Currently 30, how to retire at 50?

[xeonome]

30 (M) about to be married to 27 (F). I've always wanted to plan for retirement in my late 40's early 50's but I realize that might be a reach. We dont currently have kids but do have plans for 2 in the next 5 years or so. Here are my finances:

Income:​

My income - $85,000/year

Her income - $65,000/year

Additional income - $20,000 (rental house - $1,650/month)

Assets:​

House - (primary residence): $140,000 loan (3% loan - $1000/month), current value $260,000

Condo - (rental): $130,000 loan (3% loan - $1,200/month includes HOA), current value $220,0000

Car 1 - paid off, 70,000 miles, $7,000 value

Car 2 - paid off, 120,000 miles, $6,000 value

Debt​

Student loans - $18,000

The two home loans mentioned above

Account balances:​

Bank accounts - $60,000

Roth 401ks - $150,000 combined (contributions at 21% of my income and 10% of hers)

Roth IRAs - just opened $4,000 (max/year contributions, only 1 account in my name)

529 plans - 2 plans both with $1,000/each ($50/month contributions to each)

Since we plan on retiring at an earlier age instead of the 80% income in retirement I would like to shoot for 100% or $170,000/year in retirement. Average life expectancy of 77, plan for retirement at 50, so 27 years in retirement. Factor in a potential longer life so plan for 20% bump on 27 years, which takes me to 33 years of income replacement in retirement.

33 *$170,000=$5.6m in needed retirement funding

I've calculated that if I have $3.5m by 50, spend $170,000/year and the rest compounded yearly at a reduced rate of 3% (lower risk investments). I would be able to make it 33 and a half years before I ran out of money.

What's your best advice looking at my finances to get me to that $3.5m mark in 20 years from now? TIA!

Edit: forgot to add I get a 8% annual bonus to my 401k on top of my contributions and both of us get 3% company matches.

Edit 2: we also up our 401k annually by whatever out raise is, so 3% raise all goes to increased 401k contributions until they get maxed.

 

[shantom]

@xeonome If you're starting off with $154,000 (just counting 401ks and IRAs), assuming a 6% annual growth rate, and you want to grow to $3.5M in 20 years, you need to save about $140,000 $82,000 per year (edit: spreadsheet error). All of this is in constant 2023 dollars, and 6% is a typical after-inflation return in the stock market. This does not include the value of the two properties, which you would need to calculate separately based on your expectations for any growth in the market based on your location.

Fortunately, you are likely significantly overestimating your spending needs in retirement. Hopefully you won't still be paying off the two mortgages or student loans, nor will you be saving for retirement. In addition, you'll (eventually) be eligible for social security and medicare, and if you keep the rental property you'll also have a fair amount of rental income. It's also worth noting that the life expectancy for males at age 50 is currently 28 years and for females it's currently 32 years.

You should build a spreadsheet and play around with the numbers to see what it will take.

 

[stevens86]

@shantom Bold to assume we'll have social security in 20 years still...

 

[lilmzredd]

@stevens86 We will - even if it means printing dollars or some other BS . The population can’t afford not too… whether they pick a date and grandfather others in.

 

[rustydusty]

@stevens86 Depends on population growth trends over the next 20 years. If US follows Japan and other developed nations, with birth rate flatlining or sinking compared to death rate, the large bottom/small top math model of Social Security will cease to work. Then no more checks

 

[pastorgarymartin]

@rustydusty Based on current population projections, the Congressional Budget Office estimates that with no changes Social Security would be able to pay about 77% of benefits in 2034 after the trust fund is exhausted and 65% of current benefits even in the year 2096.

Social Security will very likely still continue, the check just might be reduced by around a quarter to a third if revenues aren’t increased (like removing the cap on high income earners not contributing to Social Security on income over $160k per year.)

Edit: Source.

 

[aidenb]

@stevens86 This is such a ridiculous speculation that does not belong in a financial planning conversation.

 

[pastorgarymartin]

@shantom I think your math is wrong. Starting with $154,000 and saving $140,000 a year for 20 years would put them at 2.954 million even with 0% real returns, but with 6% real returns compounded annually they’d have over $5.6 million after 20 years. Starting with $154k, they’d need to save about $82,000 per year at 6% real returns compounded annually to reach $3.5 million in 20 years.

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

 

[shantom]

@pastorgarymartin Oh you're right. I wasn't thinking and made my spreadsheet too fast, accidentally ~doubling the amount of money they'd need to save. Yes, $82k sounds right.

 

[michael1958]

@xeonome why do you need $170k a year in retirement?

 

[gxh]

@michael1958 Cuz he’s gonna be 50 when he wants to retire

 

[resjudicata]

@gxh Yeah but house paid off and not working cuts expenses incredibly, and he technically won’t have to save for retirement at 50 since he’ll be retired. He just needs to bridge the gap from 50 to 62 before SS kicks in then make up the difference. There’s no reason they would need $170 a year to retire with no kids and a paid off house.

 

[gxh]

@resjudicata 12 years of not contributing to social security at the income level he’s talking about right now will result in less than 2 grand a month in social security.

If he retires at age 50 with 2 kids 170k seems appropriate, it’s not like all his expenses are gonna stop-
Taxes on the houses, gas, electric cars etc, he’s not gonna have the same car for 50 years.

Also how does not working cut his expenses?

 

[resjudicata]

@gxh Commuting, gas, dry cleaning, eating out when desperate.

I ran some numbers a few weeks ago and for a lot of people in HCOL areas, not going to work can save you $400-800 a month pretty easily.

For me personally, not going to work saves:

$200/mo gas
$120-150/mo dry cleaning
$150/mo not grabbing fast food/coffee in morning or at lunch
$1000 a year in wardrobes refresh ($80 a month).

There’s probably other costs to working but yeah, pretty easy to save a ton when you’re not.

 

[lifesharer]

@resjudicata 200 on gas a month? you drive 1 hour each way every day?

 

[adamheath]

@lifesharer lots of people in HCOL do, 1 hour is definitely not the longest commute i’ve heard of by far

 

[tsjon410]

@gxh SS takes your top 35 years of contributions, and correct for inflation, so $50k now is the same as $100k in 20 years. As long as they have 35 years of SS contributions (including working as teenager) they will get a decent return in SS.

How much they need for retirement, calculate your current spending, not income, today's spending minus house payments (keep taxes, insurance, etc), double your health care spending, and then use a 4% inflation factor for every year. That is how much spending you will need. You'll have two data points, one is how much you need when you hit 62, and how much you need at retirement age (50ish). You ideally want to have enough that at age 62 you are taking out 4% each year so you do not shrink that value, that gives you perpetuity. If you don't have kids, this can be less since you are not leaving anything behind, but at the same time you want plenty of safety stock for unplanned emergencies.

$3.5MM going to be tough for 20 years from now if your current spending is about $100k (including occasional new cars and travel, and upkeep on your home), mainly because that $100k today is more like $210 in 20 years (and every 5 years you evaluate actual inflation and make corrections). With this unless you have much higher growth you will deplete you spending by the time you are 62.

It all comes down to inflation, stock growth and SS. I'd do a lot more research and in the meantime invest as much as you can.

 

[urbancowboy]

@gxh No more chipping in for a retirement gift for Donna in accounting.

 

[mtnrnr3]

@resjudicata No one here is mentioning that people typically retire early to enjoy life, which probably results in higher expenses than normal. Yeah, you may not have a mortgage, but I sure as hell plan to spend that money on an awesome vacations every year. Also, hobbies in retirement can be expensive, maybe more time to socialize, so dining budget goes up, etc.? I think it’s reasonable to assume expenses stay roughly the same.

 

[ckopykat]

@michael1958 One big factor is probably inflation.