The Game of Life

April 18, 2006 2:12 PM

I'm in my mid 30s. I just looked at my retirement accounts (401K, SEP-IRA, stocks and CDs). These also total in the mid 30s. Am I on track?

Too low? Depends on my goals, I know. I guess I plan on working to retirement age and live to 80 (but who can predict that?) I know all about compound interest and that I'll never be able to recover from my misspent 20s (literally and figuratively, I suppose). Just seeing how other MeFiers compare - not trying to brag or stir up some bourgeois warfare with this. Just asking to ask.

FYI - I'm single with no kids, half a mortgage and some student loans.

posted by DonnieSticks to work & money (17 comments total)

On track for what? That balance might get to around $500k by the time you are 65, but by then, $500k will be like $200k today.

The question is, how much more can you save per year? Plug those numbers into a retirement calculator and see where you'll be. They say you need approx $1mil of today's money to retire, but I think that number is way too high.

For pure comparison, I'd say you are ahead of most your age, but that's not saying much considering the poor job people do of saving nowadays.
posted by eas98 at 2:20 PM on April 18, 2006

I'd say it's low, but what do I know? I'm mid-40's, with a kid and a mortgage, and my IRA is worth 36k right now. I would definitely say mine is low - I too am recovering from a misspent youth.
posted by SuperSquirrel at 2:47 PM on April 18, 2006

A million in today's dollars is not low for a household, if you consider that most financial planners estimate it's only prudent to withdraw about 4% per year from your assets, and you then consider two frightening words: health insurance.

To return to the question, I suggest for someone your age your current savings are, well, OK. In and of itself, you're not in the gravy, but you've three decades or so to work on it.

More important is that you commit to maxing your 401(k) right now. Tomorrow crank up your pre-tax and - if offered - post tax withdrawals as high as you can stand it, and then a bit more. 401 (k)s are the greatest savings device ever created. Once you get used to the initial pain, they crank away in background, accumulating wealth and compounding it tax-sheltered. Can't beat it with a stick.
posted by mojohand at 3:04 PM on April 18, 2006

How much equity do you have in your home? How much can you put away for investments?
posted by acoutu at 3:10 PM on April 18, 2006

You might consider having a finical plan done. I had one done about six years ago and I know it made a huge difference on how well I saved.
If that is something you are totally not into, the sort of net of what I was told is, max out your 401k then try to max our a traditional IRA every year. Then if you have anything left over (ha ha) go for the Roth IRA. I think this will be the first year I do more then just max our my 401k though.
A kind of trick that I use to make myself save is, I put 50% of all bonuses into my . Then every time I got a raise I just applied it to my 401k until I had maxed my percentage. Really you will never miss it if you never see it.

On the other hand my husband had similar savings at your age but, made a very good real-estate investment and he is kicking my behind as far as net savings goes so you may in fact have nothing to worry about.
posted by kantgirl at 3:38 PM on April 18, 2006

Since you're looking for comparison, I'll offer up my status. I'm just into the 2nd half of my 30's, and my 401K is close to $90K.

I contributed agressively to my 401K in the early years, but now I wonder if I have too much money in the future category, and not enough on hand if the house needs a new roof or I have to replace a car. I've cut my contributions back to the most cost effective point- I contribute the maximum 6% and my employer matches 50% of that, making my effective savings 9%. I keep the rest of my investments in more accessable holdings

For retirement, compound interest is your friend.
posted by Steve3 at 3:49 PM on April 18, 2006

Some random web browsing recently brought me to this table of average non-residential net worth. It's claimed that the median for a US household headed by someone 30-39 years of age, in 2001 was $22500. You'd need about $100k to make it into the top 25%. But the 60-69 age group has only $83k on average, which is probably less than you'd want to retire on.
posted by sfenders at 4:16 PM on April 18, 2006

DonnieSticks, you might want to check out the April 17th issue of Newsweek (which may be on the newsstand still in some places). It's the one with Katie Couric on the cover. There's an article in there about retirement, etc. It doesn't have exactly the information you're looking for, but you may find it interesting.
posted by jdroth at 4:19 PM on April 18, 2006

Correction, it's $22,250. But don't forget to subtract the student loans.
posted by sfenders at 4:21 PM on April 18, 2006

... having paid off half the mortgage is way better than average, though. At that rate you'd have the whole thing paid for well before retirement, and at then you could start saving for real. Money going to pay the mortgage is worth something like 6% a year, that's pretty good return for zero risk.
posted by sfenders at 4:38 PM on April 18, 2006

It's really low. Most peoples are low.

I max out my retirement package, every single year, and pretend that the remainder is my actual income.

As for the logic of paying extra on your mortgage instead of saving more, I suggest you bust out Excel (or a financial management software like Quicken), and see what you're really getting yourself there. I doubt you're doing yourself any favors, unless your mortgage is a bit lousy (particularly, if it's an adjustable rate).
posted by I Love Tacos at 6:16 PM on April 18, 2006

As for the logic of paying extra on your mortgage instead of saving more, I suggest you bust out Exce

I've asked three different accountants about doing accelerated mortgage payments, and they all say, "It's six of one, half-dozen of the other." In other words, it's a wash. Do whichvever feels best for you. If it gives you peace of mind to pay it off quickly, then do it. If you'd rather have more cashflow, and wait for inflation to effectiely reduce your payments, then do that. It's a wash.
posted by jdroth at 8:48 PM on April 18, 2006

jdroth: I'm not surprised to hear that. Though "wash" probably depends on the size of your mortgage as well.

If he's dealing with a $150k mortgage, being within 15% of each other is the same. If he has a $900k mortgage, it's worth the effort to be a bit accurate.
posted by I Love Tacos at 10:00 PM on April 18, 2006

I have read that a rule of thumb is $50,000 buys a $100 per week annuity at retirement age of 65 (all presumably today's figures). I have no indication whether this is true or not, but seems within an order of magnitude by my estimation.
While I assume you are going to continue to live in the USA, it might be the case that you will need a lot of money for platinum plated health care that seems the minimum (Need an X-Ray? Why not do an MRI too? Your insurance will cover it, and you can never be too careful). If you can take a more realistic view of some retirement expenses you will need less.
Many financial advisors assume you will seek to live at a level exceeding your current level of comfort, and do not recognise the reduced expenses in many areas of oldies lives. For example, they suggest if you earn $50k now, you will struggle on less than that at retirement.
Remember, you will have the time to shop around, you can delay the train trip till the saver fares kick in, you certainly won't be saving for retirement and you probably won't have a mortgage. Ask yourself how much you would need to live on now with these advantages.
I find myself in early 30s with kids and a mortgage and approximately the same in retirement savings, but figure I don't want to have a lifestyle like a pauper now so I can retire like a rich man in 30 years.
I'd rather make reasonable contributions now and have average standard of living then.
posted by bystander at 10:30 PM on April 18, 2006

Try googling 'retirement savings calculator'. I think the standard expectation is about 60% of your final salary as an annual allowance/payout. Personally I reckon that's much too high - I save 40% of my income now, and with a house paid off I think about 30% would be fine.

Mind you, it's my personal belief that the economy when we're at retirement age (I'm also mid-30s with about mid-30s saved in superannuation) will look completely differnt to the one we're standing in now, that' it's hard to say too much or plan too far ahead.
posted by wilful at 12:48 AM on April 19, 2006

I recently copied this advice from some newspaper - it's a bit of a high goal but it is something to aim for -

Savings amassed at 40, 50 and 60 should be 1.7 times income, 3 times income, and 8.8 times income.
Don't include home equity in your savings for this calculation. This assumes that at retirement
you will be spending 5% of that savings each year.

Everyone, at every age, should save at least 12 percent of their income every year.

At age 45, debts (including home) should equal your annual salary.
By retirement or by age 65, those debts should be zero.

From another source:
Dispersal of Net Income should be as follows:

35% - : All housing related expenses (heat, lights, mortgage, insurance, taxes, upkeep, repairs, remodeling, etc.)

15% - All transportation related expenses (loan payment, insurance, taxes, gas, tolls, repairs, upkeep, etc.)

25% - : All other - clothing, food, vacations, entertainment, education, Phone, Newspaper, Internet, etc.)

10% - : Savings

15% - : Debt payment (not: mortgage, auto loan or student loans)
posted by LadyBonita at 4:11 AM on April 19, 2006

A 401k, especially if there's any kind of employer match is definitely the way to go.

I'm 25 right now. I contributed at near maximum into a 403b (the non-profit equivalent of a 401k with 2:1 up to 10% match) at my last job for 4 years. I ran the numbers, against pulling out at retirement, and it actually looks like I don't have anything to worry about even after inflation adjustment and assuming a relative conservative rate of return (the power of compound interest).

I was originally considering not contributing anymore to my 401k, but I just ran the numbers, and with an employer match (1:4 w/ vesting period) and an assumed lower tax bracket on withdrawal, as well as no capital gains tax during investment (I'm mostly in funds), it looks like there will be over a 30% benefit even after figuring the 10% early withdrawal penalty.

I don't think that there's any better investment vehicle unless you're obscenely rich or dealing with real estate (I'm specifically thinking about the capital gains exemptions on 'primary residences' and 1031 exchanges; also private annuity trusts when you're cashing out [the 401k has a similar SEPP]).
posted by lhl at 4:35 PM on June 3, 2006