Retirement thread

[CprE84]

Sorry if this is no longer of interest - I know the thread had basically died...

However, I was recently updating a spreadsheet I've done before which attempted to model the net worth trajectory of my career. I created the model years ago and have tracked it since then. It has pretty accurately tracked.

I think this is a pretty good model to follow. The variables are :

Starting salary, starting year, annual raise %, starting net worth, number of years to reach peak salary, total working years, savings rate %, annual investment return.

Each year's salary in the model = previous year's salary X (1 + annual raise%)

Each year's net worth = previous year's net worth X (1 + annual investment return) + this year's salary X savings rate

For me :

starting year =1984
starting base : I'll just say mid-$20Ks
annual raises = 10% / year​

(and did involve moving from engineering to marketing to sales)

starting net worth = $0​

(actually negative but that makes the graphs ugly and it was a small enough negative that I used $0)

years to peak salary = 30
total working years = 37 (currently, I'm assuming 37, but might be 34...)
annual decline after peak = 8%​

(I am using 8%, but I think part of the model is not very accurate...)

savings rate = 25%
annual investment return = 8%
​

This net worth model has been pretty accurate at a high level. The salary pattern is not really accurate in that it reaches a peak and quickly declines, but I think overall, it has tracked my net worth over time pretty well.

I think the key is achieving the 25% savings rate.

Good luck!

 

[DeftOne]

Sorry if this is no longer of interest - I know the thread had basically died...

However, I was recently updating a spreadsheet I've done before which attempted to model the net worth trajectory of my career. I created the model years ago and have tracked it since then. It has pretty accurately tracked.

I think this is a pretty good model to follow. The variables are :

Starting salary, starting year, annual raise %, starting net worth, number of years to reach peak salary, total working years, savings rate %, annual investment return.

Each year's salary in the model = previous year's salary X (1 + annual raise%)

Each year's net worth = previous year's net worth X (1 + annual investment return) + this year's salary X savings rate

For me :

starting year =1984
starting base : I'll just say mid-$20Ks
annual raises = 10% / year​

(and did involve moving from engineering to marketing to sales)

starting net worth = $0​

(actually negative but that makes the graphs ugly and it was a small enough negative that I used $0)

years to peak salary = 30
total working years = 37 (currently, I'm assuming 37, but might be 34...)
annual decline after peak = 8%​

(I am using 8%, but I think part of the model is not very accurate...)

savings rate = 25%
annual investment return = 8%
​

This net worth model has been pretty accurate at a high level. The salary pattern is not really accurate in that it reaches a peak and quickly declines, but I think overall, it has tracked my net worth over time pretty well.

I think the key is achieving the 25% savings rate.

Good luck!

10% per year for raises...must be nice. ;-)

I'm curious about the peak salary aspect of this model. Why would your salary decline the last 7 years (from years 30-37 as you've currently modeled)? Are you assuming some sort of partial retirement or downward career move as you slow down toward retirement? I'm just trying to understand why your salary wouldn't continue to rise at least a minimal amount, or at the very least stay even, until you retire. Maybe what you're saying is at some point your salary increases will no longer beat inflation?

EDIT: Yeah, it's the inflation aspect. Never really thought about that before. Did some investigation about peak salary age, and now I'm sad.

 

[coolerifyoudid]

10% per year for raises...must be nice. ;-)

I'm curious about the peak salary aspect of this model. Why would your salary decline the last 7 years (from years 30-37 as you've currently modeled)? Are you assuming some sort of partial retirement or downward career move as you slow down toward retirement? I'm just trying to understand why your salary wouldn't continue to rise at least a minimal amount (inflation?), or at the very least stay even, until you retire.

He can no longer command top dollar in his gigolo gig.

 

[BoxsterCy]

Thread's hit two weeks. Any of you retired yet?

 

[ImJustKCClone]

Thread's hit two weeks. Any of you retired yet?

No.

 

[coolerifyoudid]

Thread's hit two weeks. Any of you retired yet?

My mind is, if that counts.

 

[Doc]

Thread's hit two weeks. Any of you retired yet?

 

[BoxsterCy]

No.

My mind is, if that counts.

For me i had to hit the three "abilities" before I did.

Affordability
Eligibility (I was still mostly under an old pension plan)
Desirability

I hit #1 and #2 before I hit #3. Even then I stalled on #3 by working parttime as a hireback to train/mentor. I needed some time to wean myself off the old routine and breakup with my work social support. I miss some of it but not that much.

 

[SWCy13]

So over the past year I've become super interested in my financial health and security as well. I'm 24 years old and my only debt is roughly $15,000 on a truck and my mortgage. My main question is regarding aggressive debt reduction strategies.

I'm curious as to what people's thoughts are regarding paying off debt aggressively vs. investing into 401(k), stock market, etc.. while at the same time paying off debt. My wife and I have paid off all of our combined $50,000 of student loan debt in the past 14 months, while saving little besides a 5% investment (for each of us) in 401(k)s each month.

It's worked for us, but just curious as to other people's thoughts on the matter. I've read conflicting articles online stating there's a middle ground of debt payoff vs investing, but my thoughts are we might as well pay off debt as quickly as we can while we can (no kids, low house payments, etc...). Any input is appreciated.

 

[MeanDean]

I don't know if others feel this way, but I constantly feel like we're not saving enough even though I know we are. We put 16.5% in our retirement accounts, plus the other 4% we put in an HSA as stated previously. Being an engineer, I have a good salary base with plenty of upward growth projected.

It could be the pessimistic side of me coming out, but I wonder if we'll have enough in retirement. Probably just fear of the unknown. Anyone else feel this way?

Sounds very familiar. I just kept increasing. By the time I was 50 I was investing a full 40% of my salary in retirement/savings and not missing a bit of it. Just keep tweaking it upwards and you'll be fine. And ride out the lows - even if it worries the crap out of you. About 4 years before I retired I was still investing 40% and my net worth was dropping pretty much monthly for about 18 months. Very scary. Others took the loss and jumped to something 'safer' but by holding on I rode the bumps back up and ended up much better off than they did.

 

[norcalcy]

So over the past year I've become super interested in my financial health and security as well. I'm 24 years old and my only debt is roughly $15,000 on a truck and my mortgage. My main question is regarding aggressive debt reduction strategies.

I'm curious as to what people's thoughts are regarding paying off debt aggressively vs. investing into 401(k), stock market, etc.. while at the same time paying off debt. My wife and I have paid off all of our combined $50,000 of student loan debt in the past 14 months, while saving little besides a 5% investment (for each of us) in 401(k)s each month.

It's worked for us, but just curious as to other people's thoughts on the matter. I've read conflicting articles online stating there's a middle ground of debt payoff vs investing, but my thoughts are we might as well pay off debt as quickly as we can while we can (no kids, low house payments, etc...). Any input is appreciated.

There have been entire threads over the issue of whether there is any "good debt" or not. I won't wade into that argument. I would just say keep focusing on your net worth (what you own minus what you owe) and you will get to the right answer. Net worth is the ultimate measure of your wealth. Several millionaires around who never made more than $80K to $90K in their working lives.

 

[LarryISU]

I retired 10 months ago at 62. SInce then I have taken time to actually calculate our outgoing expenses. When I was working it seemed like we got by easily and saved a lot as well. But I quickly saw I was having to get a lot of money from savings every month ( I have not yet taken Social Security nor any pension, so my income is $0. My wife gets $1500 a month Social Security.) We have no mortgage and no car payments, no debt of any kind, yet we are spending about $6,200 a month, so roughly $4,700 a month over our income.

So that is my advice for those in their late 50's or early 60's. Determine what you are actually spending before you pick your retirement date, because I had no idea I would be losing almost $5,000 a month. The one saving grace for me is the election of Trump which resulted in the stock market bull rally. That has allowed me to essentially stay even so far, but of course such rallies cannot last forever. I think I would have worked another year or two if I had looked in detail at our outgoing expenses before I retired.

 

[cycloneG]

I retired 10 months ago at 62. SInce then I have taken time to actually calculate our outgoing expenses. When I was working it seemed like we got by easily and saved a lot as well. But I quickly saw I was having to get a lot of money from savings every month ( I have not yet taken Social Security nor any pension, so my income is $0. My wife gets $1500 a month Social Security.) We have no mortgage and no car payments, no debt of any kind, yet we are spending about $6,200 a month, so roughly $4,700 a month over our income.

So that is my advice for those in their late 50's or early 60's. Determine what you are actually spending before you pick your retirement date, because I had no idea I would be losing almost $5,000 a month. The one saving grace for me is the election of Trump which resulted in the stock market bull rally. That has allowed me to essentially stay even so far, but of course such rallies cannot last forever. I think I would have worked another year or two if I had looked in detail at our outgoing expenses before I retired.

$6,200 a month and you don't have any debt! Holy smokes!

 

[LarryISU]

$6,200 a month and you don't have any debt! Holy smokes!

I know! I was shocked when I figured that out. And that does not include big, unusual expenses like property taxes ($8,000 a year), auto repair ($4,000 last year), fishing trip to Canada ($1,800) or a new driveway and sidewalk ($9,000). The $6,200 a month is just month to month bills, gasoline, groceries, clothing, medical and dental bills, etc. So that's why I am saying, figure this out before you retire.

 

[SayMyName]

So that is my advice for those in their late 50's or early 60's. Determine what you are actually spending before you pick your retirement date...

Yes, this.

Good practice for general financial health, not just retirement planning. I find it is important to not only track net worth, but also to understand your periodic (monthly? annually?) cash flow.

My simplistic method is to record monthly consolidated deposits to the bank account, minus consolidated withdrawals. As long as that delta is positive on an annual basis, I'm pretty happy.

 

[mdk2isu]

A couple things from me, being late to the party.

Index funds >>>>>>> Mutual Funds. It not even a discussion.

I would highly recommend the book "Unshakeable" by Tony Robbins. He used his connections to interview a lot of the top financial experts in the country and boiled down the info and put it into that book. For a deeper dive into the interviews, read his book "Money: Master the Game"

A really good investment management company is Wealthfront. They will diversify your investments based on a risk tolerance of your choosing using index funds. They prefer to utilize Vanguards index funds. They will manage $10,000 without a fee, after that their fee is 0.25%. Also, you can get an additional $5,000 managed free through this link: https://wlth.fr/2psYSZH

 

[cowgirl836]

$6,200 a month and you don't have any debt! Holy smokes!

I'm more shocked that they made the decision to retire without thinking to look at what they were spending first. That seems like a fairly crucial and basic number to be aware of before any major life change - buying a house, having a baby, changing jobs, etc.

 

[CprE84]

10% per year for raises...must be nice. ;-)

I'm curious about the peak salary aspect of this model. Why would your salary decline the last 7 years (from years 30-37 as you've currently modeled)? Are you assuming some sort of partial retirement or downward career move as you slow down toward retirement? I'm just trying to understand why your salary wouldn't continue to rise at least a minimal amount, or at the very least stay even, until you retire. Maybe what you're saying is at some point your salary increases will no longer beat inflation?

EDIT: Yeah, it's the inflation aspect. Never really thought about that before. Did some investigation about peak salary age, and now I'm sad.

I don't have any really good justification for the way I modelled the salary drop off in the later years, but I am in Sales now and that is sometimes up and down. So, it's just a way to be a little conservative and not assume that it continues to grow like in the earlier years of the career.

You could use the same equations and just plug in something like -1 or 0 for the salary decline after peak (which would translate into 1% raises or no raises respectively).

 

[CprE84]

So over the past year I've become super interested in my financial health and security as well. I'm 24 years old and my only debt is roughly $15,000 on a truck and my mortgage. My main question is regarding aggressive debt reduction strategies.

I'm curious as to what people's thoughts are regarding paying off debt aggressively vs. investing into 401(k), stock market, etc.. while at the same time paying off debt. My wife and I have paid off all of our combined $50,000 of student loan debt in the past 14 months, while saving little besides a 5% investment (for each of us) in 401(k)s each month.

It's worked for us, but just curious as to other people's thoughts on the matter. I've read conflicting articles online stating there's a middle ground of debt payoff vs investing, but my thoughts are we might as well pay off debt as quickly as we can while we can (no kids, low house payments, etc...). Any input is appreciated.

I think being aggressive in paying off student loans makes sense (since this is debt that cannot be discharged under any circumstances, even bankruptcy).
However, I would make sure to contribute at least enough into the 401K to max out the employer match - it's free money. That should be a priority over debt reduction in my view.

Also, you certainly should be sure to eliminate any high interest debt as soon as possible - credit cards, possibly car loans, etc. I also think you want to be aggressive in at least getting the mortgage to the point of eliminating the PMI.

I like listening to Dave Ramsey, but sometimes I think he is a bit too extreme on the anti-debt argument. I attribute part of the wealth that my wife and I have to being willing to take the risk of having fairly high debt at times on investment properties. Starting in 2010, we have bought several investment properties and this has served us well. We are paying down the debt and in fact we might sell one of our properties which would allow us to get close to debt free. However, 2 of our mortgages are <3%, so I really think we can generate a higher return than that, and I struggle with the idea of paying these off early.

I think the key is to get to a level of liquidity that you can then make investment-based decisions about the debt. You definitely don't want to be struggling to make loan payments every month. You need to have some reserves that are liquid and some portion of the investment portfolio that is relatively liquid (even stocks are fine for this second level in my view, as long as you have a first level reserve in cash or similarly non-volatile reserves).

Good luck!

 

[throwittoblythe]

So over the past year I've become super interested in my financial health and security as well. I'm 24 years old and my only debt is roughly $15,000 on a truck and my mortgage. My main question is regarding aggressive debt reduction strategies.

I'm curious as to what people's thoughts are regarding paying off debt aggressively vs. investing into 401(k), stock market, etc.. while at the same time paying off debt. My wife and I have paid off all of our combined $50,000 of student loan debt in the past 14 months, while saving little besides a 5% investment (for each of us) in 401(k)s each month.

It's worked for us, but just curious as to other people's thoughts on the matter. I've read conflicting articles online stating there's a middle ground of debt payoff vs investing, but my thoughts are we might as well pay off debt as quickly as we can while we can (no kids, low house payments, etc...). Any input is appreciated.

My wife and I were in a similar, but worse situation when we first married. I applied Ramsey's principles but in a loose fashion. The debt snowball approach was great and it worked for us. It was nice that our total $/month going to debt repayment never really changed, but as we snowballed, the payoffs really picked up speed.

I think Ramsey's extreme approach is good for people in horrible financial positions that also know little about personal finance. If you are level headed, are able to do some self study, and can defer gratification, you'll do fine. We paid off all car loans and school loans within 7 years of graduating college (we had a lot). We also contributed to our 401k's to get the match and we enjoyed some of our money by going on low budget vacations.

Our approach was: 1) contribute to 401k to get company match, 2) pay off all debt ahead of schedule, 3) start Roth IRAs, 4) college fund, and 5) will be the house.