Retirement % confusion

[henrymooremd]

Everywhere I read that I should be saving 20% of my gross income for retirement.  Where does all at money go?  I've maxed out my 403b, 457, backdoor Roth IRA and stealth IRA.  I'm also putting away 1K/month for son's 529, and put 10K/month toward 2 mortgages and my student loans.  Have 50K in emergency funds.  Not sure what else I can do to save money, especially for retirement.

This 20%, does it include paying down debt?  Should I put less down on debt (Min payments only 6K) to increase my savings?  Where would this money go?

I thought I was doing well until I tried to figure out my retirement #.  All the calculators online say that I need to save more.  Just looking for advise from the collective wisdom.  Thanks.

[jz]

start a taxable account,  OR, you could anguish over the omnipresent question here at WCI:   invest? or pay down debt?

start with your interest rate, and anguish from there.

[Zaphod]

henrymooremd wrote:

Everywhere I read that I should be saving 20% of my gross income for retirement.  Where does all at money go?  I’ve maxed out my 403b, 457, backdoor Roth IRA and stealth IRA.  I’m also putting away 1K/month for son’s 529, and put 10K/month toward 2 mortgages and my student loans.  Have 50K in emergency funds.  Not sure what else I can do to save money, especially for retirement.

This 20%, does it include paying down debt?  Should I put less down on debt (Min payments only 6K) to increase my savings?  Where would this money go?

I thought I was doing well until I tried to figure out my retirement #.  All the calculators online say that I need to save more.  Just looking for advise from the collective wisdom.  Thanks.

Click to expand...

I dont think that when people are specifically citing this 20% they are including debt pay down. This is usually just retirement money period (assuming the cnn type article about retirement, etc...). The rate where you include pay downs, etc....is the savings rate, which of course there is also no universal standard but most people include at least principal pay down in that rate.

[jfoxcpacfp]

henrymooremd wrote:

Everywhere I read that I should be saving 20% of my gross income for retirement.  Where does all at money go?  I’ve maxed out my 403b, 457, backdoor Roth IRA and stealth IRA.  I’m also putting away 1K/month for son’s 529, and put 10K/month toward 2 mortgages and my student loans.  Have 50K in emergency funds.  Not sure what else I can do to save money, especially for retirement.

This 20%, does it include paying down debt?  Should I put less down on debt (Min payments only 6K) to increase my savings?  Where would this money go?

I thought I was doing well until I tried to figure out my retirement #.  All the calculators online say that I need to save more.  Just looking for advise from the collective wisdom.  Thanks.

Click to expand...

To me, the 20% is for retirement savings only. This is after debt (except mortgage) is paid off. I also do not include a 529 or emergency fund. The goal of the savings is for living expenses in retirement. Once you reach your goal, excess savings would go toward other goals - a bequest, a donor-advised fund, a 2nd house, and luxuries you can do without if necessary.

If a new attending with high student loans wanted a guideline for savings, we would work out something more personalized. 20% is only a back of the envelope number, not a yardstick. Financial planning will allow you to determine if you can - and should - be saving at a different rate.

[scott]

I agree that the 20% is for retirement. Like jz said, start a taxable account. Call it your non-deductible retirement account and plan on not touching it. Buy index funds, muni bond funds, individual muni bonds...whatever. You can still save for retirement in a non-retirement account - especially after you've maxed out your other accounts!

[docnews]

I would throw the percent game out the window and do some very basic financial planning yourself. Those numbers are not for high income individuals.

Instead run some rough numbers in a simple retirement calculator.

I'll give you mine as an example.

Estimate your "needed" funds per year in retirement, round up to be honest with yourself: $80k/year

Estimate an annual withdrawal rate in retirement: I still believe in 4%.

Determine the needed retirement account balance with above two numbers: $80k/.04 = $2 million

Estimate an annual real investment return (note this subtracts inflation of about 2-3%): I go with 4% (WCI goes with 5%).

Estimate a career length, round down: I went with a very conservative 20 years.

Plug into basic calculator: I need about $64k/yr invested. I can fit this into tax advantaged. If you can't, place into taxable accounts.

This assumes being debt free by end of the career including mortgage.

The real question is what to do if you have more to invest or work longer than expected. It's always nice to have more cushion but sometimes its time to find what you want to SPEND your money on. Not a bad problem to have but sometimes financial forums find us weirdos who need to learn to enjoy our income instead of just save it. It's not hard to make some very conservative calculations and then give yourself some freedom beyond them.