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A THREAD on why saving 10% of your paycheck may NOT be enough for you to retire AND maintain your current lifestyle:
Let's say you make $50,000/year after taxes.
Saving 10% equates to $5,000 a year or $416/month, which means you are spending $45,000 per year.
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Let's say you make $50,000/year after taxes.
Saving 10% equates to $5,000 a year or $416/month, which means you are spending $45,000 per year.
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To maintain this lifestyle in retirement, you would need to retire with ~$1,125,000.
Assumptions:
- traditional retirement around 65 years
- 7% return
- approx. 4% or lower withdrawal rate
- not accounting for social security because it's efficacy is questionable
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Assumptions:
- traditional retirement around 65 years
- 7% return
- approx. 4% or lower withdrawal rate
- not accounting for social security because it's efficacy is questionable
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Starting at 25 years old, you invest $416 a month ($5,000 per year) for 40 years. When you're 65, you'll have ~$1,028,000. Almost $100,000 shy of your goal.
But won't your income increase as you get older? Sure, but this math scales...
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But won't your income increase as you get older? Sure, but this math scales...
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Someone making $100,000 per year after taxes and only saving 10% would face the same problem. They would need $2,250,000 to maintain a $90,000 per year lifestyle. 10% savings would only get them $2,059,000 after 40 years of investing.
But wait, there’s more.
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But wait, there’s more.
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If anything goes wrong: lose your job, can’t meet your 10% contribution for a few months, fall into debt, a market crash, then you may completely derail your retirement plans.
Here's my advice:
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Here's my advice:
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Build a buffer.
10% is a great starting point, but aim for a 15-20% savings rate.
Avoid lifestyle creep. When you receive a raise, immediately bump your investment contribution. Live as though the extra money never existed.
Thank you for coming to my Tweet Talk.
10% is a great starting point, but aim for a 15-20% savings rate.
Avoid lifestyle creep. When you receive a raise, immediately bump your investment contribution. Live as though the extra money never existed.
Thank you for coming to my Tweet Talk.
