My Retirement Portfolio As I Approach 30

Very soon, I will be celebrating my 30th birthday, and I thought it would be interesting to take a look at my retirement portfolio as it currently sits. I’ve rounded each amount to the nearest $100 to make the math easier as I evaluate where I’m at and what my future plans may be.

My Current Retirement Portfolio
My retirement portfolio consists of two different 401(k)/403(b) accounts and a Roth IRA. The investments are currently as follows:
I hold $27,500 in an international equity index fund in a tax-deferred account
I hold $22,800 in a small cap stock index in a tax-deferred account
I hold $1,200 in the Vanguard STAR fund in my Roth IRA, which I just founded this year

This gives me a total of $51,500 in my retirement savings. In the near future, I will be setting up a SEP IRA through Vanguard to hold additional retirement savings.

In addition, my wife has a pension from the state, as well as a 403(b) plan which holds $22,000 as of her last statement, but I’m focusing on balancing and maximizing my own portfolio for now.

How Am I Doing?
In order to compare my savings to a realistic picture of my living expenses, I’ll use my income from my previous full time job in 2007, where I earned about $47,000 (I don’t have enough data yet to make a fair estimation of what my annual income will be as a self-employed worker). This means I have about 1.1 times my annual income in retirement investments – right about where I want to be at age thirty. I use Money Magazine’s retirement benchmarks for this conclusion:

Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have…
1.6 times your salary in savings at age 35
3.5 times your salary in savings at age 40
5.8 times your salary in savings at age 45
8.5 times your salary in savings at age 50
11.9 times your salary in savings at age 55
16.0 times your salary in savings at age 60

Using those benchmarks, I would say I’m in fine shape, considering that even without any additional input, my portfolio would likely grow enough to meet the target for age thirty five (and I plan on contributing more, so it should be a cake walk).

Where Will My Portfolio Go in the Future?
Right now, I’m young. I’m not quite thirty yet, and my retirement portfolio is very aggressive. Let’s look at it in terms of percentages.

53.4% international stocks
44.3% small cap stocks
2.3% large cap stocks

In other words, my portfolio right now is 100% in stocks, and some of the options are fairly risky. Within two years, I’d like to smooth things out and have the following allocations:

40% international stocks
30% small cap stocks
20% large cap stocks
10% emerging market stocks

Again, very risky, but I’m looking at a retirement age that’s still almost thirty years down the road. I plan on keeping that portfolio until I’m forty, then slowly easing back by reducing the risky stocks and moving them into more stable stock investments, like a total stock market index fund. As I approach fifty, I’ll start moving things towards bonds gradually, too.

How will I do that? The key is to fully fund my Roth IRA each year and also open an SEP IRA, then use all of the accounts together to achieve my desired proportions, rebalancing each year to keep things in alignment. Steady, small contributions here on out will win the race – right now, for example, I’m contributing $100 a week to the Roth IRA and putting aside $100 a week with the intent of putting it into the SEP IRA once I’ve decided how I want to execute that plan (likely through Vanguard as well, but I’m still reading the rules and contrasting it with a SIMPLE IRA).

Can You Do the Same?
So now the question comes to you. Can you do the same type of analysis over all of your retirement accounts? Are you hitting your targets, and are you in line for future milestones? If you’re behind, now’s the time to kick your contributions up a notch. If you’re looking good, feel happy about it – but remain vigilant. If you have no idea where you’re at, it’s well worth your time to sit down and figure it out – it took me about twenty minutes to put the above numbers together, but I had a pretty good grasp on where I was at before I started.

Good luck with planning your future!

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  1. kellykelly says:

    I think that’s great, and I also think it’s wonderful that you share so much of your private information. It is indeed what makes this such a compelling blog.

    I just marvel at the numbers, though. When I graduate college I had $10,000 in student loan debt. My first job paid $22,000.

    Ten years later, when I was about 30 years old, I was making $35,000. My student debt was paid off and I was saving for a house. I paid cash for all my cars (used cars) and had a very low rent and very low=key lifestyle.

    How on earth do some people accumulate so much money so young? It is a marvel to me.

    Of course, I am single, so there is that to consider … I lose some economies of scale.

    Good job, Trent. I like to see people doing well, even though I sometimes compare myself and feel like a loser. Usually it inspires more hope than envy.

  2. Dennis says:

    Hey Trent,
    I’ve been a long time reader living not too far away from you in Illinois. I’m also turning 30 this year (in Sept). My wife and I have about 1.1 times income saved for retirement as well. We have very similar portfolios too. I’m already in the Total Stock Mkt fund and a little in Emerging Markets Index already. Your writing is awesome. I check your page at least a couple times a day. Keep it up!

  3. kellykelly says:

    What I neglected to write in my post is at 30 I had NOTHING saved for retirement. I don’t know how people do it.

    And I live in a low-cost area, by the way, so cost of living is cheap. But still!

  4. Frugal Dad says:

    You are on track, Trent – great job. I’m not in as good a shape (and I am already 30). I frittered away much of my earnings during my twenties, and racked up significant debts in the process. As I am finally working through those debts I don’t have much to divert towards retirement, but I am adding a little here and there. As the debts come down, my contributions will go up.

    Interested to hear more about the SEP IRA – that’s always intrigued me, and I’m curious if I’m eligible to contribute some of my PT freelance earnings there, even though I have a 403(b) at my FT job.

  5. Joe says:

    Kellykelly – the way to save a lot of money at a young age is primarily through good luck. I have ended up accumulating a fair amount of money by age 25 (with no debt) because I was fortunate enough to have parents who paid for my education (undergrad and graduate), I got a stable, high-paying job and I am very careful about my money.

    Those who are not as lucky as me obviously have more obstacles to overcome, but as long as you are saving as much as you reasonably can, and are smart with your investments, you will get there.

  6. Carrie says:

    I have a nit pick on the Money Magazine benchmark. I find that evaluating your savings based on your salary can be misleading if your salary is increasing quickly (a nice problem to have). You may not be able to hit those multiples and yet still be well on track for retirement.

  7. steve says:

    Does Money have any sort of calculations to apply when one is lucky enough to have a defined-benefit pension coming their way? I’d like to run the same sort of numbers, and am fortunate to have an employer that has both types of plans going.

  8. Courtney says:

    Hi Trent. I’m 25 and have about 1.2x my (pre-tax) salary in a 401k and Roth IRA. Beyond that, I have plans to accelerate my saving as a percentage of my salary, so I think I’m doing fairly well. I agree with the person who said a percentage of your current income isn’t the best way to measure retirement – income can change so much over the course of your lifetime, and as many of us know, beyond poverty levels income SHOULD have little bearing on how much you will need to spend in the future.

    Hubby, however, was in college until he was 19, joined the military, got sent off until he was 25, and went back to school at 25. Now he’s 27 with 2 years of intense schooling left and no retirement savings or income beyond a small Army stipend each month. I’ve put aside a few thousand dollars into a Roth IRA for him, but it’s hard to know that he will have no income for the next couple of years. If anyone has advice for us I’d appreciate it.

    It seems like all of a sudden 30 sneaks up on you and suddenly you have no retirement savings, and everyone is spouting advice about how you should start saving for retirement at what is now 10 years ago!!

  9. Johanna says:

    @Courtney:

    It sounds to me like you’re doing fine. If the two of you are getting by right now on your salary alone, then once your husband finishes school and starts bringing in more income, he should be able to save very aggressively. If he saves 25-30% of his income from ages 29-35, he can reach the target for age 35.

  10. JP says:

    Also one other point is that taxes are already paid on the Roth, while you will have to pay on the 401k. Not sure how to put that into these metrics but money in the Roth should be accounted for differently when comparing to % of current income saved.

  11. James says:

    Does 16 times income at retirement seem a bit low to anyone else? It would take 20 times income just to earn your income in interest in safe investments returning 5%. Then, if you’ve made it to 60 and retire, you could be looking at 30+ years of living off that money. (maybe social security is being considered?…)

  12. danielle says:

    we’re 32 and 33 and have about 55k set aside for retirement. our income was 90k, just went up to over 100k but take home in addition $$ is small because of daycare.
    We are currently at 17% of income saving for retirement, so hopefully we will catch up to those benchmarks soon. DH will also have a very small pension. I don’t see us being able to retire at 60, not w/ 3 kids and our current savings.
    It is what it is! I was out of the F/T workforce for several yrs- kids- and I only have 9k saved for retirement- luckily we’ve always tried to put as much as possible into dh’s 401k.
    wehave:
    DH 401k- 40000
    my roth-6000
    dh roth- 5500
    my old 401k- 1500
    my other old 401k- 2200

    I always feel ‘behind’ when discussing retirement $$, but we are OK on other benchmarks.

  13. Andy says:

    Do you think your portfolio and future portfolio is chasing the market at all? International and emerging markets have been hot recently, but (as you know) there is no guarantee for that in the future. Your future planned portfolio (40, 30, 20, 10) seems more reasonable, but still pretty heavy on small cap. I don’t know, you’ve read way more books than me on this, so you’re probably right.

  14. Trent says:

    Andy: it’s a fairly risky approach. I’m okay with that for now because my contribution levels have been pretty high up to this point (and continue to be high), so even if I incur some losses, I can afford them right now.

  15. MP says:

    I’m 32 and my wife is 28. She had no retirement fund when we married last year so that was an interesting conversation…haha
    We have 140k in retirement funds allocated fairly aggressively as well with only 4% in bonds. I’m ok with that but I plan on shifting some in a few years.

  16. Michelle says:

    Is there a percentage of your income that you should be saving for retirement? We save 10% of our salary, and we always wonder if that’s enough. What do you recommend?

  17. This is interesting to think about. According to the benchmark, I’m a little behind. I’m 30 and have 0.8 times my current annual salary. I’m also invested in similarly aggressive funds.

    One question, though…

    Does any of this matter if you are willing to take a traditional retirement off the table? I know this site is focused on conventional finance, but it seems quite possible that the traditional retirement will disappear in our lifetimes. If that is the case, what happens to these benchmarks?

  18. CF says:

    A couple comments:

    @James: I’m guessing they’re figuring on the 80% of pre-retirement income being needed in retirement when figuring the 16x number (.8 x 20). I’m not sure I agree with the 80% rule, but that may explain the lower number. Also, I’d say you need 25x your salary to be safe, as many calculators suggest drawing 4% max in the first year of retirement and indexing for inflation going forward.

    On the other hand, many of these calculators and charts mention percentage or multiples of salary or income, but the numbers should be run off salary or income that you actually use. If you make 100K, but save 15K, you’re really living off 85K, and that’s the number you should be using.

  19. Ken says:

    52027 in just retirement accounts.

    Target income for the year is 71500. But should be at about 110% of that by the end of the year.

    Based on above numbers I am 0.70 and at age 24 that definitely puts me on track.

    With 3 years of full time work i have saved about as much as i can. I would of needed to save 20k before I finished college to be at 1.0.

  20. kirsten says:

    Thanks for this awesome post! My husband and I (fellow Iowans!) read your blog regularly and love all of the great information.

    Just to clarify . . . the benchmarks are based on salary at that particular age, correct? (i.e. 1.6 times whatever I’m making at 35, 8.5 times whatever I’m making at 50, etc.).

    Are these calculations based on a retirement income that would be enough to simply maintain one’s current standard of living? Have you seen any useful planning tools that would help estimate retirement savings necessary for a more active lifestyle (e.g., including lots of traveling) for retirement?

    Thanks again!

  21. Keith says:

    What I neglected to write in my post is at 30 I had NOTHING saved for retirement. I don’t know how people do it.
    And I live in a low-cost area, by the way, so cost of living is cheap. But still!
    kellykelly @ 8:19 am May 29th, 2008 (comment #3)

    The way I did it was to increase my 401k contributions incrementally by the percentage of raise I got each year. If I got a 4% raise, I raised my contributions by 4%. I now max out my 401k and it doesn’t feel like I have suffered at all.

    At 30, I was in great shape. Unfortunately, I got stupid and used that money to finance a business. Now I am playing catch-up and will be back on track within 5 years to have 20 to 25 times my income by the time I retire.

  22. JM says:

    FYI: From an efficient portfolio perspective, having more than 80% in stocks (the remainder in bonds) is generally not worth the additional risk.

    You could always go 90/10 (which is what I do) but going 100% stocks generally will mean that the incremental risk you take on is not really translated to the return. Simply put (Risk/Return): 90/10 = High/High, 100/0 = Very High/High. If I were you, I’d put 10% bonds into your mix.

    Now, I don’t claim to be an investment guru but where did you come up with your asset allocation? Everything I’ve read on investments recommends the polar opposite of your allocations. If I just threw some numbers out there I’d say 40% Large, 20% Int’l, 20% Small, 10% Emerg, 10% HYB.

  23. Steve says:

    How does one translate these numbers to early retirement?

  24. Hi Trent,

    I’ve been reading your site for a couple of weeks now and enjoy your writing and thoughts on personal finance.

    One suggestion I have for you if you are still holding funds in old 401ks and 403Bs is to look at rolling those over (no cost) into a Traditional IRA. I am not sure most people realize just how many fees come into play inside 401K plans. If you are no longer employed by the plan sponsors and no longer receiving matching funds then moving out of the 401K is almost always more beneficial than hanging around. You get the added benefit of more flexibility with your investments AND you can buy low cost index ETFs as opposed to the higher (usually) cost mutual funds that are available inside the 401K. You would be able to build a well diversified portfolio (better than the current portfolio you list) at a lower cost.

    In addition, if you are so inclined, in 2010 you will be able to roll any Traditional IRA funds into a Roth IRA and have 2 years to pay the taxes (there are tax implications for this). It’s a one time bonus the IRS is going to offer. Of course, you could roll over to a Roth from a Traditional NOW but you wouldn’t have the tax “lag” payments that will be available at that time. The decision about whether to do this or not involves many variables but it could be beneficial for you to consider.

    Just some ideas for you. Keep up the great work with the site.

    Jeff

  25. NYCPete says:

    Hi Trent,

    Long time reader, first time commenter. Congrats on such a great foundation for your retirement savings. Just a small nitpick: You are not technically 100% stocks, as the Vanguard STAR is actually a balanced fund with 60% stocks and 40% bonds. Won’t make a huge difference for your overall portfolio, especially if you plan to switch it once it hits $3000, but I thought I’d just mention.
    Thanks for a great site!
    Best,
    Peter

  26. Kevin says:

    You may want to consider adding a small amount (5%-10%) of bonds immediately. Surprisingly this _increases_ the expected return over a 100% stock portfolio (see “Asset Allocation” or “The Intelligent Asset Allocator”). Intuitively, when the equity markets tank you will have the ability to buy more equities at their low point; this happens automatically as part of rebalancing. A 100% stock portfolio misses these opportunities.

    That being said, you have developed a plan you are excited about and are following through on. That seems to be a lot more important than these kinds of details.

  27. Dave says:

    Trent,

    You need to get nearly an 8% return in the next 5 years to have 1.6 times your last salary at age 35 without any input (7.9% assuming May 29 20008 – May 2008 2013 time-frame).

    Not nearly as easy to pull off as you try to make it sound, though as you said, you should be able to make it no problem WITH additional investment.

  28. Dave says:

    Also,

    You seemed to love Four Pillars of Investing, but you might as well have set that book on fire before choosing your asset allocations.

    What are you doing, Trent?

    - Dave

  29. Rick says:

    JM:

    I believe if Trent considers his entire portfolio, and not just his retirement portfolio, then the numbers would be different, and he would have much less than 80% in stocks. Remember, he has a very sizeable emergency fund in cash (last I recall, about a year’s salary).

    I personally am doing the same thing. I have 100% of my retirement portfolio stock mutual funds, but I have sizeable cash savings elsewhere that balanace out this over-weighting in stocks.

  30. steven says:

    Unless I am missing something, your asset allocation is much riskier than even the most aggressive asset allocation portfolios that I’ve seen. I have my retirement money invested in an aggressive manner (I’m 28), and this is what it is:

    large cap: 50%
    mid cap: 15%
    small cap: 10%
    international: 15%
    fixed income: 10%

    Here is what Motley Fool (paid service) recommends for their most aggressive portfolio:

    large cap: 50%
    mid cap: 15%
    small cap: 10%
    international: 15%
    fixed income: 10%

  31. Lurker Carl says:

    Using “one size fits all” scales for retirement savings can be very misleading. For instance, if you manage to save 35% of your gross income for most of your working career, do you really need as much saved as the scale suggests? After all, you’re living on 65% of the gross which actually means you’re living on far less after payroll deductions.

  32. Meg says:

    This was a good post for me. It really made me think about my retirement positions.

    I currently have roughly $10,000 vested in my 401k as my only specific retirement savings. I also have about $10,000 in an online savings account for my emergency fund/save for downpayment. Now I’m thinking I ought to start a Roth IRA with a chunk of that (ok I’ve been thinking it for a while but just haven’t gotten around to it).

    My base salary is about $47,000 and I’m 27 years old. That should get me closer to a schedule similar to Trent’s (which is as good a place to start as any).

  33. Lo. Price says:

    Great post and even better comments. James, I agree that 16x at 60 years old may be too conservative. Most of the knowledge I’ve heard says don’t withdraw more than 4% per year, which means replacing 64% of your income at 16x. Also, counting on SS to kick in at 62 is unrealistic. Even today, if you are planning on a long retirement (and this scenario does, at 35 years I believe), it makes better financial sense to start withdrawing at 65 or later. Who knows if SS will even be around when we are that age and if it is, it surely won’t be available to us at age 62. I also agree that the asset allocation sounds a little random. You are heavily weighted in “international stocks,” but don’t say what kind of international stocks these are. It’s a big world out there: do you mean stocks from Western Europe and other emerged markets like Japan or emerging markets of Eastern Europe, India, China or South America? I think a heavy weighting on domestic small-cap stocks is probably smart for someone with a long time horizon, but don’t forget about mid-cap domestic. I have mixed feelings about keeping a small bond position. Probably wouldn’t hurt, but in general, I’ve always heard to try to stay as stock-heavy as possible.

  34. Ben says:

    Wow, you’re almost 30, you’re old! Just kidding, I hit my 30th birthday in 2007 and it did make me feel a little old though. I remember being 20 and 30 seemed like ancient.

    Anyhow, we’re on track for our retirement savings, with about 3.5 times my salary in retirement savings. We really invested a lot the first 7 years we were married, now we have a kid and my wife quit her job so we’re only saving a small percentage of our income for retirement.

    Hopefully our big savings push early in life will give us the head start we need but the stock market dips keep eating away at our retirement accounts. Oh well, I guess we’re buying cheap :)

  35. mjukr says:

    Trent, any reason you didn’t buy into Vanguard’s Target Retirement funds? I know you considered doing so in the past.

    These are a great option for anyone who doesn’t want to mess with manual rebalancing. The expense ratios aren’t much higher than other Vanguard funds, and definitely ridiculously lower than funds at other companies.

    Vanguard’s 2040 Fund currently holds an aggressive 90/10 mix.

  36. getagrip says:

    Trent,

    Does this include your wife’s retirement and income levels? Most folks should do such an analysis both for themselves and for the income as a family. You could find that you are really counting on the spouse to save the lion’s share, and that may not be the best plan for your future.

  37. Michelle says:

    I’m also interested in your wife’s retirement savings, if you are willing to share that information. My husband and I are ~25, and he has about 1.4X his current annual income saved, but I only have about .2X my current annual income saved. I hope to really improve my number over the next 5 years; I just opened my IRA about a year ago.

  38. Q says:

    Too much debt pulled me down. Hitting the Big 30 with about 70k in 401k with current contributions/match.

    SEP-IRA can be funded along with 401k and Roth IRA. Up to 12.5k a year, which is great.

    Diversify! Someone knocked me in a prior thread with real estate, but, I still say own something. IRA/401k/CDs/stocks/ETFs/real estate/etc.

    Also, why does everyone focus on retiring later. Live semi-poor now and save. Somewhere Trent posted the 50% rule, and that truly is something to take to heart.

  39. I like your allocation and that you use Vanguard. It’s virtually the same setup I have except I own a few individual stocks in my Roth too. And I’m thinking of buying into the REIT index.

  40. B says:

    Trent, though you don’t have enough information to know how much you will need as a self-employed worker, you did make quite a bit more in 2007 than you suggest. What was your real income (job + website)? Wouldn’t that provide a more accurate estimate?

    Though, as a side note, I’m not convinced that the make more money save more money requirement makes sense if you’re living well below your means.

  41. kellykelly says:

    KEITH — (#21) …

    why do you say that starting a business was “stupid?”

    It’s what I did and why I’m now “behind.” But over the long term, the chance for success on nearly every measure is much higher if I’m self-employed.

  42. Phil A says:

    JM:

    My portfolio is constructed similar to yours except I have a mid-cap fund as well. I agree that having a small percentage allocated to bonds is wise even at a young age. It gives the portfolio greater diversification.

  43. Trent,

    You said, “I hold $27,500 in an international equity index fund in a tax-deferred account.”

    This doesn’t really tell me anything. International only means, “Somewhere other than the US.” With over 50% of your portfolio resting here, I’d take a close look at which countries you’re investing in, which industries, and which companies.

    I personally like iShares Brazil (EWZ, NYSE). This stock provides a good way to invest
    in a large basket of Brazilian commodities
    and companies. Share price has gone up over 5-fold over the past 3 ½ years.

    If you like indexes, I’d say you need to put some money in a commodity index, especially focusing on Agriculture. I’ve been telling my readers this for the past 3 years and it’s starting to pay off very big for them.

    Also, with the instability that we’re witnessing in many paper currencies (see the Economist article at http://www.economist.com/opinion/displaystory.cfm?story_id=11409414), wise institutions and banks are hedging with a sizable portion of gold or silver — for an individual I’d say that at least 10% of your portfolio should be in hard assets like these.

    You can put these hard assets right into an IRA or Roth IRA at http://www.everbank.com

    That’s my two cents!
    PF Wilson, Managing Editor, http://TheInvestorReport.com

  44. Jamie says:

    One problem with those numbers for when you’re as young as you are is that you underforecast your salary. I was easily ahead of the Money magazine benchmark at 30, but my salary has almost doubled since (I’m 34) and now I’m behind. It’s not a huge problem because I still live on much less than I earn, but I guess I would argue that the benchmarks need to be taken with a grain of salt for the younger of us.

  45. It is so hard for most of us to save for that day … way off … in the distant future. But the truth of the matter is we better lace up or boots and start saving every penny we can. While some of my friends are spending every dime (and the next one too) without saving a single penny, my wife and I are putting back as much as we can comfotably afford. While we are not at the 3.5 times my annual salary (woop, gave away my age) we do feel good about our nest-egg. Thanks for sharing.

  46. katy says:

    See http://www.coffeehouseinvestor.com for a portfolio of vanguard funds and a lowmaintenance strategy.

  47. Roger says:

    Hum, interesting post. Although, with only 0.2 times my salary saved ($3200 in my Roth, $1000 in my 401(k), and $4000 in savings accounts with $40,000 yearly earnings), I do feel a bit behind the curve. Luckily, I’m still only 25, and having recently been ‘awoken’ to the need for financial planning, I’m planning to put nearly 25% of my earnings into saving/investing from this point on. That should be more than enough to match Money’s retirement benchmarks. (Which is probably a good thing, because as mentioned already, the Money estimates are extremely conservative and incorporate Social Security benefits, which anyone under the age of forty should probably just assume won’t still be around when we retire.)

    As for your planned asset allocation, it does seem significantly riskier than most that I’ve encountered, but as you’ve said, you do have a long period of time (decades, not years) to invest, more than enough time to ride out the small fluctuations and benefit from long term growth. If you’re comfortable with taking on the added risk (and, since you are talking about index funds, it’s not as if you’ll lose the entire investment because a few companies pull up their stakes anyway), then why not?

  48. Aaron says:

    I agree with one of the previous posters, I turned 27 over the summer and I just don’t see how it is possible for me to have anywhere near 1x my salary becuase of how quickly it has and continues to go up. I’ve had 3 jobs out of college, the first at 29k, the second at 42k (44% Gain) and my most recent job where I’ve been for the last year at 80k (90% gain)… for me to have saved 80k by age 26 would have been impossible on the salaries I was working with. That said, I’ve saved about 10k this year and I think i’m on track for 60k by age 30. I don’t forsee me hitting the 1x multiple based on my income growth until I’m 35 or so… :-(

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