How much should one save?

[azanon]

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I have been wrestling with this question for several months now, and i just cant make up my mind. I'm 32, my wife's 30, we both work earning about 92,500k/year combined (more potential earnings in the future as my wife just finished grad school), are in a mortgage, and have one child.

The defacto answer i've heard is 10% of pretax income, but now i'm starting to wonder if that is still the way to go.

The recent slamming of the market in the 21st century I think has shown us we can no longer put 12% or higher into our estimated return rates. Morso, pensions are getting smaller and smaller, or non-existant (CSCR? vs FERS). Also, there's constant concern that social security is dwindling, and people are living longer.

I dont want to have to work when i'm an old man, and it looks like "grandpaw" is coming to work. The last thing i want anyone to do is look at me and say someday "its such a pity that old man still has to work to make ends meet". I'm a full believer in that phase of life where you have worked your share, and you can do what you want until you meet your maker.

So what do you think Tom..... others? How much should i save for me and my family. I dont want to have to struggle in the here and now anymore than's necessary.However, I do have the discipline to do what's necessary to ensure a reasonable retirement. I'm searching for financial balance throughout my life and i'm just not sure what the prudent answer is.

Azanon

 

[Guest]

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I think before you can clearly determine how you need to save, you must decide how you want to live when you retire. Assuming you want to have about the same quality of life as you do now, most suggest you will need about 70-80% of your income. Do you plan to travel, what hobblies do you have, are they expensive, do plan to continue into retirement?

You and your wife need to set a goal, start a plan, and then take steps toward your goal. Granted your goal/plan may change, but at least you won't be starting from scratch.

How must to save, as much as you possibly. 15-20% if you can afford, would be great. You and your wife have to set an amount that is right for you.

 

[azanon]

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Well, i'm off to a pretty good start I think. I have roughly 55K in TSP/Roth IRAs so far. I think my goals are about as you said - i'd like to have total available funds around the 80% mark of what we earn today (Since i'm contributing 10-15% now, im already living on 85-90% of what i make now).

To complicate matters more, i have parents that are worth quite a bit (over a million), and even despite having 2 siblings, I stand a good chance of inheriting a lot of that, but as with life, there are no guarantees. My dad has been a frugle man for 30+ years now, and to be quite frank, I dont think he could ever emotionally bring himself to spending much of it. Its easier said than done for a lifelong miser to become a spendthrift simply because the money is there.

anyway...... ive heard you shouldnt base investment decisions on "possible" inheritances, so I dont.

When I drop us down to 10% savings, i get afraid that i'm going to push our retirement age to maybe 65 or beyond, or that the market just isnt going to do that well from 2004-2030. Conversely, when i shoot for 15% or more even, i feel like i'm putting the squeeze on my family too much, and my wife silently growls at me for being such a miser. I'm going to feel a little silly if I hit 60 and have 2 Million+ in investments on top of a paid-for mortgage, and have no idea how to spend that kind of cash considering that we are easy-to-please kind of people.

 

[tsptalk]

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How much should i save for me and my family. I dont want to have to struggle in the here and now anymore than's necessary. However, I do have the discipline to do what's necessary to ensure a reasonable retirement.

Welcome azanon. Thanks for joining us!

Judging by your posts I've read, you seem to have a pretty good grasp of investing. The key to investing is to start early. Get a chunk in your account that can start churning and burning on its own. As your balance and earnings pick up steam, you eventually get to a point where your contributions are hardly significant.You always want to take advantage of any matching contributions but the total amount after that could depend on your current financial situation. If you live in San Francisco for instance, you may not be able to invest the max 14%but if you live in a small town in Wisconsin... you get the picture.

One good practice to build up your contribution amount when you are young (or old) is to increase when you get a COL raise. You won't even notice the difference in your pay.

Bottom line, get the max matching and if possible start a Roth IRA. We had a discussion here a few weeks ago about what is better, contributing to a roth IRA or maximizing your TSP.The TSP contributionsbenefit your current tax situation and a Roth helps yourretirement tax situation (you never pay tax onRoth withdrawals if you keep it in for 5 years and don't use the money before a certain age etc., but you make your contributions with after tax money).

Thanks again for stopping by. We look forward to hearing more from you.
Tom

 

[azanon]

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Well, i could probably afford up to 15% of family pretax earnings, but it naturally will mean..... ole, a compact car instead of maybe a BMW 3-series, or maybe a private club/health facility membership vs public facilities, fancy house upgrades vs keeping it like it is, that sort of thing.

I guess, ideally, i'd like to have the same standard of living now, as i do in retirement. I dont want it tilted one way or the other. Balance throughout my life is my ultimate financial goal.

 

[tsptalk]

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And you can use Warren Buffett's barber. It will save you a bunch.

 

[azanon]

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Ok, well, howbout some of you guys just volunteer what % you are going with, if you are comfortable doing that. Putting your age down would help too .

(guess i'm expecting the older folks to be putting more away cause maybe they put it off )

 

[thinks]

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This is interesting. We're just starting out so maybe I'm doing things differently but I'll share my plan.

My savings in my mind is separted into different categories. I'm not sure if you were thinking of strictly extra money or not but for us our savings is....

1. Money in savings for insurace deduct. (car, car, home) We've met this goal $2,000

2. Savings for vacations... we need to discuss this and start... I feel this should be separted from the irregular payments that one has that comes up throughout the year.... What I mean is I save for our car insurance to pay it all at 6mths and other regular pmts (that are irregular, kwim?) that I know we have (car registration, etc). We've met the goal of the irregulars but I probably need to do some updates as needed. I'm going to look at it over this week and see if I've forgotten anything.

3. Also, I need to figure out how much E.R. money we need to have in case somethinghappened. Like money for mortage.... Anyone have any suggestions... I've read several different guidelines -- 3mths, 6mths, etc... We have now only $1,000 but I do know we'll start working on this. That's more than our mtg pmt.

4. TSP/Roth/Investments--- right now only TSP, Roth... eventually would love to do investments. We've met the goal of 1 Roth Max for this year and plan to do the other one too hopefully but we'll see.

Not sure if this is what you met and I'd have to look at over our numbers to give you a % because I'm not sure off the top of my head since I have everything separated. After rereading your post I'm thinking now you were only talking about savings for the future but I'll leave my post since I thought it all out and will make notes to look at things this week. Oh, also, right now my dh is only currently working so we're pretty frugal right now to accomplish these savings on his small salary.

I'm so impressed with some of you who've shared how much you've had in your TSP so I keep reminding myself we've just started and learning.

 

[azanon]

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My question was for retirement funding only.

I actually use just one money market fund to accomplish #1-3 of what you listed there. I have to keep it more simple, simply because what you plan never turns out exact. Our goal is to put ~ $500 dollars in our general money market account for "intermediate-term expenses" per month, and let that account build up. The account for us covers emergencies/unpredicted expenses, vacations, large home items (furniture, TV, stuff like that), home repairs, etc. I basically just let it build up to 5-10K, and I feel pretty comfortable.

If i feel in the future $500/month isnt covering all that adequately, then i'll just increase the contribution amount.

I also keep a separate, taxable single mutual fund (currently aggressive stock) to save for my next car purchase. Sure interest rates are low now, but by the time I want to buy a newcar down the line, ratesmay be much higher, and i'd prefer to pay a good portion of it in cash, if not pay for it outright.

 

[zbwmy]

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I have used the 75-80% pre retirement income as a basis for my retirement fund calculations for 15 years. It is not a bad figure and it gives you a ball park idea of how much to save. There are many onlineretirement calculators that will walk you thru how much to save to reach that goal. Recently I have discovered through a early retirement message board that mostpeople do not require 75-80% to live in retirement, while others choose to travel and are over 100%. So who knows, for now use the 75-80% and as you get older you will decide what you may want to do in retirement.

If you can, max out on TSP. If you can't, do what Tom said and every Jan when you get your raise, up your annual contribution until you max out. Once you have maxed the TSP start to work on Roth IRA's.

Your young enough that your TSP should be 100% C, S, and I.

Keep these questions coming.

 

[azanon]

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Your young enough that your TSP should be 100% C, S, and I

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money. "IF", or more correctly, "WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

But for now, i'm with you - 100% stocks is the place to be.

 

[zbwmy]

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azanon wrote:

Your young enough that your TSP should be 100% C, S, and I

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money. "IF", or more correctly, "WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

But for now, i'm with you - 100% stocks is the place to be.

Being able to identify the "if and "when" puts you in a unique category. Maybe even

in another profession. Rest assured, you will not have to worry about that 2 million

in your TSP with no idea how to spend it.:^

 

[azanon]

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Who said i was doing it? I just share the opinon of most people here that their are better alternatives to buying and holding. Surely, 2000-2002 should give even the most devout buy-and-holder the reason to pause and reconsider that strategy.

 

[Rolo]

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Hey!This is a good topic, Azanon.

azanon wrote:

The defacto answer i've heard is 10% of pretax income, but now i'm starting to wonder if that is still the way to go.

I think that is a good minimum. Of course, your goals and circumstances will dictate what you need to do. Personally, I am a glutton, and wish to live my gluttony to its fullest at some point, so I pretty much think of investment-funding first, then everything else afterwards. The better you delay gratification now, the more gratification you will have later...exponentially.

azanon wrote:

Also, there's constant concern that social security is dwindling...

behehehee...no concern here! I do not even consider it in my calculations. I call it a "Socialism Tax".

azanon wrote:

I dont want to have to work when i'm an old man...

I'm 33 and I don't wanna have to work now! So...the sooner I can get this over with, the better...

tsptalk wrote:

Get a chunk in your account that can start churning and burning on its own. As your balance and earnings pick up steam, you eventually get to a point where your contributions are hardly significant.

Yup! "Getting the jump on it."

Do not just think "money", but think of "moneytimes time". Reinforcing what Tom said, time will put more money into your portfolio than putting more money does. hehe, andTom is right, Einstein did say "compound interest" was his greatest discovery of the twentieth century. (Einstein said a lot of neat things.)

azanon wrote:

I'm not a buy-and-hold investor, and IMHO, there's never an appropriate age where its wise to willfully lose a lot of money.

haha, I like that!

azanon wrote:

..."WHEN" the market once again gets into a position where it is very likely stocks will either lose for the year, or a crash is impending, my money will be elsewhere.

This is part of what I meant by "circumstances will dictate what you need to do"--macroeconomic circumstances as well as personal ones. I started just before the bull came back with a vengeance and was glad I happened to fall into it at that time. With it nearly impossible to make a mistake (I still found some ways, heh), I put everything I could into the market knowing that this is an infrequent opportunity, andthe fun-factorwasnot unlike going to a store and shopping. During market lulls, I'll take some profits and go buy PT stuff.

 

[azanon]

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Well, i decided on 10%... for now (plus my house). From 25-32, we did closer to 15%, to be honest. I do have a really great, and secure job, and my wife is also in a great field and very dependable. I also have a pension, and we'll both qualify for Social Security.

The extra 5% that used to go into retirement, is now going to go into my American Century Ultra (non-retirement) fund, aka my Subaru WRX STi fund .

 

[Rolo]

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azanon wrote:

aka my Subaru WRX STi fund

hahaha...I like that! Those cars are pretty cool. Hmmmmm.... all.... wheel.... drive.... gghghghhhhghgha

Did you use a retirement income calculator to make your decision?

Great financial calculators here:

http://www.dinkytown.net/retirement.html

Then, use the reasoning that interest rates are going to rise, so it is cheaper to buy the Rex now!

 

[azanon]

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Did you use a retirement income calculator to make your decision?

Yeah, but at our age (i'm 32, wife is 30), you know so much of it is an estimation. Since we started saving at 25, we are off to a pretty good start, and I dont think i'd risk hurting us too much by backing down to 10%. I'm sure you know this as well as I do.... very few people our age save that much in reality (last I heard the national savings average is 4-5%), so however bad off I may be when i'm 60, just about everyone else around me will be much worse off. Furthermore, for those that do save 10%, very few of those utilize stocks.

Having a defacto federal job, i dont see me exactly wanting to run out the door when by that time i'm a GS 12 (or better, step 10), and only work 36hrs/week. That's some serious jack to just walk out the door on.

Then, use the reasoning that interest rates are going to rise, so it is cheaper to buy the Rex now

Well, i wont buy until I have cash in hand, then I'll make the same assessment you did; decide whether its smarter to pay cash for it or finance it. Of course right now, financing is definitely the way to go, but interest rates are rising and i wont be able to afford this car for at least 2-3 years. Again, another pseudo margin/leverage account to finance.

I'm only going to be young once. And i look forward to my great grandchild sitting on mykneethen I tell them about howgrandpawwas hip even in his midlife, and had a beautiful new, grey 300hp, AWD Subaru race car that couldsmoke99.9% of the cars that pulled up beside me at a stoplight . (4.7 sec 0-60, 13 sec 1/4 mile, for those that dont know )

 

[Rolo]

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hehehe...my PT will be RIGHT on your tail...only looking much cooler.

I just remembered that you are talking about dual incomes, so your 10% has more $ than my 10%. Also, you get double the IRA's, which is 8.6% right there (2004 limits) plus your TSP and the fact that you started early (good on you). You are totally correct about most people not investing. I know so few who do.

Oh, and don't forget to fund for all the stuff you'll want to buy for the car afterwards! heh

 

[azanon]

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I just remembered that you are talking about dual incomes, so your 10% has more $ than my 10%.

Yeah but that's all relative, meaning we're accustom to living on 90% of our combined incomes. If i maxed my TSP, and we maxed both Roth's, we'd go well past 15% of gross, considering the new limits are so high (and getting much higher). It makes me very suspicious that someday they will find a way to implement a wealth tax where IRA's will be fair game.

Well, i want to pay for the car with cash (or have the cash) because I know the insurance will be real high, the maintenance will be high (summer tires that only last 10K and over 200 a tire!), and mods if i want to mod it. But an STi is a tuner car right off the lot though . Its basically a tuner WRX, done by the factory.

 

[Pete1]

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Ithink that I'm saving too much :shock: I am contributingthe max to TSP andan additional 7% to our Roth IRAs (total of 21%, TSP and IRAs). Additionally, I am payingback a TSP loan at an accelerated pace (about another 3%).Government match = 5%.Total annual contributions to retirement accounts =29%. When the TSPloan is paid off, (about 1.5 years) I will probably keep the dough as discretionary income rather than adding to retirement savings. I am also considering keeping all future payraises forfun and games now rather than later. I know that this goes against the popular financial press in that most of the "experts" seem to push folks to put all found money, payraises, etc. into retirement savings. With the new limits for TSP, I could put a lot away for later but I think that there comes a point when enough really is enough.

I amfinishing up a very good book titled "Get a life, you don't need a million to retire well" by Ralph Warner. The author makes some good points about oversaving. The author notes that focusing too much attention on the retirmement nesteggrather than on having things to dowhen you retire is probably a mistake. Personally, I want to have theit all - a romantic relationship with my wife, a retirement nestegg,good family relationships, good friendships and a lot of things to do as well.He pokes plenty of holes into the popular myth that you need at least a million or even 2 million to retire comfortably.A very balanced book.