Makes sense. Thanks. Has anyone ever posted figures that corresponded to certain sets of expectations/variables/lifestyle? Otherwise, it is difficult to gauge whether one’s savings/assets are “enough.”
I think what you need for retirement is completely different than what I need for retirement and what Joe Shmo needs.
It’s all relative. What your plans are, travel, buying a second home, taking up new hobbies, moving to a bigger house, smaller house, expected medical needs, etc. And for some people what they think they will need at 50, will probably be completely different than what they need when they’re 70. Life expectancy is also much higher than it was when we first thought about saving for retirement.
If you have a major medical illness, can you afford in home care? Will you need to go to a long term care/independent living facility? My mother is 79 and a year ago was diagnosed with stage 4 lung cancer. If you had told me that she would not be here into her late 90’s like my grandma, I’d be shocked. But this is the reality today. She goes to chemo every 3 weeks and it knocks the hell out of her. My father who still “works” 3x/week because he wants to not because he needs to, has macular degeneration so cannot drive. So, when they were my age I bet these were not things on their mind. Fortunately, they are able to afford a driver for him and a caregiver for her. But that eats a buttload of $. Most people do not plan for these things. My MIL will be 91 in two weeks and spends what little money she has on frivolous junk. (QVC junk). So far she hasn’t needed a helper as she is in an independent care facility, but she needs one. Covid has been the issue with getting her one. She however, can’t really afford more than a few hours a week, so the minute one is hired that will eat away at her money which if she does nothing and has no major medical issue will run out in 5 years anyway. With a helper/caregiver even sooner. So, for some people, like her, she probably should have had long term care insurance 50 years ago, knowing she couldn’t afford these things. So again back to my point. It is all relevant and based on the lifestyle someone has now and what they expect to maintain once retired.
Some people may think $1,000,000 is suitable for retirement, but when broken down, that really isn’t going to last that long. Often I’ve heard of people in their 40’s who retire with $10m in the bank. That’s a lot of money, but if not invested wisely, that probably won’t get them through retirement if they have young kids and have to put them through college and were living a great lifestyle beforehand. And then there are people who make $50k/year and are able to save and have millions when they retire at 70.
Due to my having 2 kids in college right now and a third in the fall, this the first time that my outgoing cash flow is greater than my incoming (my husband is semi-retired I should add), however, with smart and sometimes lucky investing I have tried to stay ahead of that so I can continue to grow my retirement so that I can have the pleasure to spend what I want when I want and not tie it to something else.
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Sorry but at higher income you likely have higher costs as well ( housing in near a city), other expenses. I don’t know anyone who can save 30-50% do you? My spouse knew a guy who was living in AL and making high six figures. That’s pretty rare. He could likely save that much. House was about his annual salary and it was palatial.
It’s extremely rare to make huge $$$) and live in a low cost area ( Surgeon in Nashville for example). High salaries generally correspond to high cost housing areas ( high level work from home positions exist) but many are already tied into a community for schools/kids so people don’t want to move Until kids graduate.
We’ve always had very high incomes and very high housing costs compared to the rest of the US. I know industries and regions differ but I’d guess the highest paying industries ( tech, biotech, finance, law, medicine etc) are tied to location more often than not. Of course there are folks who are exceptions. But doubtful many or many that save that much.
Making 200k to use your example in San Fran would barely get you housed and fed. You’d lead a good life but likely have a long commute and struggle to pay for college for your kids. In TN, you’d be doing great ( but how many 200k jobs are located there?)
We have lots of friends across the US, none retired early by saving. All retired early from selling companies or working for companies with stock incentives etc.
Retirement planning isn’t what it used to be ( sadly). Lots of risks.
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Yes (or at least very likely, given working in a high income profession but with obviously much lower spending habits than they could spend based on the probable income) for some whom I know or have known. As far as cost of housing, even within a given metro area, there is some choice in cost – someone with a high income choosing housing that is affordable to middle income people will not have the higher housing costs.
The authors of The Millionaire Next Door found plenty of people who saved a lot of money by spending substantially less than their income (which often was not $200k high).
Median household income in San Francisco is $112,449 based on https://www.census.gov/quickfacts/fact/table/sanfranciscocitycalifornia/PST045219 , so there are people getting by on much less than $200k. Also, lots of people who worked in San Francisco before COVID-19 commuted into the city from less expensive housing areas.
Does that median household income take into account all the hundreds of homeless there in SF? Because of so, then clearly people are not able to live on that.
Now of course, thanks to covid the housing bubble has burst and it is a lot cheaper to find housing and there is rent control throughout the city so there is now a reset which is even nicer for those who rent.
@Happytimes2001 Totally agree. My son lives in SF, earns 6 figures but is single and until he decided he didn’t want to be alone in his apartment when covid struck was living on 3k/month with 2/3 of that going to rent for a dinky studio. That is absurd. It was small and old. So if you take away the housing, he spends like nothing. Now he’s going back, rents are way down, found a place with 6 guys total/ 6 BR a huge house and he’ll only be paying $1k/month. He’s the type that can save a fortune, but that’s because he has no other expenses. Maybe now spends more in food because he has his own startup instead of working at a company where they gave you meals and snacks, but still most other cities housing is going to be much cheaper and as you said 200k doesn’t go far in many places at all. Where I live (not in CA) my sales tax alone is 10%. Property taxes are a fortune also. So after all the expenses there is not a lot left for savings for anyone making 200k to put away for retirement.
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Agree many people make less. I just think the premise of the millionaire next door doesn’t apply here. That idea makes sense. One can save for 50 years and have 1 million easily. By living below your means.
Not the same as saving a huge portion of your income before the age of 50.
One cannot save 30-50% of income except in rare cases ( no mortgage). Again, how many do this and retire early? Does anyone have friends who saved a huge portion of income and retired early ( without a windfall?)
I doubt many people making 122k in San Fran are saving even 30%.
I do know some folks who save a single income in a double income house for college. But that’s different. And no one has retired on that basis.
Not saying it can’t be done. One could make 200k and live in your parents house and save your entire check.
Just think 30% is an unreasonable goal for anyone. Great if someone can do it. Would tell my kids save as much as you can but at least 10%. Don’t incur stupid debt ) like credit cards) and have a big emergency fund you’ll need it one day.
“Not saying it can’t be done. One could make 200k and live in your parents house and save your entire check.”
This made me laugh as this is exactly what my son just did to us at the end of March when he came back here due to Covid. But he didn’t give up his apartment until end of October. I paid all of his food, utilities, etc during this time. Hah. He got off so cheap and other than those months he paid his ridiculous rent, he saved all his money. He at least did his own laundry! 
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I think you example is exactly what my experience has been. Even when we were young 20’s snd making lots of money, rent took a huge chunk of it. We also had zero write offs. So taxes were very high.
I’m very frugal and could never have saved 30% In my 20’s( and I’d guess I made 2-3x what the normal salary was then). I lived in the Boston area then and often had roommates but costs were high ( and still are).
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Examples of people who do this may be few, but we live among several, and our son will be one of them. We are in this group, too, and we did have a mortgage until six years ago. From the day we married 40 years ago, we have never lived above our lowest salary, and we bought houses where the lowest salary could easily pay the mortgage. We lived in two cities, Chicago and Boston, for many years, and when we found out I was pregnant and college would put pressure on our retirement plans, we immediately started looking around the country for where we could substantially step down our cost of living to preserve our savings ratio and plan for our son’s education. We ended up choosing the Phoenix metro area in 1999 when Scottsdale homes were half the cost of our Boston property. We are fortunate that both DH and I had very portable careers where our salaries weren’t significantly affected by location, which I know is not the case for many. There were no windfalls for us, just a lot of discipline and steady plodding toward financial goals set in our 20s. We retired in our late instead of early 50s due to education planning. Barring the apocalypse, we’ll live well and never need to work another day in our lives. We taught this lesson to our son who is trying for the 50% scenario, but he’s well above 30%. We taught him that his life is the sum of his decisions, financial and otherwise, so choose wisely and plan early, and we modeled that. He doesn’t plan to marry or have kids (only one) until he completes his (Army) service years. In the meantime, he’s working a plan and building the discipline to realize his financial goals which will be a gift to himself and his future spouse and child.
As for those pesky kids… DH and I never planned to have any as they didn’t fit into our desire or financial plan. Against all odds, I discovered I was four months pregnant at 39, so we had a lot of decisions to make to keep ourselves on track. We’d been working our financial plan for fifteen years at that point, so it was not difficult to figure out what we needed to adjust to accommodate our new status as parents. I think the difference between us and many others is that retirement was a primary, well-planned priority from the day we got our first professional jobs, and we were willing to do whatever it took to stay on track, even to moving across the country at our own expense with no concern for living near any family. Most people don’t think like this when they are very young, so serious financial planning is often delayed until the magic of those early compounding years is lost.
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@ChoatieMom Wow, I love this. It’s great. We live in a very high-cost area ( always have). We live within our means and save more than most. But I am shocked at how many very high-income friends have very little savings ( even retirement). They do have brand new 80K cars and boats though.
My father is more like your family. He worked all his life, retired early and lives well by planning and saving. He’s more like the millionaire next door. But I think he saved maybe 10-15% and lived very frugally ( and inherited his house).
We sometimes laugh about all the money we spent in our 20’s and 30’s. Fortunately, we did save enough too in our retirement funds. It wan’t until compounding started showing up in the monthly statements where you take a minute to say, “Wow”.
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As we’ve discussed above and previously, the answer differs greatly per couple (or person).
Some of the bigger factors are
- monthly income needed to cover required expenses (including medical) and desired expenses (travel, eating out etc) - take a look at your annual Visa summary to get some reminders of your spending patterns
- retirement income from pensions and SS
- your plan for big ticket purchases, such as cars and home improvement
- strategy for Long Term Care - LTC insurance (often unaffordable) vs savings cushion
- Taxes: if you will be withdrawing from traditional IRAs, you need to consider the post-tax amount
Once you know how much “extra” you will need monthly beyond #2, there is a simplistic rule of thumb that you can withdraw 4% annually from investments . EXAMPLE - 40K/year from $1million traditonal IRA, yielding $30ish after taxes. But I feel like that rule of thumb is just a starting point for younger couples to realize they need to save a lot. People closer to retirement should do a lot more planning, using their specific situation.
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It’s dismaying that so many people stop donating to charities because they no longer get a deduction for it. Especially when they are already ahead of where they were because of the doubled standard deduction.
IMO, people who blame “high taxes” or “high cost of living” for not having enough/any savings are just refusing to take responsibility for their own life choices.
If the person with $200k income spends no more than what a $122k income can support, shouldn’t they be able to save 30%?
A few hundred homeless people have little effect on the median income of a city with a population of 881k in 362k households.
Well some folks give annually, some give in lump sums and some give it all after they die. We’ve given a lot some years and less in other years. Not everyone gives to charity, at all. I don’t think most people give so they can write it off. We just add it up at the end of the year. And give it to the CPA.
I also personally wouldn’t judge someone who isn’t able to save as much as they want. Life happens. My spouse had a friend who was making tons of money. At 30, he got leukemia. My spouse had to help sort out the finances after his death. He was pretty shocked at how leveraged he was. My husband came to the conclusion that in his case it worked out for the best. There was nothing in the estate except for life insurance.
Some folks get sick, have sick kids, lose a business or any other of a million things. All mainly out of their control. So the idea that people are in total control of their life escapes me. All that we’ve ever done is our best each year and hoped things worked out. I know from seeing others that one tiny diversion can totally throw the plan off course.
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I don’t think they can save the excess. Taxes are higher and if they are in that income category they likely own a house ( I’d guess 20-25k in property taxes there too). If you do the math, it’s not as though there is anything close to 200k after basic taxes. ( The kind most people pay)
There are a lot more than hundreds of homeless people in San Fran, sadly. Some young employed ones couch surf. Others with families have tougher situations to deal with. It likely doesn’t affect these numbers.
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Income and payroll taxes on $200k in California leave $146k. As far as property taxes, that is at least partially a choice based on the the value of the property owned. Just because you have a higher income does not necessarily mean that you have to buy a more expensive house with higher property taxes than someone with a typical income for the region.
$25k per year property tax in California would be based on around $2 million assessed value. $2 million is about twice as much as the median owner-occupied residence in San Francisco.
@ucbalumnus Well let’s agree to disagree. I think the idea of saving 30-50% has been fully discussed. More power to anyone who can save this much on any salary IMO. If my kids grow up and end up saving 10-15%, I’ll be happy.
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Count me astounded if anyone can save 30-50% in the SF Bay Area. Cars and houses require maintenance and insurance. And eating healthy is very expensive, unless you want to live on rice, beans and Spam. Fitness? I can go on, but won’t.
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so many choices, right?
we are <200k; had we stayed in our 1200 sq ft house bought before we had 4 kids; we could have saved more. we could have saved more not paying for piano lessons, art lessons, summer camps, swim team, soccer, dance, drama lessons, tumbling lessons; taking road trips from coast to coast.
But thing is, our larger (NOT DELUXE) house and all of those activities for the kids brought lots of joy to all. Even with 2 in college now, and funds tight, I feel no regret at all for those experiences for the kids and family. we did so much of this based on the premise of a defined benefit pension plan. without that, maybe choices would have been different? I’m sure that’s what my kids will be facing when they start their own families.
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We never had the benefit of a pension (except a tiny one) so was never a factor. We spent a lot on things that we found to be valuable incuding music, art lessons and many camps, Summer vacations and educations stuff in droves. Now that are kids are getting older, I think those were investments. They earned interest in developintr skills the kids will likely use in their lives.
I do think about our travels. Especially this year as we are trapped in our house.
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