be below the returns that have been realized by equity investors over the past century. With short-term rates near zero in the United States (and actually negative in Europe and Japan), and with bond yields substantially below historical norms, equity investors should have realistic expectations for only single digit returns. Realistic long-term projections should be in the 5 to 7% range.

 

[Deleted member 8507]

I made the same assumptions in my 20s and 30s and would use 11% gain estimates. Maybe I am just below average at it, but in 30 years of saving, reality has been that the compound raw return is closer to 7-8% and then subtract inflation (2.5%). A 40% market drop (2008-09) requires 5 years of 11% returns just to get back to even (0% return over 7 years). Since your base is lower; negative gains require 20-30% higher upswings to recover (10% decline requires 12% gain to get back to original, 20% decline requires 25% increase, etc).

I have many websites, books, reference articles, Excel sheets, quick guides, etc that I will hunt up and share some. Like Chris I find it extremely interesting and read and study, belong to an investment club, research and track topics and companies and feel I am pretty knowledgeable. Still doesn't help me beat the market though. Now that I am in my 50s I have shifted my focus to retirement topics and have a fair knowledge on Social Security and related items.

My top advice from my experience is: 1. Don't think you can develop a foolproof formula or plan. It just won't happen. 2. Even though you will feel some good highs (on gains) and lows (on losses) don't become emotionally attached to your investments. They are strictly a means to an end. If the numbers say sell, sell and don't hold hoping they can come back for you (again). 3. Don't get greedy! Sure we read about the 6, 8 and 10 baggers (6X, 8X and 10X gains) but those are rare. If you have a nice gain banked, you don't have to cash out but take some risk off the table and pull some of the gain out so it is in hand, else you may watch it all go back away (as I have many times without taking my profit when I could).

 

[Cyched]

Mint is a lifesaver and my go-to agglomeration to manage all my finances. They can track all of your assets, accounts, debt, spending, and bills in one place, complete with some simple analytics, so you can watch everything at once and see the big picture and trends.

I highly recommend anybody opens up an account there -- completely free, too.

For those of you talking about historical returns to equities, there are plenty of reasons to believe those will be slower in the future than in the past. I usually plan on a real return of 5% or so.

There is more here, to provide one example...

https://blog.wealthfront.com/us-stock-long-term-returns/

...but to provide the punchline...

We have examined three widely-used methods of estimating future equity returns. They all suggest a similar conclusion. Future returns are very likely to be below the returns that have been realized by equity investors over the past century. With short-term rates near zero in the United States (and actually negative in Europe and Japan), and with bond yields substantially below historical norms, equity investors should have realistic expectations for only single digit returns. Realistic long-term projections should be in the 5 to 7% range.

Can't recommend Mint enough.

 

[crawfy54]

I'm 24. Started a Roth IRA on TD Ameritrade about 4 months ago and put in $1000 to get it started. I haven't contributed since then. I'm still trying to figure out what percentage of my income (if any at all) I should invest in retirement. I have a considerable amount of student loan debt, and 4 years left on a car loan.