We figured out our goals early and became debt free as soon as possible then packed away the nest egg 5 years before retirement we purchased our retirement home on a beautiful Canadian river for cash then spent the next 5 years kitting it out no expense spared on comfort we still managed to put away what we would have wasted paying off a mortgage… now both retired we have moved our plans into guaranteed investments they grow steady and top up our indexed company pensions we pull about $30,000 CAD a year and live like kings not counting the interest off our plans.We have not yet started drawing government pensions about 3 more years for that at age 60. Plus part 2 of the plan when we decide we no longer want to maintain the property because we are too old the house gets sold and its off to the 55 plus block and the money goes into the kitty as well. Or you can pull the money out of the house with the reverse mortgage scheme not my choice but the options are out there so dont forget to count your assets as well bricks and mortar only go up in value often much more than any plan. As far as heath expenses for you people in the USA I hope social medicine comes soon its not right that you work hard to make your future and it can be stripped away from you because an unfortunate medical situation arises…oh and it will all old people have health issues eventually.
Oh and for the record next time your in the grave yard take a walk around and have a paper with two columns and tick off how many graves are older than your calculated age and how many are younger
I have a nabor who is 87 and in poor health he told me a while ago he has been waiting to die for the last 5 years thats he’s ready to go, so quality of life has something to do with it as well. To sum it up in one sentence It’s not about the money its about the choices. I feel they try to scare the hell out of you about retirement relax and make it happen.

As far as touching the principal, I think that it should be one’s goal to live only off the interest, but in the case of a $2.5M nest egg, I would say it’s ok to dip into that a little.

Something that some people forget is to account for inflation in the amount of income you need.

With respect to the planning aspects, when I started I was told to put away roughly 10% of income and I’d be golden. Now it seems 15% is the standard recommendation. Point is, you need to start with something. I’ve modified as I’ve put some years behind me, increased my amounts as the salary has grown (e.g. take one or two percent of a four or five percent raise or even a 3% cost of living increase and put it straight to your 401K, you don’t notice the money gone, since you’ve never been living off it). Also as you get closer you can hopefully beef up the amounts (e.g. catch up contributions to retirement accounts for people over 50 are likely to still be available).

Of course, that would be good news if you could live as well on 60% of your income and see no decrease in your standard of living. But I think to be conservative you should shoot higher. Hence, I’m more comfortable planning for a 75-85% of salary as a goal.

Finally, Trent’s necessary amount of 2.5 million to generate 100K in income yearly essentially is an estimate not to touch the principle (though he didn’t arrive at that conclusion directly). It isn’t necessary unless you want a big cushion in case you live longer or you insist on leaving it to people who should be capable of funding their own retirements (i.e. your heirs). If you’re willing to touch on the principal, you can probably get away with a signficantly smaller amount.

I’m not in the truly dire straits that Minimum Wage is in, but I’m not that much better off and it’s scary. I’d rather not be 90 years old, living in a trailer park, eating mac & cheese 6 days a week.

This is why I believe I have to come up with some creative ways to change the parameters of the situation, ways I’ve been working on since the first time I ran one of these retirement scenarios. (They’re all a little different, but usually end up with similar results.)

As an example, let’s say you earn $100,000 per year. However, thanks to diligent savings for retirement and general living below your means, you only spend $50,000 per year.

Using the method in this post, you’ll be trying to replace $75,000 per year, which is half again what you actually need.
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What if your income is minimum wage and you have debt and can’t save one dollar? Does it really matter how much you “need” for retirement if you have no way of getting there?

And if you spend “only” $15K but that’s all the income you have, wouldn’t you say that INCOME is relevant?

Because of the obscene cost of housing in major cities plus the low rates of pay in right-to-work states (even for young people with college degrees), folks nearing retirement are finding themselves having to help out young adult children. My son, whose job pays more than the median wage in our metropolitan area & who has an excellent driving record, says he would not be able to drive his old junker of a car if his dad weren’t paying the insurance. If I weren’t co-investing in a house with him, he would still be living in a truly nasty firetrap.

You may find yourself wanting (if not having) to help out a little as your children get on their feet in early adulthood.

The only reason I am asking is because according to the U.S. Social Security website, for you and I to recieve government benefits, we will be 67 years old. (That’s for full benefits, you can get partial benefits but that would mean about 25% less of what you would get with full benefits).

I too like you may never retire, while I intend to stop working for someone else, to stay forever young is to keep learning and to keep being active, and having grown up in a business mindset, that could mean partly running a pizza joint at the beach.

I make it a point to retire without drawing social security but not everyone realizes when they draw social security because of the amendment. If you were born after 1960, you have to wait till you are 67 to recieve FULL benes.

It is very well possible that there may be another amendment coming soon, who knows? Maybe those who were born after 2000 may have to wait till they are 69 to recieve full benefits, and 65 for partial benefits.

While it is one thing to prepare for retirement, it is another to really know what your government can do for your retirement.

Unless I leave this employer or they change the pension plan for the worse (again) and don’t grandfather me (again) or the plan goes bust (though it looks great now), etc. It’s too much all my eggs in one basket.

So a while ago, I calculated the maximimum I thought I could remove from my paycheck without really noticing (about $60) and calculated how much I could put into my 403b (like a 401k) that would lead to my paycheck being reduced by that amount (about $75) and I put that into stocks. I was afraid of stocks, so that’s why I put in an amount that I could lose. Since then I have realized that even when the market drops by 50%, it probably has just doubled a couple of times, so it’s not quite as scary as people make it sound. With a broad index fund, you really aren’t likely to lose everything.

Next I switched to a Roth IRA because I decided that my tax rate is going nowhere but up. I’m getting close to the top of the 15% bracket, so I’m unlikely to move into a lower tax bracket. And taxes are currently at historic lows, so they’re also going nowhere but up.

The last time my pension plan got worse, I decided to calculate the minimum I would need to retire at the same age with no pension at all.

If I retire at 52, it’s quite likely I could live a very long time after that, so I decided to calculate how much I would need to make withdrawals indefinitely. I’ve seen two philosophies on this. 1) Withdraw 7% the first year and increase that amount for inflation each year–this would work if the market went up the same amount each year, but since it doesn’t, that’s risky. 2) Withdraw 4% the first year and increase that amount for inflation. This always works. But yikes, I’ll never save enough.

So my plan is to withdraw 7% every year, regardless of what the inflation rate is or what the market is doing. Some years that will be a lot, some years not so much. When I get more money than I need, I will buy bonds with it; when I get less, I will sell the bonds to get extra. (I will start off with 10-20% bonds depending on whether I feel the market is high or low.)

For my expenses, I calculated the same as I have now minus my mortgage payment and retirement contributions. Many people think they will have fewer expenses when they retire because they won’t have any work-related expenses. However, I already don’t have any work-related expenses. For example, I take a free bus to work and my clothes cost the same as the clothes I would wear normally since I buy at thrift stores.

Lately I’ve been realizing my expenses will actually probably be higher because I’ll have time for more hobbies, inflation will probably be bad when all the boomers retire and they have to raise wages to get anyone to take jobs, and I’ll spend more on health care. Still, I can barely afford to reach the baseline I calculated (I’m 45 already), so I’m telling myself I can take part-time or temp jobs to supplement my income if I want (at age 52 I’ll probably still have my health). Plus, whatever happens I’ll probably get something from my pension eventually and I’ll probably even get something from Social Security eventually, even if not as much as currently being promised, so those additions will make it easier to deal with inflation.

So now I have three baskets, one of which (my pension) could pay everything, one of which (my IRA/403b) could barely pay for everything, and one of which (Social Security) could probably keep me from living on the street if I didn’t mind having roommates, eating a lot of peanut butter and jelly, and spending my days in an air-conditioned library. I really only need one of those baskets to pan out for me.

An important fourth basket is health. I have good insurance now and am getting the annual checkups, the 6-month dental cleanings, etc. I watch my weight and blood pressure and take action when necessary. I’m trying to find more hobbies that burn calories.

An important fifth basket is happiness. You need friends and hobbies, maybe family, maybe religion, that kind of thing. These things can help take up the slack when your finances are a bit whacko.

And as I mentioned, my house will be paid off. That can be sold or be used for a reverse mortgage if necessary. Meanwhile it means that instead of paying rent, I pay taxes, insurance and repairs.

The reason you want to calculate all these numbers when you’re so young that you know they’re very unguessable is that you start thinking about what kind of lifestyle you will want later and you get an idea of what’s a good amount to set aside. You’re then likely to save more than people who don’t think about these issues, and so your life will be better than it would have been otherwise, even though things won’t go exactly as you have planned.

I beg to differ with you in that you WILL need some investment knowledge to get to a plan you are comfortable with. First of all I think it is not as easy as calling you retirement plan manager and tell them “that you did the math on your own and you need to have a specific return in order to retire, then pick a plan and forget about it.” First you are overlooking the individual’s propensity to avoid risk. One can’t just pick an investment based on the level of return, you need to keep in mind RISK. How much risk are you comfortable with. You also have to remember that as you get closer to retirement you will need to shift your portfolio to safer investments in order to maintain your principal safe.

Also, you can’t just sit and forget about it. We all know investment returns are not guaranteed because past performance is not a guarantee of future performance. So, you will need to check on your plan to make sure it’s doing as you expected.

Other variables that have been overlooked to determine how much you should be saving are employer-matching and your ability to save outside of your employer sponsored plan. Also, if you really want to complicate it a bit you could bring in tax considerations into your calculations: should I consider investing through a Roth IRA to reduce my future tax bill?

I think ultimately the best we can do is a rough estimation and hope for the best? I hope not. I have spent a lot of hours putting together my own retirement model to see it’s been for nothing at the end.