Saving for retirement is so frustrating. I hate having so many unknowns. There are way too many unanswered questions.
Will Social Security be around?
If Social Security is around, how much can we expect?
What will the value of the dollar be when we retire?
What will the rate of return be on our investments?
Will we live "too long" and outlast our money?
Will my husband still get a pension and how much will it be?
Are we saving enough?
What will the tax rates be when we retire?
Should we take the tax savings now or later?
It's so frustrating and it is very tempting to ignore saving for retirement. I had been kind of ignoring it ever since I fully
funded my IRA last year. I feel like there are so many things I need to save for now in the short term, I just don't want to put so much money away that I can't touch for another 30 to 35 years. Who knows if I'll even be alive by then. I see so many people in the obituary section of the newspaper who die in their 50's and 60's and you got to wonder how much they put away towards their retirement and now they never get to use it. In order to save for a future they were not even around for they might have sacrificed going out to dinner with friends, seeing their favorite rock band in concert, a vacation or getting the car they really wanted. It's kind of sad to think of people dying with all this money saved because they sacrificed some enjoyment in their lives to put money in their retirement accounts.
How long we'll live is just one of the biggest unanswered questions. It's tough to just plug your info into a calculator online such as the one from
Kiplinger to see if you're on track to make it in retirement when changing just one variable slightly can significantly affect the results.
One big variable in question is the rumor that social security will not be around for people our age. People that are currently retired can get by on a lot less of their own money because it is being supplemented by Social Security. I've seen articles saying it won't be around in 30 years, or it'll be only 77% of what it is today.
Another issue is my husband says he gets a pension, but I have never seen any paperwork on this. I asked him once and I think he said it was $30,000 a year. I'm not sure if that is today's dollars or future dollars. And that brings me to another question - how bad will inflation be? Will it be like the 1970's or will in be a steady increase of about 3% a year?
So I plugged in some numbers into
the calculator and did a few different scenarios.
Assumptions:
- 80% of gross income of $97,000
- Years until retirement: 30
- Monthly SS $1,908 and $1,001 (today's dollars) (I used this calculator to get these numbers)
- Monthly pension $2,500 (not sure if this is today's dollars or not)
- Current retirement accounts: Husband: $69,013 Me: $28,899
- Assume 6% return
- Assume stay in same house, but mortgage paid off
- Live 30 years past retirement
- Investments have 35% stock at retirement
Results:
Scenario 1:
(Best case scenario)
Annual Retirement Income In Future Dollars: $188,568.00
Annual Social Security and Pension Benefits: $133,426.00
Nest-Egg Goal: $1,588,090.00
Projected Future Value of Current Savings: $562,015.00
How Much You Should Be Saving Each Month: $739.00
Scenario 2:
Same inputs but 77% SS
Annual Retirement Income In Future Dollars: $188,568.00
Annual Social Security and Pension Benefits: $113,889.00
Nest-Egg Goal: $2,150,755.00
Projected Future Value of Current Savings: $562,015.00
How Much You Should Be Saving Each Month: $1,144.00
Scenario 3:
Same inputs but no pension
Annual Retirement Income In Future Dollars: $188,568.00
Annual Social Security and Pension Benefits: $84,826.00
Nest-Egg Goal: $2,987,770.00
Projected Future Value of Current Savings: $562,015.00
How Much You Should Be Saving Each Month: $1,747.00
Scenario 4:
Same inputs but no SS
Annual Retirement Income In Future Dollars: $188,568.00
Annual Social Security and Pension Benefits: $48,600.00
Nest-Egg Goal: $4,031,078.00
Projected Future Value of Current Savings: $562,015.00
How Much You Should Be Saving Each Month: $2,498.00
Scenario 5:
Same inputs, no SS or Pension (worst case scenario)
Annual Retirement Income In Future Dollars: $188,568.00
Annual Social Security and Pension Benefits: $0.00
Nest-Egg Goal: $5,430,758.00
Projected Future Value of Current Savings: $562,015.00
How Much You Should Be Saving Each Month: $3,505.00
So, the best case scenario says we need to be saving $739 a month.
Here is what we are doing currently:
Husband's 401k contribution: $350 (6% of $70,000 year salary)
Company match: $175
My Roth IRA contribution: $200
Total: $725
So we are very close to being on track for the best case scenario. Some of the money will be taxed when it is withdrawn, but my Roth IRA money won't be. So that is yet another question. Do we need to save $739 before or after taxes?
Ideally I'd love to get back to saving $5,000 a year in the IRA. If I spread it evenly throughout they year it would be about $416 a month, so that would mean between the two of us we'd invest a total of $941 a month. If scenario 1 is what ends up happening, then we're good. But if Social Security drops to even 77% we are not saving enough even if I increase my savings by $216 a month. I don't know about you, but $216 a month is a fairly significant amount of money. And if the worst case scenario happens, we might as well just give up now and plan on working until we drop dead. So this is very frustrating because I'm trying to make a good decision, but I don't feel like I have enough info. If I do increase our retirement investments, it'll take some sacrifice now and I don't even know if I'll ever need that money later.
So right now the results are inconclusive. I think I will try to invest $5,000 in the Roth IRA each year, but I'll probably wait until later this year in fund the majority of it (and just keep it at $200 a month right now) so I can have some more cash reserves first. It just hurts because that $5,000 (after taxes) every year could allow us to go on a pretty sweet vacation every year!
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