My husband only works, I am a stay at home mother of four children ( I worked for 8 years as a lab manager before having children). How much should we be saving for retirement? He is 35 years old, I am 36 years old. We currently max out his 401K at 15% of his pre-tax salary. We also save 10% post tax into an annuity type account (life insurance also). When I use retirement calculators, they usually say we should be saving only 5% of our pre-tax income actually since we started at age 26 or so, but I believe that this is only for 1 person, and we are actually saving for both of us. The Yahoo retirement calculator says we should have ,000,000 in all based on 8% return. Should this be ,000,000 instead for 2? We have no debt except for a ,000 mortgage with 9 years left. None of our friends or family save as much as we do, but are we really going overboard here with savings? Or is it better to save as much as we can now and ease up later when our children are in college?
I guess I actually have two questions: With the retirerement calculators, they ask if you are married and if your spouse has any income, but are the totals for one person or two? Also, is a total savings rate of 25% totally off the mark (too much)? My husband thinks we are saving too much, I am very conservative!
Thanks so far for all the answers. With all of our savings as is, and 4 young children with 1 income only, we really have no "disposable"spending money. Is cutting back to 10% for his 401K a good idea? Would our retirement still be "on course" for both of us? We never eat out, have not gone on vacation since we were married 10 years ago, his car is 9 years old and we would need to buy a new one soon, etc. He thinks we need to enjoy our lives now a bit more. We do also fund an HSA with about 4% pretax also each month! But we have no separate college savings plan yet.
I thought that 529 plans only had state tax benefits, not federal currently?
How much should we be saving for retirement?
5 Responses to How much should we be saving for retirement?
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The amount you need to have accumulated at retirement is dependent on how much you’ll need to live on in retirement, plus factors like estimated return, estimated tax bracket and estimated life span.
Most retirement calculators either (a) ask you what to use for "needed income", or (b) assume that if you are living on $X income now, you’ll need 85% (or 90%, or whatever) percent of that income to live on in retirement. Hopefully they’ll spell out how that "needed income" is derived somewhere in the tool documentation or help.
So the income requirement will be for all people who are currently living on the income that is put into the calculator, in almost all cases. (I.e., you very probably don’t need to double it.)
Since the vast majority of people are saving too little for retirement, you are to be congratulated if you really are saving too much. But that doesn’t necessarily mean you should cut back on saving — it will give you more of a cushion for unexpected events (sickness, layoffs, etc.) and enable you to have a trouble-free, worry-free retirement. And that’s a goal worth pursuing.
If you continue saving at your rate, it does mean that if you hit a stretch where expenses rise or income falls, you could more easily think about temporarily suspending retirement savings, as in your mention of children going to college.
Congratulations.
A good way to calculate your retirement income needs is to pretend that you are retiring tomorrow. Calculate all the monthly expenses you will have, such as food, gas, utilities, taxes and see if you can actually pay for these RIGHT NOW using just the interest from your current investments. You get to assume a reasonable interest rate and you can play with your expenses to get a lifestyle suitable for a retired couple. Dry cleaning costs for example, would be reduced and you wouldn’t be driving to work everyday.
Anyway, the difference between what you have now and what you need can be called your "retirement income gap." Luckily, you aren’t retiring tomorrow and you have around 25 years to accumulate the amount you need. It wouldn’t be hard to calculate what you need to put away monthly or annually to fill that gap over 25 years. You’re obviously allowed to take into account compounding interest for your deposits over time as well.
Do the exercise once every year or so to see how you are doing. Adjust your savings percentage up or down as required to make sure you have the funds you need. This annual review will automatically adjust for inflation and interest rate fluctuation, simply because you do it often.
By the way, the reason I said to live off the interest is that you can never be sure how long you’re going to live.
If you start eating into the principle and discover that you’re not dead, you’ll find yourself in a very inconvenient situation.
No such thing as "saving too much". If you can afford to save as much as you have especially when you are as young as you are good for you.
from the above it suggests that you are doing exttremly well in thinking for the future and saving ahead. i would suggest you do double all the figures that you get from retiement calculaters as most of the time they only calculate for one. as you have four children who you will have to put through college, all the money you save now will be very beneficial as college four times through willl be very expensive. you also say you have 9 years left on your mortgage and once thats over you will be able to save more. i would also recoomend you see someone such as a financial adisor from your bank and he’ll be able to reccommend what the best methods of saving for your retirment are.
You may be saving too much, but that is a good thing. It is like you are eating a diet that is "too healthy". That is also a good thing even though you might want to enjoy a good steak once in a while.
When saving for retirement I agree with you that it is better to be conservative. You can always save less later on. A good start like your is invaluable.
I would suggest though that you might want to switch some of your savings around a little. It sounds like your retirement savings are well funded, but you don’t have anything saved up for the kids’ college expenses. You might want to add some of the money you save outside of the tax-advantaged 401k plan to a 529 plan for educational expenses, if you plan to help your children with college expenses. 529 plans also enjoy tax-benefits which you leave on the table right now.
One thing that many people overlook when they observe a good saver like you is the life-style choice you make. Your life-style is very much in line with your income. Therefore, it is so much easier for you to finance your life-style in retirement. When you spend more and save less, you will also have to finance a more lavish life-style in retirement, which you avoid. Well done!