Sunday, November 25, 2012

Assumptions for the "4% Withdrawal Rate" Retirement Savings Graphs

Retirement planning: retire safely & comfortably using 4% initial withdrawal rate
The Observations posts based upon the Trinity Study / "4% Withdrawal Rate" guidelines for retirement savings include a short version of the assumptions made. This post discusses the assumptions underlying those graphs in more detail.  (See Related Materials below for a list of the posts.)

The Trinity Study (The "4% Withdrawal Rate" Approach to Determining Retirement Savings Needs)

The Trinity Study was a retirement study conducted by three finance professors from Trinity University. They assumed that, given today's lifespans, a safe retirement portfolio should be large enough to last for thirty years. Their methodology involved simulating the performance of a variety of stock/bond allocations using actual historical market performance data. Their research concluded that the most important factor in having retirement savings last that long was a realistic initial withdrawal rate. Further, they found that for a wide range of portfolios, a portfolio would have lasted 30 years more than 90% of the time if you started with a 4% initial withdrawal rate.

Thursday, November 22, 2012

How Much Should You Have in Retirement Savings? (by age)

In this post, we use the "4% withdrawal" approach to retirement planning to approximate how much you should have in savings at each age. And, given how much you actually have, what percent you should save going forward.

Have You Saved Enough for Your Retirement?

Have I saved enough for my retirement? Am I on track? These are critical questions for those hoping to retire in comfort. In the previous series, we calculated the percent of your salary that you should save each year. In this series, we provide some benchmarks to monitor your progress along the way.

Retirement Savings Targets as a Multiple of Salary: Benchmarks, by age


How much should I have in retirement savings
Retirement Savings Targets as Multiple of Salary
This post is designed for those who do not expect to receive a pension or Social Security -- regardless of salary level. Otherwise, see with Social Security, or higher income earners.

Without Social Security or a Pension, You'll Need ~19 Times Your Salary to Retire Comfortably at Age 65!


As you can see from the chart above (click to expand), no matter when you start saving, by the time you're 65 you'll need about 19 times your "then-current" salary in retirement savings! That is, assuming you want to maintain

Thursday, November 15, 2012

What Percent of Income Should High-Income Earners Save For Retirement?

Here's another easy-to-use graph that suggests the percent of your income to save for retirement depending upon the age you start saving. It's based upon the commonly used 4% withdrawal approach to retirement savings, and is designed for a high income wage earner planning to receive Social Security in retirement. Earlier posts targeted a typical social security recipient, and those without Social Security.

Some Benchmark Percents of Income to Save for Higher Income Earners with Social Security, by Starting Age


Retirement planning: what percent of salary should I save yearly (higher income w social security)
Annual Retirement Savings Percentage Needed (higher income)

Most people are not saving enough for retirement! Because of the way Social Security is designed, those with higher salaries need to save an even higher percentage of their salaries than the average person. Waiting too late to start planning & saving for retirement, or not saving enough, can be the difference between having a secure, comfortable retirement and a drastically reduced standard of living.

High Income Earners Should Plan to Start Early, and Save A Larger Percent of Their Annual Salary -- Even With Social Security

The previous post in this series benchmarked savings percentages needed for a typical worker with Social Security (and no pension). Unfortunately, the percentage of your salary that Social Security will replace decreases as your salary increases. As a result, higher income earners need to accumulate more years of salary in savings by their retirement date. Therefore, they should plan to save a larger percentage of their income than those with average salaries in order to reach the higher targets.

Thursday, November 8, 2012

What Percent of Your Income Should You Save For Retirement? (by starting age, with Social Security)

Here's an easy to use graph that suggests the percent of your income to save for retirement depending upon the age you start saving. It's based upon the commonly used 4% withdrawal approach to retirement savings, and designed for a typical wage earner who is planning to receive Social Security. Other posts address saving percentages for higher income earners, and those without Social Security. For other situations, see the end of this post.

Most people do not save enough for retirement. Sixty percent of older women have trouble covering their basic monthly expenses. Nearly half of Americans die with virtually no financial assets. Waiting too late to start planning & saving for retirement, or not saving enough, can be the difference between having a secure, comfortable retirement and spending your golden years in poverty.

Some Benchmark Retirement Saving Rates for Typical Employees with Social Security, by Starting Age


Retirement Planning:  what percent of salary should save -- by starting age
Annual Retirement Savings Percentage Needed (w Soc Sec)


Even With Social Security, You Will Need to Start Early, and Save A Significant Percent of Your Yearly Salary

The previous post in this series showed results for workers without a pension or Social Security. However, about 90% of American workers do have Social Security; it typically replaces roughly 40% of their pre-retirement income (not the at least 70% of pre-retirement income normally assumed to be needed). Even so,

Thursday, November 1, 2012

October 2012 Stock Market Performance

Stock market (DJIA) monthly performance / closing prices for last 12 months
Dow Index Monthly Closes Through October, 2012

Sandy Closes Markets

The big news this month was Sandy, this year's "storm of the century."  Not only did this devastating storm steal the headlines from the upcoming election, she closed the stock market.  The markets were closed this past Monday and Tuesday, the first two-day weather-related closure since the late 1800s.

Early in the month the Dow established a new 52-week high.  At this point, any new 52-week high is also an approximately-five-year high since to find higher closes you will have go to back to the fall of 2007 -- just following the October 9, '07 all-time high. However, overall, the month was a downer -- though only the second such month in the past year.