How much are you socking away for retirement each month?

This thread scares me.

My wife and I are 41. She only makes 18,000 working at a daycare and saves 75 a month into a Roth IRA with no company retirement plan. I am an educator and after I am eligible for retirement at 56 I will earn 62% of my highest salary years. It will likely be 95,000 to 100,000 at that point.

Currently, I make 73,000 and with my state retirement I put in 350 a month and the school matches that. I have a duplex that I earn 1000 a month on, but my payment is 1000 a month. I have about 15 years to go to get it paid off. My house will be paid off in 13 years.

Currently getting a 3-6 month emergency fund created. Once my emergency fund is completed I hope to put max out a ROTH IRA for my wife and I.

I hope this works.

Iowan: Keep in mind that you will potentially both be able to draw some social security in addition to your IPERS pension in retirement. Combining your 62% pension in retirement with S.S. will likely leave you a decent financial position in retirement.

My theory is that the average person should plan on retirement income coming from three different sources: 1/3 social security, 1/3 retirement savings (pension, 401k, etc.) and 1/3 from additional outside savings. You have at least 2/3 of the plan underway.

One caution on your IPERS plan, like most state pension plans, it is vastly underfunded. While it "should" be around when you retire, there is no guarantee that the benefits will be what you were promised, especially given the crazy politics in the state budgeting process. So this is why the other 1/3 of outside savings becomes more important.

Your plan to build the emergency fund first is a wise starting point, but if either of you has an employer match through the 401k plan of your wife or your school's 403b plan, you also don't want to leave free money on the table.

Finance Guy-

I greatly appreciate your help! Over the last few years I feel like there is no way to put enough into retirement savings. My wife and I are working out tails off to pay off all of our debt. I just paid off two cars and my daughter's college is paid for. She is currently a sophomore in college.

I just hope to get a good emergency fund created within the year and to get Roth's near maxed. One negative to IPERS is liquid cash. Another negative is that it doesn't adjust to inflation.

We are on target to be debt free by retirement so that is a plus. We will likely work part time jobs forever just for the fun of it.

If you have any other advice please share it.

You do not have the earnings of some others here but you are doing a pretty good job of not neglecting your retirement plans. Since both of you are working, you will both have your individual Social Security accounts. While there is discussion of doing something to make it more 'solvent', those somethings will be tweaks around the margin such that you probably can count on getting about 90% of what you might figure using the current rules.

When you add those streams to your current savings you will likely be getting a flow of consumption equal to what you now have. Given that some of the other savings are in direct funds (as opposed to the annuity of Social Security or you retirement plan), it makes sense to take late 'starts' to those plans as that will insure you best at least cost for living a long time. That is, delay taking payments until, say, 70, at which point the annuity accounting gives you much higher monthly payments that will prove useful if you live to 95.

The post by finance guy is a good one and I would endorse much of what he says. In particular, Roth IRAs have a couple of advantages (one is that there is no minimum withdrawal starting at 70+). Given those advantages, however, our tax computations come out such that going the Roth route puts us into a high marginal tax bracket now so we do not do that (until the computations change a bit in several years). However, there is a Roth contribution that you can make. If you do not have (or do not have very much in) a regular IRA you can do the following. Open an IRA account with a contribution of $6000 (I think) and then immediately transform it into a Roth IRA.

If you have other IRAs you need to draw proportionately from all of them and pay taxes on the earnings that others have. For example, if you have $6000 in a regular IRA that has contributions of 4000 and earnings of 2000, doing the 'open-a-new-IRA-for-6000-and-transform-immediately-to-a-Roth' would result in 3000 coming from the new one and 3000 from the prior one, with 1000 of earnings and 2000 of initial contribution, so you get taxed on the 1000.

If they continue to allow this the next year you would likely have less earnings because you would put in another 6000 and have 3000 from the original IRA, 3000 from the new one, only 1500 would come from the initial IRA and 4500 from the new one, with not much earnings. So, it works not perfectly but well enough for a small prior IRA with significant fraction of earnings. However, a larger one would dominate (e.g., 100,000) and not be worth it unless there were almost no earnings in the initial IRA (possible if started around 1999).

See what Finance guy has to say about this; I am guessing he would concur.

not believing most of these wrote:

As a CPA, I frankly don't believe many of these posts.

That's weird because I'm a CPA and believe most of the posts.

I'll be hitting the maximum contribution automatically as I contribute 25% of my salary until I hit the max allowed by law. So I'll be hitting the 17K and 5500 limits soon.

One thing I don't get about the Roth (my company does offer a Roth 401K option) is that every dollar I'd contribute to a Roth 401K would be taxed at my marginal rate (ie very high). When I withdraw that money in the future much of it will be taxed at lower rates (ie NOT at my marginal rate). Some of it won't be taxed at all. I understand there's risk in the tax system being changed.

I also think there's value in 'hedging' against this risk but, damn, tax-free money today? I'll take it. Not sure it's a good thing to pre-pay taxes. I do LOVE the fact that there are no required distributions on Roth accounts = much flexibility.

Tell me more....

A little worried wrote:

Thanks very much. Your the man. I should have mentioned that the matching perk with my employer was equal. 6 percent of my pay is placed in cref and my employer matches it. So at 100,000. 12,000 combined

That's a VERY nice match. You're on the right track.

work until i die wrote:

31

28k

0 currently (have 140k put away already)

Work until you die?

Let's see.

If you have that $140,000 invested in good growth stock mutual funds that earn 8% annually, and you add nothing more to it ever, here are the milestones you'll hit:

AGE - BALANCE

35 - $190,468.45

40 - $279,860.64

45 - $411,207.10

50 - $604,198.14

55 - $887,765.30

60 - $1,304,418.48

62 - $1,521,473.72

65 - $1,916,618.70

67 - $2,235,544.05

70 - $2,816,141.67

Almost $2 million at age 65. If you're debt free and own your home, you can retire on that at age 65.

Ok. Let's see.You're 43. You are beginning with $85,000 invested and you are contributing $23,000 a year.Milestones at 8% annual return:AGE - BALANCE55 - $627518.3660 - $1,067,756.7262 - $1,297,098.6463 - $1,425,706.5364 - $1,564,603.0565 - $1,714,611.3066 - $1,876,620.2067 - $2,051,589.82Take 4% initially of the amount you like above. Let's try age 62. That's $51,883.94 a year. You SHOULD get SS of about $34,000 for you and $17,000 for your wife when you are both 62, so let's add that...that's $102,883.94.Note that all of the contributions are just static. I didn't increase anything as your salary increases. 62 will be here before you know it, and over $100,000 a year in income that will go up each year (SS goes up automatically with inflation, and if you take 4%, you are supposed to up that each year for inflation too.)Seems ok to me...just depends on what you want your retirement to be like. Live in a reasonably inexpensive area, and you can do a lot on just over $100,000 a year, even 19 years from now. If that's not good enough, then either work a little longer or begin really adding to the pile when you're 50.Really though, if you own a home outright when you retire and you have no other debt, you should be able to have a nice retirement.

A little worried wrote:

Flagpole

Boy, i really wrote that poorly.

I work independently from our business. My day job pays me 100,000/year. Our business is secondary, my wife will draw a salary in a year. I won't.

No car payment Or associated costs.

No cell phone bill.

75,000 in cref. My company matches my 6 % contribution.

10,000 in Roth. I put 5,000 in for 2010 and 2011 and will do so for the remainder of my working life.

500/Month to an additional Roth 403b.

If you get a minute I would appreciate your new projections.

Not sure what you mean about the Roth 401k being taxed. As long as you keep it in there for 5 years and don't withdraw until age 59 and a half, you won't pay taxes on anything.

Also, unlike a Roth Ira, there are required minimum distributions at age 70, but I think you can get around this by rolling it into a Roth Ira.

Iowan - So in real estate you can value an asset's gross value by reversing the math equation, such that you divide the income stream by the cap rate. So if you collected $12,000 in rent and the cap rate is 8%, the real estate is worth $150,000.So if you apply the same theory to your pension, then your "asset" or implied asset at retirement is this:$100,000 - Assumed max salary62% - Assumed annual pension payment8% - Flagpole's assumed return rate$100,000 x 62% = $62,000 / 8% = $775,000So you should think of your pension as a $775,000 asset that will return 8% per year.

Iowan wrote:

This thread scares me.

My wife and I are 41. She only makes 18,000 working at a daycare and saves 75 a month into a Roth IRA with no company retirement plan. I am an educator and after I am eligible for retirement at 56 I will earn 62% of my highest salary years. It will likely be 95,000 to 100,000 at that point.

Currently, I make 73,000 and with my state retirement I put in 350 a month and the school matches that. I have a duplex that I earn 1000 a month on, but my payment is 1000 a month. I have about 15 years to go to get it paid off. My house will be paid off in 13 years.

Currently getting a 3-6 month emergency fund created. Once my emergency fund is completed I hope to put max out a ROTH IRA for my wife and I.

I hope this works.

Almost forgot to post my own stats...31 - commercial banker$111,000 salary + bonus8% of salary into 401k plus 4% of salary employer match (12% total)No fixed amount saved in other accounts, but I sweep any excess cash into long-term savings at the end of each month. I usually just max out my Roth IRA ($5k) once I get my bonus each February; this frees up cash flow during the year. I'm still eligible b/c with deductions my AGI falls below the $107k threshold for individual filers.Graduated last June from a top 5 MBA program. Did my undergrad at a top 5 school as well. Had partial (70%) scholarships for both, so had some loans. Paid-off $28k in school loans (6.8% interest) in past 9 months using savings, bonus and monthly cash-flow from paycheck. Overall networth is up $36k, due to debt reduction and retirement savings, offset by depleting a lot of cash savings to pay loans.So out of orignal $250k in education expense, I have $17k left in student loans (4% interest) but think I am going to refocus on building cash again for a while. Could pay that off right now but don't want to completely kill my cash cushion. Not sure if its good or bad that my largest paid for asset is my brain...

I'm 41 and make 100,000/year. Wife was making about 15,000 - 20,000 the last few years but lost her job in '11.

I have 200,000 in a 401/k and contribute 15% each month which comes to about $13K a year. Plus 6% employee match.

I will also have a military retirement when I reach 59 and I figure that should add AT LEAST add an additional $1,700 a month to my income. Throw in SS and I'm hoping the wife and I don't have to eat cat food to survive. My biggest concern is our current debt that we can't seem to shake. I've been tempted to stop paying into th 401K and use that money to pay off debt but that makes me nervous. I want to retire as soon as I can.

Hoping wrote:

I'm 41 and make 100,000/year. Wife was making about 15,000 - 20,000 the last few years but lost her job in '11.

I have 200,000 in a 401/k and contribute 15% each month which comes to about $13K a year. Plus 6% employee match.

I will also have a military retirement when I reach 59 and I figure that should add AT LEAST add an additional $1,700 a month to my income. Throw in SS and I'm hoping the wife and I don't have to eat cat food to survive. My biggest concern is our current debt that we can't seem to shake. I've been tempted to stop paying into th 401K and use that money to pay off debt but that makes me nervous. I want to retire as soon as I can.

Interesting situation. You've got a good (not great) start on the 401k at age 41 and you are contributing what amounts to 21% with the employee match, so that's awesome. The military retirement you will get sets you apart from many...VERY nice brother, and thanks for serving. If it were me you'd get 10 times that.

No need to tell me your debt load, but at your current level of investing, are you able to dent it at all? Can you see being debt free by age 59 or 60 when you might consider retiring? If you CAN'T get that debt gone in the next 18-29 years with your current investing, then you need to either make more income or pare back your retirement giving so that it is gone when you want to retire. You definitely do NOT want to be paying any debt in retirement.

Dave Ramsey would tell you to suspend ALL investing until all of your debts (except for the house) are paid. I don't necessarily agree with that, but for a short while you might have to do all but the level that your company matches.

Good luck brother.

Flatulus wrote:

One thing I don't get about the Roth (my company does offer a Roth 401K option) is that every dollar I'd contribute to a Roth 401K would be taxed at my marginal rate (ie very high). When I withdraw that money in the future much of it will be taxed at lower rates (ie NOT at my marginal rate). Some of it won't be taxed at all.

(i haven't read most of this thread, so i apologize if this ground was covered already)

some people use the phrase "tax diversification" to describe something similar to what you're describing here. this concept is a little different than what finance guy mentioned on this page (having to do with diversifying to address risk associated with future tax reform(s)).

if you have, during retirement, two pools of funds - a roth pool and a traditional pool - then you can pull from the traditional pool first, to soak up the lower tax brackets. under current law, you actually get to a relatively high rate pretty quickly: 25% at $35,000 of taxable income, which is something like $45,000 of gross income (this is for a single person; you can basically double the numbers for married). below that is 0, 10 and 15%.

so you use traditional IRA/401(k) funds up to that amount, and then pull from roth funds after that, so you're not wasting previously taxed roth money at low tax rates.

as someone mentioned in passing above, even if you make too much money to contribute to a roth ira directly, it may be possible to get there indirectly by contributing to a non-deductible traditional IRA and converting that to a roth a few months later. i wrote a post explaining this strategy on this board a year or more ago.

retirement wrote:

Just curious. What's your age, gross annual salary, and how much are you putting away strictly for retirement each month (regardless of where that money came from, investment vehicles, etc.)?

The real question is, how many times the insiders on Wall Street will rape yohr nest egg before you retire.

DC CPA wrote:

not believing most of these wrote:

As a CPA, I frankly don't believe many of these posts.

That's weird because I'm a CPA and believe most of the posts.

I believe most of these, but I also believe the enormous response bias. only the people looking for a congratulatory "omg youre so rich" are putting up their stuff.

for comparison's sake, i KNOW i'm well above the median for my age, but pale when compared to all of the 26 year old investment banking executives who vacation to bermuda 15 months out of the year (who have 1.4M laying around in a sock somewhere).

23 years old

63k salary

8% into 401k, 50% employer match, so ~7k/year

16k in the bank

23k in student loans

all further earnings are going toward the loans. once they're gone, i'll probably start sinking money into a new (used) car.

not believing most of these wrote:

As a CPA, I frankly don't believe many of these posts.

Also a CPA. None of these self-reported claims look anything close to what I see in a representative sample of 250+ returns during a season. Plausible, but very much the outlier.

Finance Guy,

Nice help on Iowan!

14 year educator at 46...finishing MA now.I will have 30k in student loans..but I may be able to have some of it rescinded because I teach at a title one school.. I currently put about 6k year into a 403 b. I dont own (San Diego), and if I retire at 65 or so I should receive about 70% of max salary which comes out to about 50K.

Debt free except for student loans.

I was under the assumption that teachers cannot count on ss. I did work for maybe 8 years as a non educator at maybe 20k/year in my 20's.

should I increase my retirement commitment?