WSJ article "How to Know if Your Retirement Savings Are on Track"
WSJ article "How to Know if Your Retirement Savings Are on Track"
I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Many more people are aware of their annual income than they are of their annual expenses. I wish it was not true. Hence, it is more useful to talk in multiples of income.
I do agree that multiple of expenses is a better benchmark
I do agree that multiple of expenses is a better benchmark
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Not only do I think that an expense multiple is more useful, I actually think an income multiple is 100% useless.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
A 25x or 30x multiple of predicted retirement spending makes more sense.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
An income multiple makes sense when younger. In my opinion it is nearly impossible for a 30 year old to know their spending needs at age 65 plus.
At age 50+ I believe it becomes feasible to predict retirement spending needs, so a multiple of expenses becomes the much better planning strategy. So it is not helpful that the article focuses on a multiple of income test at ages 55, 60 and 65. In my opinion an income multiple is nearly useless for planning at those ages.
It is helpful that the article shows a higher multiple needed for persons with higher incomes.
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Wiki article link: Bogleheads® investment philosophy
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Comparing the two measures in my own case (about 150k household income), they start to become closer together if you assume Social Security at 70 and retirement (without reduction in salary) at 65. Since I'm in tech, I don't anticipate working until 65 -- probably the source of the disconnect. I appreciate the comment about the value of measuring based on income when you're younger, since I didn't have a clue about retirement expenses until more recently (early 50s).ruralavalon wrote: ↑Sat Apr 03, 2021 12:23 pmA 25x or 30x multiple of predicted retirement spending makes more sense.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
An income multiple makes sense when younger. In my opinion it is nearly impossible for a 30 year old to know their spending needs at age 65 plus.
At age 50+ I believe it becomes feasible to predict retirement spending needs, so a multiple of expenses becomes the much better planning strategy. So it is not helpful that the article focuses on a multiple of income test at ages 55, 60 and 65. In my opinion an income multiple is nearly useless for planning at those ages.
It is helpful that the article shows a higher multiple needed for persons with higher incomes.
What was also eye-opening about the article -- the comments below it. Full of "this is impossible" and "what a ridiculous suggestion". But that is probably just people who haven't become believers in the ideas of living below their means and the power of compounding.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
It's also really difficult for most young people to accurately predict their future income. Totally agree with the other poster; using an income multiplier is pretty darn close to useless.ruralavalon wrote: ↑Sat Apr 03, 2021 12:23 pmA 25x or 30x multiple of predicted retirement spending makes more sense.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
An income multiple makes sense when younger. In my opinion it is nearly impossible for a 30 year old to know their spending needs at age 65 plus.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I tried to go through that exercise with my twenty-something son as an experiment, and I believe he is way way underestimating what costs could be at retirement.
He is still mooching off Mom and Dad for some of his expenses (medical insurance, I'm looking at you!) and had no clue about kids, etc ..
Of course the other criteria makes no sense either. He is in his lowest earning years and multiplying that by 11 is an even worse estimate.
So when you're young enough, understanding the value of compounding and LBYM/pay yourself first is more important than a number. Right now I told him his most important number is 5%: that's the straight 401k match from his employer and the free money he would leave on the table.
He is still mooching off Mom and Dad for some of his expenses (medical insurance, I'm looking at you!) and had no clue about kids, etc ..
Of course the other criteria makes no sense either. He is in his lowest earning years and multiplying that by 11 is an even worse estimate.
So when you're young enough, understanding the value of compounding and LBYM/pay yourself first is more important than a number. Right now I told him his most important number is 5%: that's the straight 401k match from his employer and the free money he would leave on the table.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I think this is an area where Bogleheads are right, but the advice is designed for most people, who save less than 10% of their income, so 80-85% of your income kind of equals your expenses.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
If you're a super-saving Boglehead making a lot of money so you pay 30% of your income in taxes, then saving 40% of your gross income, for sure any kind of "income-based replacement" methodology is going to overshoot the mark in terms of how much you need to save. You're living on 30% of your gross income!. Here the only thing that makes sense is an "expense multiple" - which is how you get to 25x annual expenses, although you should think about taxes (need more than 25x to get to 25x net of taxes), but also social security lowers your needs a bit.
For the non-saving average person - there if you're making $60k, paying $10k in total taxes, and saving $5k you still don't need to have $1.13M (25x your $45k spending) saved up to retire. Payroll taxes are higher on low-earners as a percent of income, and those go away when you're not working. Social security will likely make up 50% of the $45k, so more likely you need 25x of $20k or $500k. Still a stretch for a lot of folks, but the "85% of your income multiples" articles are fear-mongery for a population that probably reacts that kind of tough-love the worst.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
At my age (37) I don't find either metric particularly useful for determining my retirement number. Things are too darn unpredictable and transient. The discrepancies between the two can be enormous (25x expenses is roughly a million dollars more than 10x income for us despite having a reasonably high savings rate?).
Tough to predict expenses in retirement? OK, use 10x salary. Oh, you just got a big promotion and can save more? Congratulations, now you're wayyyy behind on retirement. I get nervous looking at these metrics sometime because despite our efforts to save we look like we're wayyyy behind on this one. Then I remind myself that 6 years ago I was just finishing grad school and our annual household income was literally < 10% of what it is now.
Focused on your expenses? Well, there might be tax changes coming. Oh, and housing prices are all over the darn place. I know you own your home, but won't you want to move near the grandkids you might eventually have even though you don't have kids yet? Oh, and your healthcare costs will probably be somewhere between free and all-the-money-on-earth depending on how your health and national policy evolve.
If I was close to retirement, I'd be comfortable making more of a game-time decision, but right now I'd be trying to predict a 40-50 year time period and I just can't pretend to have any idea. I've found it most useful to focus on savings rate and we reevaluate the number when things get closer. Right now we target 30% and get fairly generous employer matches on top of that. We got a late start because of grad school, but I figure if we can consistently save 30+% from here on out we're at least looking at varying shades of "pretty darn comfortable" and we can start picking the shade we want in 10-15 years.
Tough to predict expenses in retirement? OK, use 10x salary. Oh, you just got a big promotion and can save more? Congratulations, now you're wayyyy behind on retirement. I get nervous looking at these metrics sometime because despite our efforts to save we look like we're wayyyy behind on this one. Then I remind myself that 6 years ago I was just finishing grad school and our annual household income was literally < 10% of what it is now.
Focused on your expenses? Well, there might be tax changes coming. Oh, and housing prices are all over the darn place. I know you own your home, but won't you want to move near the grandkids you might eventually have even though you don't have kids yet? Oh, and your healthcare costs will probably be somewhere between free and all-the-money-on-earth depending on how your health and national policy evolve.
If I was close to retirement, I'd be comfortable making more of a game-time decision, but right now I'd be trying to predict a 40-50 year time period and I just can't pretend to have any idea. I've found it most useful to focus on savings rate and we reevaluate the number when things get closer. Right now we target 30% and get fairly generous employer matches on top of that. We got a late start because of grad school, but I figure if we can consistently save 30+% from here on out we're at least looking at varying shades of "pretty darn comfortable" and we can start picking the shade we want in 10-15 years.
Last edited by Ollie123 on Sat Apr 03, 2021 4:03 pm, edited 2 times in total.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
For most of the accumulation phase, the above is definitely the answer.Ollie123 wrote: ↑Sat Apr 03, 2021 3:46 pm At my age (37) I don't find either metric particularly useful for determining my retirement number. Things are too darn unpredictable and transient. The discrepancies between the two can be enormous (25x expenses is roughly a million dollars more than 10x income for us despite having a reasonably high savings rate?).
Tough to predict expenses in retirement? OK, use 10x salary. Oh, you just got a big promotion and can save more? Congratulations, now you're wayyyy behind on retirement. I get nervous looking at these metrics sometime because despite our efforts to save we look like we're wayyyy behind on this one. Then I remind myself that 6 years ago I was just finishing grad school and our annual household income was literally < 10% of what it is now.
Focused on your expenses? Well, there might be tax changes coming. Oh, and housing prices are all over the darn place. I know you own your move, but won't you want to move near the grandkids you might eventually have even though you don't have kids yet? Oh, and your healthcare costs will probably be somewhere between free and all-the-money-on-earth depending on how your health and national policy evolve.
If I was close to retirement, I'd be comfortable making more of a game-time decision, but right now I'd be trying to predict a 40-50 year time period and I just can't pretend to have any idea. I've found it most useful to focus on savings rate and we reevaluate the number when things get closer. Right now we target 30% and get fairly generous employer matches on top of that. We got a late start because of grad school, but I figure if we can consistently save 30+% from here on out we're at least looking at varying shades of "pretty darn comfortable" and we can start picking the shade we want in 10-15 years.
"I'm spending a year dead for tax reasons." - Hotblack Desiato
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Sounds about right. We are in the process of relocating, and it’s like starting these calculations all over again. So I’m focusing on savings rates or simply put—saving as much as we can.HockeyFan99 wrote: ↑Sat Apr 03, 2021 3:53 pmFor most of the accumulation phase, the above is definitely the answer.Ollie123 wrote: ↑Sat Apr 03, 2021 3:46 pm At my age (37) I don't find either metric particularly useful for determining my retirement number. Things are too darn unpredictable and transient. The discrepancies between the two can be enormous (25x expenses is roughly a million dollars more than 10x income for us despite having a reasonably high savings rate?).
Tough to predict expenses in retirement? OK, use 10x salary. Oh, you just got a big promotion and can save more? Congratulations, now you're wayyyy behind on retirement. I get nervous looking at these metrics sometime because despite our efforts to save we look like we're wayyyy behind on this one. Then I remind myself that 6 years ago I was just finishing grad school and our annual household income was literally < 10% of what it is now.
Focused on your expenses? Well, there might be tax changes coming. Oh, and housing prices are all over the darn place. I know you own your move, but won't you want to move near the grandkids you might eventually have even though you don't have kids yet? Oh, and your healthcare costs will probably be somewhere between free and all-the-money-on-earth depending on how your health and national policy evolve.
If I was close to retirement, I'd be comfortable making more of a game-time decision, but right now I'd be trying to predict a 40-50 year time period and I just can't pretend to have any idea. I've found it most useful to focus on savings rate and we reevaluate the number when things get closer. Right now we target 30% and get fairly generous employer matches on top of that. We got a late start because of grad school, but I figure if we can consistently save 30+% from here on out we're at least looking at varying shades of "pretty darn comfortable" and we can start picking the shade we want in 10-15 years.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Agree that save as much as you can and, as things come into focus, pay attention to expenses is the way to go. My income last year was almost 20x expenses. Very little lifestyle inflation in 20 years. Expenses are the useful metric.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I've struggled with this for a while, as it was a big mental block for me regarding using VPW during accumulation.Triple digit golfer wrote: ↑Sat Apr 03, 2021 12:04 pm Not only do I think that an expense multiple is more useful, I actually think an income multiple is 100% useless.
But ultimately, I've decided for most people with a savings rate of 15% or less (which is the majority of the population), it's probably fairly accurate (and far more useful - as people know their income and rarely know their expenses).
For those with > 15% savings, I tend to fudge my "income". For example, take your expenses - add 15% savings (even if you save more) - add taxes (on that income level) - and use that as your "income" (even if you make more). Or a simpler way to approximate - just exclude all savings - so if you make $200k and save $100k, then use $100k as a "close enough income" level for income based estimates.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
ruralavalon,ruralavalon wrote: ↑Sat Apr 03, 2021 12:23 pmA 25x or 30x multiple of predicted retirement spending makes more sense.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
An income multiple makes sense when younger. In my opinion it is nearly impossible for a 30 year old to know their spending needs at age 65 plus.
In my opinion, it is nearly impossible for a 30 years old to know that they can be fully-employed continuously until age 65 plus. Hence, it is pointless to talk about retirement at age 65 plus.
In summary, they should look at their current annual expense and think about Financial Independence instead.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I don’t think there is anything wrong with using multiples of income vs multiples of expenses in retirement for most, but not all, people. It’s just solving the same equation for a different variable. And in fact, it may be more accurate as we all know what our income is, but we are estimating our future expenses. We constantly talk about savings as a percentage of income but once it comes to talking about total savings folks here throw up our hands and say pre-retirement income is a meaningless number.
Here’s a basic example demonstrating this:
$100,000 income. Saving 20% towards retirement and 20% towards all taxes leaves you with $60,000 which if you’re not saving or sending to the government is what you’re spending. 10.5x $100,000 = $1,050,000. Let’s say social security = $1800/mo, that leaves you with $21,600 SS income and $42,000 investment income which is surprisingly close to the $60,000 you’re already spending.
Of course, you could flip this around and say I’m spending $60,000/yr, I’m on track to get $21,600 in social security, so I need 25x(60,000-21,600) = $960,000 nest egg.
Here’s a basic example demonstrating this:
$100,000 income. Saving 20% towards retirement and 20% towards all taxes leaves you with $60,000 which if you’re not saving or sending to the government is what you’re spending. 10.5x $100,000 = $1,050,000. Let’s say social security = $1800/mo, that leaves you with $21,600 SS income and $42,000 investment income which is surprisingly close to the $60,000 you’re already spending.
Of course, you could flip this around and say I’m spending $60,000/yr, I’m on track to get $21,600 in social security, so I need 25x(60,000-21,600) = $960,000 nest egg.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
The Xincome "rule" makes complete sense for the vast majority of people. They know what their income is and can do the calculation/comparison in a few seconds. It also makes sense if they spend all of their income. Very few people know their actual expenses, so based on that, they may never do the math.
Of course, the right answer is Xexpenses but Xincome is what most people will get and it is far better than nothing. It's more of a motivational exercise than an engineering problem.
Of course, the right answer is Xexpenses but Xincome is what most people will get and it is far better than nothing. It's more of a motivational exercise than an engineering problem.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Thanks for the link! Very interesting article! Also some of the comments in this thread are more informative for me than the article!
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
I get the FI part but not the RE part of FIRE.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Crashed into the paywall.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
...
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Expenses might go up by inflation every year. So if your expenses today are $50K, and you plan to retire in ten years, I'd say your expense number is roughly $50k * 1.02^10, assuming a 2% inflation rate. Then, take that number and times it by 25x or 33x. That's what you want by that point. For me 10x my income gets me in between 25x and 33x, so both approaches work. However, at the of 22, this math wouldn't work at all. I'd double whatever ones parents goal is as a starting place assuming the same career path. If your parent's goal is $2.5 million, I'd aim for $5 million. Thirty to forty years of inflation should about double it.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Income could be useful if you knew what your expense ratios were to start with. Say, if you were following Warren's 50/30/20. However, that again involves knowing your expenses...
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
This is one of the best posts that I've seen on this forum in a while. I'm also in my mid-30s and recently realized much of what you describe. I used to think our expenses were locked in, but after the last few years of having kids and moving between low and high-cost areas, I struggle to decide on what numbers to put in my spreadsheet. The best I can do is pull out a number that excludes housing and healthcare and whatever we are saving for college - other expenses appear to be relatively constant or growing at a constant rate. Of course, excluding three of the largest costs is only so helpful.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I am one that always posts and talks about the Fidelity/T.Rowe Price, etc... multiples of salary guidelines - or "journey" as Fidelity calls it. It's very much a starting point to be thinking about retirement along the way and is key to note the parameters of their assumptions: saving 15% of your income each and every year throughout your working career, retiring at FRA of age 67, no pension, taking SS at FRA of age 67 and living to age 93.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
Obviously, reading those parameters leads to all sorts of deviations for each individual and household. Our household deviates because we will have a pension, and as of now our plans are to delay SS until age 70 for one if not both of us, and we plan on retiring earlier than age 67. Yet, the time frame of 18 and up to 38 years ago, we were thinking more along the lines of the Fidelity parameters. The pension did not come into view until 18 years ago. Retirement age was also a nebulous target, as was what our expenses would be closer to and in retirement. Emptying the nest, paying off the mortgage, tracking the household cash flow as a couple once the children were out and on their own, settling into our lifestyle, etc... all came together to give a much clearer picture. At least 90-95% clearer than anything else did during the previous 30 years of working and raising kids in our case. Yet, there still remains a percentage of nebulousness - or perhaps a better word choice of ambiguity about the coming 20-30+ years
Fidelity's multiple of salary guide...
https://www.fidelity.com/viewpoints/ret ... -to-retire
Andrew Biggs did a really nice job of writing a balanced article that shows both the pros and cons of following a multiple of salary path such as the Fidelity/T.Rowe Price/JP Morgan (https://am.jpmorgan.com/us/en/asset-man ... etirement/) rather than a multiple of expenses. As he correctly points out, following a multiple of salary and including one's SS could lead to an individual or a household having over-saved for retirement and lost years along the journey where they could have been enjoying a bit upgraded lifestyle. He also correctly points out that if one did follow the multiple of salary and combined it with SS - they may end up being able to enjoy a nice upgraded lifestyle in retirement.
Biggs dives in at the article he wrote for Forbes back in 2016 (https://www.forbes.com/sites/andrewbigg ... b616f09a56) and shows in a table what over-saving could lead to...
Most financial advisors recommend that people have a retirement income equal to about 70% of their pre-retirement earnings – that is, a 70% replacement rate. But following Fidelity’s 10x rule, an average wage worker would retire with a total income equal to about 107% of his final earnings. A low earner would receive a replacement rate of 129% of final pay. When you consider that retirees pay lower taxes and have no need to save for retirement – something which under Fidelity’s rule would significantly reduce pre-retirement take-home pay – a typical person following Fidelity's advice would experience a significant uptick in their standard of living once they retire.
https://www.forbes.com/sites/andrewbigg ... b616f09a56
As others have pointed out above and in other threads on this subject, the multiples of salary metric is useless to them. For others, it may not be useless and could act as a temporary guide. It all depends on the parameters and individual household situation along with their goals. Most of the salary multiple guides have a factor range based on income, longevity, when one retires, etc... . Ditto for the multiple of expenses. 25X may be a great guide for some, but useless for others.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
If you got a big raise and immediately increased your consumption habits, you may have went from having enough to not having a enough near instantaneously.TomatoTomahto wrote: ↑Sun Apr 04, 2021 10:31 am At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
I think it’s a bit difficult for those in pre retirement (early 50’s) to know what their retirement expenses will be assuming they currently live in HCOL area if they aren’t sure they won’t make the move to a LCOL or MCOL area. My property taxes annually are multiples of a LCOL/MCOL area. A lot of service providers here also charge much more. Moving could knock quite a bit off my expected “true retirement costs”.stoptothink wrote: ↑Sat Apr 03, 2021 1:24 pmIt's also really difficult for most young people to accurately predict their future income. Totally agree with the other poster; using an income multiplier is pretty darn close to useless.ruralavalon wrote: ↑Sat Apr 03, 2021 12:23 pmA 25x or 30x multiple of predicted retirement spending makes more sense.johnny wrote: ↑Sat Apr 03, 2021 11:52 am I saw this article today in the Wall Street journal and finally took the bait and clicked and read it.
I was surprised to find that the the measure of retirement savings at a certain age was expressed compared to income instead of expenses. Despite that, I was well ahead of the benchmark following boglehead principles. And yet I don't feel like I'm comfortably on track since there's a big difference between 11x income and 25x expenses. What does everyone think of this measure compared to the advice to save 25x expenses?
https://www.wsj.com/articles/how-to-kno ... hp_jr_pos1
An income multiple makes sense when younger. In my opinion it is nearly impossible for a 30 year old to know their spending needs at age 65 plus.
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Jags4186,Jags4186 wrote: ↑Sun Apr 04, 2021 12:00 pmIf you got a big raise and immediately increased your consumption habits, you may have went from having enough to not having a enough near instantaneously.TomatoTomahto wrote: ↑Sun Apr 04, 2021 10:31 am At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
/rant on
And, it is not in the best interest of most businesses for you to know this. Hence, this message is not sponsored by almost anyone.
It is better for folks to assume that they could become rich by
A) Increasing income
Versus
B) Controlling their expense, save, and invest.
(A) helps increase consumption and benefits the consumption societies. (B) only helps that individual. (B) is not good for the society.
/rant off
KlangFool
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- TomatoTomahto
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Well, we probably would not be on BH in that case. Fwiw, as spendthrift as we might be, we spend as though our income was what it was 3 raises ago.Jags4186 wrote: ↑Sun Apr 04, 2021 12:00 pmIf you got a big raise and immediately increased your consumption habits, you may have went from having enough to not having a enough near instantaneously.TomatoTomahto wrote: ↑Sun Apr 04, 2021 10:31 am At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
I get the FI part but not the RE part of FIRE.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Of course. Most people here, especially seasoned members, can calculate near to the penny what they need/want in order to hang it up. And even for those who can and do, they still worry about making the right decision.TomatoTomahto wrote: ↑Sun Apr 04, 2021 12:30 pmWell, we probably would not be on BH in that case. Fwiw, as spendthrift as we might be, we spend as though our income was what it was 3 raises ago.Jags4186 wrote: ↑Sun Apr 04, 2021 12:00 pmIf you got a big raise and immediately increased your consumption habits, you may have went from having enough to not having a enough near instantaneously.TomatoTomahto wrote: ↑Sun Apr 04, 2021 10:31 am At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
All of these things are simply rules of thumb. 25x expenses is a rule of thumb. It could work, it couldn’t work. 8x, 10x, 12x, whateverX final salary is another rule of thumb. It could work, or it could not work.
Many people, even highly intelligent, highly educated folks who make a lot of money and spend reasonably, don’t know how much they really spend. It’s bonkers to me, but it really is the case. They get to where they need to be because perhaps long ago someone told them to save 10%, 15%, or 20% of their salary into their 401k and they always did. Those people fell ass backwards into retirement.
Last edited by Jags4186 on Sun Apr 04, 2021 1:20 pm, edited 1 time in total.
- drumboy256
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
This 1,000%!Triple digit golfer wrote: ↑Sat Apr 03, 2021 12:04 pm Not only do I think that an expense multiple is more useful, I actually think an income multiple is 100% useless.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
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Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Exactly...Triple digit golfer wrote: ↑Sat Apr 03, 2021 12:04 pm Not only do I think that an expense multiple is more useful, I actually think an income multiple is 100% useless.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
"A) Increasing incomeKlangFool wrote: ↑Sun Apr 04, 2021 12:25 pmJags4186,Jags4186 wrote: ↑Sun Apr 04, 2021 12:00 pmIf you got a big raise and immediately increased your consumption habits, you may have went from having enough to not having a enough near instantaneously.TomatoTomahto wrote: ↑Sun Apr 04, 2021 10:31 am At the risk of being a broken record, it leads to the absurd position of:
“We were on track for retirement last year, but my wife got a raise, so now we won’t have enough to retire.”
ETA: for the record, I have no idea what our expenses will be a few years into retirement.
/rant on
And, it is not in the best interest of most businesses for you to know this. Hence, this message is not sponsored by almost anyone.
It is better for folks to assume that they could become rich by
A) Increasing income
Versus
B) Controlling their expense, save, and invest.
(A) helps increase consumption and benefits the consumption societies. (B) only helps that individual. (B) is not good for the society.
/rant off
KlangFool
B) Controlling their expense, save, and invest."
Of course you should do both - they are not mutually exclusive.
- ruralavalon
- Posts: 26351
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- Location: Illinois
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
True enough. We didn't have a budget and didn't try to track spending until about 3 years before I retired.Jags4186 wrote: ↑Sun Apr 04, 2021 1:19 pmMany people, even highly intelligent, highly educated folks who make a lot of money and spend reasonably, don’t know how much they really spend. It’s bonkers to me, but it really is the case. They get to where they need to be because perhaps long ago someone told them to save 10%, 15%, or 20% of their salary into their 401k and they always did. Those people fell ass backwards into retirement.
We did live fairly frugally, invested whatever we didn't need to spend, and so we did stumble into retirement. Not much planning involved.
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
Seems like a happier way to go through life than constantly worrying about it if/when you’ll have enoughruralavalon wrote: ↑Sun Apr 04, 2021 1:41 pmTrue enough. We didn't have a budget and didn't try to track spending until about 3 years before I retired.Jags4186 wrote: ↑Sun Apr 04, 2021 1:19 pmMany people, even highly intelligent, highly educated folks who make a lot of money and spend reasonably, don’t know how much they really spend. It’s bonkers to me, but it really is the case. They get to where they need to be because perhaps long ago someone told them to save 10%, 15%, or 20% of their salary into their 401k and they always did. Those people fell ass backwards into retirement.
We did live fairly frugally, invested whatever we didn't need to spend, and so we did stumble into retirement. Not much planning involved.
Re: WSJ article "How to Know if Your Retirement Savings Are on Track"
It was... Until you realize that your employment is less on "your terms" than you ever realized.Jags4186 wrote: ↑Sun Apr 04, 2021 1:46 pmSeems like a happier way to go through life than constantly worrying about it if/when you’ll have enoughruralavalon wrote: ↑Sun Apr 04, 2021 1:41 pmTrue enough. We didn't have a budget and didn't try to track spending until about 3 years before I retired.Jags4186 wrote: ↑Sun Apr 04, 2021 1:19 pmMany people, even highly intelligent, highly educated folks who make a lot of money and spend reasonably, don’t know how much they really spend. It’s bonkers to me, but it really is the case. They get to where they need to be because perhaps long ago someone told them to save 10%, 15%, or 20% of their salary into their 401k and they always did. Those people fell ass backwards into retirement.
We did live fairly frugally, invested whatever we didn't need to spend, and so we did stumble into retirement. Not much planning involved.
I went from not knowing or caring what we spent, with zero plans for retirement (other than someday). Big reorg at work where I saw really talented people be let go with no warning. Then decided I wanted to be FI before my employer decided to change our relationship. And have been staring at numbers nearly every day since... (But I think I'm going to win!)