How much do we really need for retirement?

[bovie]

What I've been pondering is if many of us are over-saving. I know as physicians, we start saving much later and have some serious catching up to do. Amongst this group, I know what answer I expect to hear.

But studies by Kitces and others suggest those in the top financial quintile "were spending nowhere near an amount that would place them in danger of running out of money."

I bring this up because everything has an opportunity cost. Working harder to earn more money so we can save more money comes at a price. Cramming a ton of money into retirement and other savings makes sense when we are just starting - and probably for the first ten years of practice. But at what point does it stop making sense? Are we all over-saving like crazy at the expense of enjoying today just a little more?

This is near to my heart after watching my best friend pass away from brain cancer in his 40s. I'd do anything to have another powder day at Alta with him. I'd even buy the first round of margaritas in the Sitzmark! The same goes as a new father - my priorities between work and being at home have shifted dramatically in the last few months.

Yes, absolutely. I would say the vast majority of us are over-saving.

But that can only truly be known if you possess unknowable information—i.e., lifespan.

Though it can certainly be reasonably inferred based simply on spending.

As you note, balance is key. Critical, really.

But I’d certainly prefer to have too much than not enough. Call it self-insurance.

[VentAlarm]

Not very sophisticated, but not a bad place to start:

https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

firecalc is fun to play with as well.

[altadoc]

What I've been pondering is if many of us are over-saving. I know as physicians, we start saving much later and have some serious catching up to do. Amongst this group, I know what answer I expect to hear.

But studies by Kitces and others suggest those in the top financial quintile "were spending nowhere near an amount that would place them in danger of running out of money."

I bring this up because everything has an opportunity cost. Working harder to earn more money so we can save more money comes at a price. Cramming a ton of money into retirement and other savings makes sense when we are just starting - and probably for the first ten years of practice. But at what point does it stop making sense? Are we all over-saving like crazy at the expense of enjoying today just a little more?

This is near to my heart after watching my best friend pass away from brain cancer in his 40s. I'd do anything to have another powder day at Alta with him. I'd even buy the first round of margaritas in the Sitzmark! The same goes as a new father - my priorities between work and being at home have shifted dramatically in the last few months.

[Tim]

Max Power ,
Yeah, funny part is activities change for sure. It's just the the cash sucking down the drain don't stop. It probably starts about 80. That sunset set or sitting out by the ocean is a PITA. It's like the reverse of having a child. Each year they need more help. Somebody needs to help. That gets expensive and you can't get a teen babysitter. They need to move around, eat, bath and everything needs to be supervised. That brain can be really sharp, don't let em fool you. They get grouchy is you sit them in a corner like a plant. The expenses actually go up, not steady or down. It is a labor or love or extremely expensive. If you want to be planted in a chair and vegetate, feel free. That is like: I'm worried that after I retire I'll just sit at home, watch TV, and vegetate. It's funny how life goes. Stroke can immobilize and not really impact your cognitive skills. A loss of mobility does not mean a person is content to be planted. Funny, they actually want a life the same as when they were 40. They really do.

[Max Power]

...Those last six years might be a little uncomfortable, or maybe 10. Who knows if you might regret making it to 95.

Yes, it is certainly possible to live substantially longer than you predict. But again, you only need to predict years of active retirement.

Still, nobody is a better position than oneself in terms of knowing their health, habits, family hx (and evaluating all of that with physician training!).

There is now way to ever calc retirement needs past 90. There is virtually nobody 90+ travelling, dating, partying, doing things that are costly. Exceptions to every rule of a 95 year old who still has good mobility and goes out to dance and drink and party? Uh, sure.. but I can count the number I've ever seen who can even walk unassisted for a city block on one hand. It doesn't cost much money to play internet games in a tiny apartment (and even if it does, your returns might outpace inflation and you may have money left for NFTs or new games or whatever VR headset you want at age 100), that's all.

[Tim]

Max Power
”Retire age 50 and live until 90 = 40 years
Want $100k/yr for 40yrs = $4M, Want $200k/yr for 40yrs = $8M, etc
Done.”
Those last six years might be a little uncomfortable, or maybe 10. Who knows if you might regret making it to 95.

[Max Power]

This FIRE mark/age is simply a function of how much you save and how much you plan to spend in retirement. Calculators are crap. Quit listening to people who aren't retired and use Occam's razor. Figure out what you want... road trips vs 1st class international... kids vs DINK... fancy cars vs basic, etc. You can always overbuild and work way too long, and you can likewise spend away even the most amazing doctor earnings. If you want to retire, just decide how much you want and also estimate your longevity (viable years with travel, dining, etc). If you are wrong and underestimate actual longevity, it's fine as long as you are close on viable longevity... pretty cheap to live once you're immobile (CVA, dementia, chair-bound, etc).

Once you have years in viable active retirement x spending, you are good. Of course, you have to loosely stick to the spend rate and budget.

It is safe to assume market returns offsets inflation. That is where all of the calculators and blogs get stupid and complex and wide range of nest egg advice, so just KISS. It is also a fair bet you overspend a bit on your retire budget in early years (dining and travel and toys) and then spend less later (more health care as you age, but SS and MCR also kick in later in retirement also).

A lot depends on your budget. It is the bedrock, now and later. Budget lets you have a higher savings % now, and budget lets you stay on track in retirement.

Pretty easy if you keep it very basic:

Retire age 50 and live until 90 = 40 years
Want $100k/yr for 40yrs = $4M, Want $200k/yr for 40yrs = $8M, etc
Done.

...specific to OP, kids will be the killer. You suddenly have many more fixed expenses and many more variable ones - not a big problem now, but those liabilities linger well into your retirement. You probably feel like you are running out of places to put your truckloads of money right now, but you have no idea how many years kids will set you back. It's worth it, but you can't underestimate the costs and massive lifestyle creep that comes both out of necessity and out of emotion with having kids. In addition to the direct costs, it will hamper your spouse's earnings significantly and your own to various degrees due to lost sleep, lower productivity, limited on job opportunities/relocation, etc etc. Again, worth it if you desire it.

[PhysicianOnFIRE]

With your income(s), there's no reason to fear a high-deductible health plan. The most you could pay out of pocket is in the range of ~$25k if you pay $1,000 a month in premiums and meet a $13,000 deductible.

Other than that, keep saving like you are, invest sensibly, and FI will come sooner than later. As others have said, basing a FIRE number on income rather than spending is rubbish.

[nephron]

I agree that you have no idea what your annual expenses will be until you own a home and have children. You obviously won't have childcare costs during retirement, but I think that your spending habits while you have children are probably more reflective of what your spending habits will need to be in order to "maintain" your current adult lifestyle vs your spending habits now. If you go by your spending habits in residency or medical school, you could probably retire in a year making a 1 million dollar income just by saving it all and withdrawing some 20-30K a year. If you want preliminary numbers to have goals to shoot for, I would go by the approximations they have based upon age:

• By age 30: the equivalent of your annual salary saved; if you earn $55,000 per year, by your 30th birthday you should have $55,000 saved
• By age 40: three times your income
• By age 50: six times your income
• By age 60: eight times your income
• By age 67: ten times your income

https://www.cnbc.com/select/savings-by-age/
I have seen similar numbers different places and assume that they are based upon some personal finance mathematical formula that assumes that you want to mostly maintain your current level of income/lifestyle during retirement. Put another way, as expected, you are currently behind but should be able to catch up fairly quickly if you save enough. 10X your income seems like a reasonable number to aim for to be considered financially independent. I would suggest saving 20% of your income and 100% of your wife's income once she graduates. It will add a lot of flexibility when you do have children if you realize that you are not dependent on her income (which you should not need to be).

[HandFellow]

Instead of thinking of a number that you need to have in the end, maybe thing about how much you need to save in a year. If a typical young person should save 15% to have a good retirement and WCI says doctors should save 20% given our typical later start in the accumulation phase, maybe just double that 20% to 40% and see where it takes you. It will have the double effect of having a large amount of wealth and help keep your expenses down.

[Ghostface Killah]

with that kind of income there isn't much sacrificing that needs to happen to accumulate a huge amount of money. if you save and invest half you end up wealthy with minimal "sacrifice".

I’m being conservative since I don’t know what kind of lifestyle they pursue. Just that they live in a VHCOL area. If their expectation is to buy a multimillion dollar mansion, send their kids to exclusive private schools, and subscribe to Netjets then yeah there would be a sacrifice.

Regardless of what you make, working only a third of a typical career does involve a trade-off.

[childay]

with that kind of income there isn't much sacrificing that needs to happen to accumulate a huge amount of money. if you save and invest half you end up wealthy with minimal "sacrifice".

Agree 100%. And we aren't the only ones

https://forum.whitecoatinvestor.com/personal-finance-and-budgeting/215374-poll-how-much-did-you-save-in-2019

[altadoc]

For the first few years of accumulation, your savings rate matters more than anything else. So save a ton - in your pre-tax options, cash balance plans (if you have one), and taxable accounts.

One of the headwinds you will run into is taxes. $1 million in income - even tax sheltering $200K/year - will leave you with a gigantic tax bill.

As so many have said, enjoy the journey. It's truly all any of us have!

[vtpaca]

I don’t have much to add beyond basically the first reply but I would keep in mind that you may not be earning these high incomes indefinitely or even in the near future after children. One partner may decide to go part time or stay at home. One partner’s job may sour. Burnout etc. For me this would be motivation to not just save aggressively as you will no doubt do but to not purchase a house that requires your expected double incomes.

[fatlittlepig]

Making that kind of money definitely opens up the possibility of FIRE but not without sacrifices. You will need to keep expenses low and the market will also need to cooperate. If you really want it you could do it but think hard about what you may have to give up and see if you both are ok with that.

I don’t hear this suggestion enough but how about simply aiming to work part-time? It seems all that gets suggested is either giving up work entirely or continuing to work full-time until traditional retirement age. If you guys saved aggressively for 10 years there’s a good chance you could both go to half-time, still make a ton of money AND have plenty of time to spend with kids. You could live a very luxurious life with low stress.

To me that’s a pretty awesome financial outcome and one that I wish I could have. Alas I don’t have anywhere near the income you two have so I shall continue to toil.

with that kind of income there isn't much sacrificing that needs to happen to accumulate a huge amount of money. if you save and invest half you end up wealthy with minimal "sacrifice".