Comments on: Retirement Savings Ratio http://www.joetaxpayer.com/retirement-savings-ratio/ Financial Commentary For The Average Joe Mon, 06 Feb 2012 21:56:17 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: JOE http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-26758 JOE Thu, 13 Jan 2011 04:20:12 +0000 http://www.joetaxpayer.com/?p=2343#comment-26758 I recommend that one have enough funds outside of tax deferred accounts to handle any emergency that might arise. Beyond that, you raise an interesting question. A 401(k) provides a level of protection from creditors, and the very difficulty in accessing it, makes one less likely to just spend it as they might spend an money just sitting in savings. IRA money is accessible, just a t a cost, the extra 10% penalty. This may be worth the price in a year of unemployment when your marginal rate is low anyway. I recommend that one have enough funds outside of tax deferred accounts to handle any emergency that might arise.
Beyond that, you raise an interesting question. A 401(k) provides a level of protection from creditors, and the very difficulty in accessing it, makes one less likely to just spend it as they might spend an money just sitting in savings. IRA money is accessible, just a t a cost, the extra 10% penalty. This may be worth the price in a year of unemployment when your marginal rate is low anyway.

]]> By: Eddy http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-26755 Eddy Wed, 12 Jan 2011 21:56:13 +0000 http://www.joetaxpayer.com/?p=2343#comment-26755 Is it possible to save TOO MUCH into 401K, or IRA, where the money is not accessible. Should a 40 year old, still single save as much as you indicated in your chart? The question is not just 'how much to save' but also how? Should all retirement savings go into retirement accounts? Is it possible to save TOO MUCH into 401K, or IRA, where the money is not accessible. Should a 40 year old, still single save as much as you indicated in your chart?
The question is not just ‘how much to save’ but also how? Should all retirement savings go into retirement accounts?

]]> By: JOE http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13209 JOE Tue, 15 Dec 2009 19:36:17 +0000 http://www.joetaxpayer.com/?p=2343#comment-13209 Absolutely. Whatever number you come up for expenses (in present dollars), just divide by present income. That's the ratio I'd use. Multiply by 25 (or divide by .04) and that's the target "years income" to track. Absolutely. Whatever number you come up for expenses (in present dollars), just divide by present income. That’s the ratio I’d use. Multiply by 25 (or divide by .04) and that’s the target “years income” to track.

]]> By: Evan http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13208 Evan Tue, 15 Dec 2009 19:26:20 +0000 http://www.joetaxpayer.com/?p=2343#comment-13208 I think we are all agreeing - the real number that should be looked at is - expenses, right? I think we are all agreeing – the real number that should be looked at is – expenses, right?

]]> By: JOE http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13197 JOE Tue, 15 Dec 2009 17:30:36 +0000 http://www.joetaxpayer.com/?p=2343#comment-13197 Absolutely. The step from income to expenses is required for my approach anyway, so by tracking expenses, and replacing that number 100%, you're where you need to be (adjusting for post-retirement changes, of course.) Absolutely. The step from income to expenses is required for my approach anyway, so by tracking expenses, and replacing that number 100%, you’re where you need to be (adjusting for post-retirement changes, of course.)

]]> By: JOE http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13196 JOE Tue, 15 Dec 2009 17:27:21 +0000 http://www.joetaxpayer.com/?p=2343#comment-13196 I can answer how the 80% may be intuitive. Up to an income of $106,800 (in 2009) there's payroll withholding (social security) of 7.65%, add another 12% or so for retirement savings and you're right at that 80% number. Of course, I don't fully buy into this number, it's not a bad rule of thumb, but that's all it is, a starting point. I once observed that 20% of our income went to savings, 20% to the mortgage, 10% to pay for childcare, 10% to save for college. That meant that for us, the magic number might only be 40%. Another topic worth revisiting here is that the lower your income, the higher the replacement rate provided by social security. The $80K earner does not get twice the benefit of the $40K earner. Thank you for your comment. I can answer how the 80% may be intuitive. Up to an income of $106,800 (in 2009) there’s payroll withholding (social security) of 7.65%, add another 12% or so for retirement savings and you’re right at that 80% number. Of course, I don’t fully buy into this number, it’s not a bad rule of thumb, but that’s all it is, a starting point. I once observed that 20% of our income went to savings, 20% to the mortgage, 10% to pay for childcare, 10% to save for college. That meant that for us, the magic number might only be 40%.
Another topic worth revisiting here is that the lower your income, the higher the replacement rate provided by social security. The $80K earner does not get twice the benefit of the $40K earner.
Thank you for your comment.

]]> By: Dave http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13187 Dave Tue, 15 Dec 2009 15:56:29 +0000 http://www.joetaxpayer.com/?p=2343#comment-13187 Wouldn't the pertinent number be "Annual Expenses Saved"? Wouldn’t the pertinent number be “Annual Expenses Saved”?

]]> By: Evan http://www.joetaxpayer.com/retirement-savings-ratio/comment-page-1/#comment-13181 Evan Tue, 15 Dec 2009 14:17:03 +0000 http://www.joetaxpayer.com/?p=2343#comment-13181 Joe, "When people discuss retirement needs, the conversation often boils down to a replacement ratio, how much of your pretax income do you need to continue in your current lifestyle? The number is up for discussion, but 80% is the common answer." I never understood this. If you are spending $100K, $200K or $300K/yr at age 64, why when you turn 65 does your need suddenly drop? Maybe it has to do with the mortgage being paid off, but maybe they are spending that amount with a paid off mortgage? Thoughts? Joe,

“When people discuss retirement needs, the conversation often boils down to a replacement ratio, how much of your pretax income do you need to continue in your current lifestyle? The number is up for discussion, but 80% is the common answer.”

I never understood this. If you are spending $100K, $200K or $300K/yr at age 64, why when you turn 65 does your need suddenly drop? Maybe it has to do with the mortgage being paid off, but maybe they are spending that amount with a paid off mortgage?

Thoughts?

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