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This topic arose out of a recent discussion that I had with a number of people regarding appropriate retirement planning. I thought that this topic might be of interest to FW readers and am posting it here in the hopes of encouraging a productive discussion regarding appropriate and realistic retirement planning.

Here are some numbers: suppose that you are married and you can both max out your respective 401(k)'s and both receive a higher than average 5% retirement match from your employers. If your investments average a 7% annual return, inflation averages 3%/year and you make your contributions each and every year for 30 years, you'll end up with about $2.2MM in today's dollars. If you then use the standard 4% withdrawal method, you are looking at $88,000/year in today's dollars. If you'd prefer to play it safe and use the 3% withdrawal method, then you are looking at $66,000/year in today's dollars.

That is certainly a pretty substantial amount for a couple of retirees, especially when you combine it with Social Security (assuming that it won't be means tested by then and that it'll be more or less solvent, both of which are certainly pretty questionable assumptions) but isn't exactly luxurious. The issue here is that this is essentially the best case scenario for people (both people maxing out their respective 401(k) retirement contributions uninterrupted for 30 years and both receiving a fairly substantial match), that a couple like this is probably in the top 5% or all retirees and it still puts them in the lower echelon of upper middle class.

I realize full well and agree that if a retired couple can't live comfortably on $66,000-$88,000/year (plus SS, if any) minus taxes, they've got other problems, just like I realize that the vast majority of retirees live on way less than that but are still quite happy with their lives. My question though is whether those FW members who are hoping to have a slightly more upscale retirement have looked at the same numbers and, as a result, are aggressively putting away more money in other types of accounts. In other words, are higher income posters here generally satisfied with retirement account contribution limits or are they taking steps to supplement those with other funds?

I realize that there is no one answer here and that individual circumstances vary, but I think that it can still be quite interesting and valuable to hear people's views on this topic.

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buy houses at young age at 10-15 year loan terms, max out retirement, then you get 100+k easily annually.

in your example
how much are you contributing a year?
how old are you when you start?

edit: start year doesn't matter when you say contribute for 30 years. just saw that.
edit2: just realized you said max it out every year. nm.

401k even when maxed out isn't designed to make you wealthy , it's for middle class folks to lead a middle class retirement . And your calculations show it can do that .

Rich people have their assets in many other accounts . If you expect to be rich you better be doing a whole lot more than just maxing out a 401k

Does your "max out 401k" assumption also allow for raising the contribution limit in conjunction with inflation? Still, interesting math. Thanks.

also, if you add 10 years to that (start at 25 instead of 35). At age 65, you'll have a lot more than 2.2MM in today's dollars (more in the 5MM range or so).

imbatman said:   how much are you contributing a year?You are both maxing out your respective retirement accounts, so, in 2013, $35,000/year plus a full 5% employer match. Since retirement contribution caps slowly rise over time, you'll be able to contribute a little bit more every year but I think that my final number (in today's dollars, assuming 3% inflation) should be close enough.

how old are you when you start?I am assuming 30 years of maximum annual retirement contributions for both participants. Your age is only a factor when you try to determine your safe withdrawal rate and SS payouts, if any. For the purpose of this thread, I acknowledged the fact that this couple may receive SS but did not discuss any specific amounts, as there's too much in the air with it (whether it'll be means tested, etc...).

7% returns? You must be really bad at picking investments if you can only get 7% over a ~35 year period.

Even a decent 60/40 (stock/bond) split portfolio (use index funds for example) has returned over 10% last 35 years with the worst 35 year period (1970 to 2005) ever returning 9.8%

Go a little more aggressive like an 80/20 portfolio and last 35 years has returned 11.5% and the worst 10.5%.

What does that do to your amount available?

$35,000 a year for 30 years at 10% is over $5.5M

SangioveseW said:   imbatman said:   how much are you contributing a year?You are both maxing out your respective retirement accounts, so, in 2013, $35,000/year plus a full 5% employer match. Since retirement contribution caps slowly rise over time, you'll be able to contribute a little bit more every year but I think that my final number (in today's dollars, assuming 3% inflation) should be close enough.

how old are you when you start?I am assuming 30 years of maximum annual retirement contributions for both participants. Your age is only a factor when you try to determine your safe withdrawal rate and SS payouts, if any. For these purposes of this thread, I acknowledged the fact that this couple may receive SS but did not discuss any specific amounts, as there's too much in the air with it (whether it'll be means tested, etc...).


5% employer match of what (5% of a 40k salary = 2k, 5% of 150k salary = 7.5k)? Or do you mean that 35k includes 5% employer match?

imbatman said:   also, if you add 10 years to that (start at 25 instead of 35). At age 65, you'll have a lot more than 2.2MM in today's dollars (more in the 5MM range or so).Of course, but I am trying to make this a more general example that's applicable to more people. The couple discussed in this thread is already probably in the 5% of all retirees.

Assuming that people will be able to start maxing out their respective retirement accounts at 25 and to continue doing so for 40 years just isn't a very realistic assumption, especially since most couples who are in a position to consistently max out two 401(k)'s for 30 years have advanced degrees, which typically means that they don't get a chance to start making retirement contributions until later.

mikef07 said:   7% returns?The standard assumption used in retirement planning is for 7%-8% annual returns, which is not at all conservative when you factor in the fact that you'll most likely be rebalancing your holdings to make them more conservative when you are closer to retirement.

SangioveseW said:   mikef07 said:   7% returns?The standard assumption used in retirement planning is for 7%-8% annual returns, which is not at all conservative when you factor in the fact that you'll most likely be rebalancing your holdings to make them more conservative when you are closer to retirement.

I care about facts, not the standard assumption or fictitious numbers. If you think you can only get 7% then you need someone to advise you on a decent portfolio of index funds. Furthermore why someone would rebalance to something highly conservative before 60 when you have probably another 25 years left is beyond me. I agree rebalancing (or changing allocation) should be done right around 60 or so.

Finally I just showed you even if someone went totally conservative with a 60/40 spilt from the get go the worst they would have done is 9.8%.

Lets say they took it a step further and went ultra conservative with 30/70 split. The worst 35 year period ever is 8.15% and they would be nuts to go 30/70.

I could go create my own thread that uses a 4% return long term and then could show how one would be poor at retirement maxing out 401Ks. I think the thing to note from this thread is pick a decent set of index funds at the very minimum if you are maxing out 401K and stick with it. If you do it has been shown (at least historically) that you should be over 9% and very well off at retirement. While no guarantee I like the odds.

We're all screwed.

I did not check the math, but your assumptions handle the 401k assets only and may not account for increasing contribution limits and catchup provisions. Thank you for your calculations, they are helpful numbers and may be eye opening to many people. Also many retirees rely heavily on Social Security to offset their retirement savings/income. So assuming that someone was able to max out 401k contributions and work for 30 years. They should have at least $3,000 a month per couple in today's dollars from Soc. Sec. income (possibly more, but that's another story). This would bring these income figures to $102,000 to $124,000 per year in today's dollars ignoring many other factors and all other assets and income sources. This would make for a much more comfortable retirement.

If someone is able and eligible to max out 401ks, HSA's, IRA's, I would highly encourage that. Not everyone is able to accomplish this and if someone was short of a retirement goal (savings/income/etc) they have the option of lowering/adjusting the goal, retiring later, saving more, or getting a better rate of return, increasing their withdraw rate, etc. There is also the option of starting to save earlier, but . . .

If you are not counting on Soc. Sec. being around or it being greatly reduced/means tested you may want to leave it out of retirement goals/projections. I am not counting on it, it is icing on the cake if I receive anything. A combination of maxing out 401k's, HSA's, IRA's, (and occasionally ESA's/529) hopefully averaging more than 7% returns is sufficient for me to retire comfortably, but having a few rental properties paid for currently and in the future should assist with retirement income.

mikef07 said:   7% returns? You must be really bad at picking investments if you can only get 7% over a ~35 year period.

Even a decent 60/40 (stock/bond) split portfolio (use index funds for example) has returned over 10% last 35 years with the worst 35 year period (1970 to 2005) ever returning 9.8%

Go a little more aggressive like an 80/20 portfolio and last 35 years has returned 11.5% and the worst 10.5%.

Or bad at picking times to invest. Right now your fixed income portion is paying ~0% nominal (negative real rates) instead of 5% which might be historical average interest rates. So even if stocks return 10% nominal, a 60/40 would only make about 6% nominal or 3% real. I'm not even adjusting down the historical stock returns to reflect a constant real risk premium, which of course will make them lower going forward since risk free is much lower now than it has been in the past.

Thanks Ben for bailing out the debtors! I just don't know if we're taking the road to Japan or Greece in 30 years...

SUCKISSTAPLES said:   401k even when maxed out isn't designed to make you wealthy , it's for middle class folks to lead a middle class retirement . And your calculations show it can do that .Right, this is kind of the point of this thread. I think that quite a few people out there fail to factor in inflation into their calculations (and I am not talking about anything outrageous here, as I am simply factoring in 3%/year inflation). So, when they look at raw projections of how much their 401(k)'s will have and see millions of dollars, they think that maxing out their 401(k) will alone ensure a very upscale retirement.

When you run the calculations in today's dollars, you see that that is not at all the case and that for people who want to have more than just middle-class retirements, maxing out their 401(k)'s just won't be enough.

You know the real max for 401k plans is $55k/year/company/person, right? It's not just the elective deferral portion - company and employee contributions can make up the difference. so if you want to retire with more than cat food in a ZIRP environment, start aiming higher on the savings side.

xerty said:   mikef07 said:   7% returns? You must be really bad at picking investments if you can only get 7% over a ~35 year period.

Even a decent 60/40 (stock/bond) split portfolio (use index funds for example) has returned over 10% last 35 years with the worst 35 year period (1970 to 2005) ever returning 9.8%

Go a little more aggressive like an 80/20 portfolio and last 35 years has returned 11.5% and the worst 10.5%.

Or bad at picking times to invest. Right now your fixed income portion is paying ~0% nominal (negative real rates) instead of 5% which might be historical average interest rates. So even if stocks return 10% nominal, a 60/40 would only make about 6% nominal or 3% real. Thanks Ben for bailing out the debtors!


that is why time is important. Over a long term period (35 years) I believe that it will all balance out. Even with these crappy times over the past 5-7 years under Ben that same 60/40 split is over 7.5% over the last 10 years. So using 7% to me seems ludicrous

SangioveseW said:   SUCKISSTAPLES said:   401k even when maxed out isn't designed to make you wealthy , it's for middle class folks to lead a middle class retirement . And your calculations show it can do that .Right, this is kind of the point of this thread. I think that quite a few people out there fail to factor in inflation into their calculations (and I am not talking about anything outrageous here, as I am simply factoring in 3%/year inflation). So, when they look at raw projections of how much their 401(k)'s will have and see millions of dollars, they think that maxing out their 401(k) will alone ensure a very upscale retirement.

When you run the calculations in today's dollars, you see that that is not at all the case and that for people who want to have more than just middle-class retirements, maxing out their 401(k)'s just won't be enough.


I think more people (especially here) fail to use real return numbers that can be achieved. If your opinion differs I am OK with that. Facts and history side with my view though. Even then I will agree that it is no guarantee.

Rule #1 - Save (max out 401Ks)
Rule #2 - Pick good sound portfolios

Now we can all argue what the return will be in 35 years. You think 7%. I think 10%. I doubt either one of us will be spot on. It could be 12%, it could be 6% (although that has never happened).

ETA: based on people's red above those people are either obviously terrible at picking investments or don't care about facts and have done 0 research. Either way their opinion matter little to none to me. Someone wants to use facts by all means go for it.

In the end I think you are using a faulty number of 7%.

scurlock33 said:   I did not check the math, but your assumptions handle the 401k assets only and may not account for increasing contribution limits and catchup provisions.They do actually account for increasing contribution limits but with an eye towards fairly small increases there. Regardless, the final numbers won't change materially.

Catchup contributions have an ever smaller impact on the final numbers and don't really change the premise.

Thank you for your calculations, they are helpful numbers and may be eye opening to many people.Right, this is the reason that I started this thread.

Also many retirees rely heavily on Social Security to offset their retirement savings/income. So assuming that someone was able to max out 401k contributions and work for 30 years. They should have at least $3,000 a month per couple in today's dollars from Soc. Sec. income (possibly more, but that's another story). This would bring these income figures to $102,000 to $124,000 per year in today's dollars ignoring many other factors and all other assets and income sources. This would make for a much more comfortable retirement.Sure, but as I mentioned above, the future of SS benefits is very uncertain, so it wouldn't shock me if they become means tested, if the eligibility age increases by several years over a 30 year period, etc... Hence, the reason that I acknowledged its existence but did not attribute any specific amounts to SS payments.

By the time you are retired you should have a house paid for, your kids away, and own your vehicles. If you live with your means you will still have 20-30k of fun money to burn in a year. So a country club membership, couple of trips, some concerts events ect... I guess that is better then destitute and on the street.

Don't forget that you will have less expenses in retirement due to "supposedly" paid off house

mikef07 said:   I care about facts, not the standard assumption or fictitious numbers.If all you care about is facts... the fact is that future returns are completely unknown.

The standard assumptions you are downplaying are there to build conservatism into the retirement approach as you want the median participant to have more than needed, not planning to be "just right" as that would mean half are at "not enough."

I also think it's reasonable for someone to see more down side risk than in the past given the ever rising debt-to-GDP ratios.

Working for only 30 years is highly unrealistic for 95% of people. The fact is, since people live longer, you have to work longer. Your example should be setup more in the range of 40 years (retire at 62-65 depending how long you were in college).

xerty said:   You know the real max for 401k plans is $55k/year/company/person, right?I am aware, but unless you have your own business or your company is ultra-generous with its retirement match, the $55K/year cap is of largely academic interest to most people.

so if you want to retire with more than cat food in a ZIRP environment, start aiming higher on the savings side.This is kind of the point of this thread and my question of whether those FW members who are hoping to have a slightly more upscale retirement have looked at the same numbers and, as a result, are aggressively putting away more money in other types of accounts.

As SIS said, there are ways to save money other than putting it in a 401k. In fact the standard logic is to contribute to 401k up to employee match, then max out a roth IRA, then max out your 401k. If you max out a 401k and an IRA for 30 years, that's plenty of money. While we're on the topic, 60k a year with no job is well into the range of lifestyes I would call "wealthy"

If you annuitize that pot we'd be looking at higher than 4% withdrawal rates (since you'd in effect be living off principal in addition to income). Nothing for the heirs, but, oh well. Even today you can annuitize for around 6%.

In reality if you are smart enough to max two 401(k)'s for life you probably paid off your house and saved a few other duckets in addition to having max SS. Layer in reduced consumption in every category but medical and, well, I wouldn't worry about it.

daw4888 said:   Working for only 30 years is highly unrealistic for 95% of people. The fact is, since people live longer, you have to work longer. Your example should be setup more in the range of 40 years (retire at 62-65 depending how long you were in college).I already addressed the same point above. Assuming that people will be able to start maxing out their respective retirement accounts at 25 and to continue doing so for 40 years just isn't a very realistic assumption, especially since most couples who are in a position to consistently max out two 401(k)'s for 30 years have advanced degrees, which typically means that they don't get a chance to start making retirement contributions until later.

mikef07 said:   that is why time is important. Over a long term period (35 years) I believe that it will all balance out. Even with these crappy times over the past 5-7 years under Ben that same 60/40 split is over 7.5% over the last 10 years. So using 7% to me seems ludicrous.
Conservative maybe, but not unreasonable. The last ten years had a flattish stock market and a huge bond rally. The falling rates that fueled that rally are gone, so bond returns going forward should probably be estimated at 0-1% until Something Changes. Looking at our fiscal irresponsibility in this last cliff, I don't think cutting spending and raising rates are on the horizon for a decade a least, possibly never.

Just to elaborate on what the present fiscal environment means for future estimated returns, the 10-12% stock annual returns correspond to about a 7% equity risk premium (excess over risk free). If we expect interest rates to stay zero, then we should expect 7% stock returns going forward. A 60/40 portfolio earning 7%/0% only averages 4.2% and that's only 1.2% after inflation.

I've been a little pessimistic in some of my assumptions here, but not that much. If you want to believe the historical averages will come back, you really need to think the economy and the government will get their act together.

calvinandhobbes said:   mikef07 said:   I care about facts, not the standard assumption or fictitious numbers.If all you care about is facts... the fact is that future returns are completely unknown.

The standard assumptions you are downplaying are there to build conservatism into the retirement approach as you want the median participant to have more than needed, not planning to be "just right" as that would mean half are at "not enough."

I also think it's reasonable for someone to see more down side risk than in the past given the ever rising debt-to-GDP ratios.


That is correct that no one can predict future returns so if one wants to use an assumption then it should be backed by something factual. Please tell me a time when a 70/30 split of decent index funds has returned 7%? You can't. So assuming 7% is as ridiculous as me assuming 16%. Neither has happened ever. I look at the worst 35 year period and the best 35 year period and assume it will be close to the worst ever thus use around 10%. By the way the best is around 11.6%. That is a very tight range of literally 40-50 35 year periods where they are all between 10-11.6%, but you think using 7% is acceptable?

It is called making an educated assumption. Now if you want to use a worse case scenario and go below that for your own personal use to hedge even more by all means go ahead, but to act like one will only have $2.2M unequivocally at retirement by maxing out 401K is silly.

ETA: And every decade has had their catastrophic reasons why it won't continue and it simply has through the 60s, 70s, 80,s 90, 00s, and now so far the 10s.

No one need worry. We have social security.

Nowhere does it say that you are entitled nor deserve to have a wealthy retirement.

If that is your goal, you can either:

1. accumulate and become wealthier earlier in life to save more for your future and live to your desired means presently
2. sacrifice your present and live more modestly in preparation for the future.

If you want to have a comfortable/wealthy retirement and yet choose to live luxuriously currently and not plan for the future, then you do not deserve to have a comfortable retirement nor should you expect it nor feel like anyone (the public) fund your retirement.

daw4888 said:   Working for only 30 years is highly unrealistic for 95% of people. The fact is, since people live longer, you have to work longer. Your example should be setup more in the range of 40 years (retire at 62-65 depending how long you were in college).

I think the assumption here was that some people may not be maxing out 401k's right off the bat. They might be saving up for a house down payment, be living on a lower salary, etc.

I think this is a reasonable calculation by OP. One of the key things is shows is exactly what was mentioned above: saving heavily early on can pay off quite well.

If you work for 40 years.. For a single person making 70k today, with an expected salary increase of 1%/year, making max contributions at [17K+500*(n)] for n=0 to 39, And your employer makings a 5% match, while you earn 7% You are talking about having ($5,279,047.93) give or take a little. If you are 22 now, and work for 40 years, you would retire at 62. Lets say you plan to live to 90, thats a 28 year payout, so you could take $434k out a year. I think I could manage off that.

I think people are underestimating how much money they will have when they retire because they aren't including their home equity in their retirement calculations. A guy who owns a $1 million house with no retirement savings is going to be better off than a guy who has $700,000 in retirement savings.

Sesq said:   
... Layer in reduced consumption in every category but medical and, well, I wouldn't worry about it.


There lies the problem. No job means more free time. More free time means more hobbies. Hobbies can add up quickly, especially if it includes extended duration travel.

Sesq said:   If you annuitize that pot we'd be looking at higher than 4% withdrawal rates (since you'd in effect be living off principal in addition to income). Nothing for the heirs, but, oh well. Even today you can annuitize for around 6%.If you wanted to purchase an annuity to guaranty joint income for life with nothing left for the beneficiaries, you'd be looking at lower 5%'s, not 6%. Still, this is a good point.

In reality if you are smart enough to max two 401(k)'s for life you probably paid off your house and saved a few other duckets in addition to having max SS. Layer in reduced consumption in every category but medical and, well, I wouldn't worry about it.I agree, but my point here isn't that you won't be fine. My point is that even if you are in a situation to consistently max out two 401(k) (and most people aren't), you'll most likely be living pretty middle-class retirement lifestyles. So, if you are shooting for more than that, you won't be able to just rely on your maxed out 401(k). Also, if you are not able to max out two 401(k)'s, and most people aren't, at best you are probably looking at lower-middle class retirement.

SangioveseW said:   Sesq said:   If you annuitize that pot we'd be looking at higher than 4% withdrawal rates (since you'd in effect be living off principal in addition to income). Nothing for the heirs, but, oh well. Even today you can annuitize for around 6%.If you wanted to purchase an annuity to guaranty joint income for life with nothing left for the beneficiaries, you'd be looking at lower 5%'s, not 6%. Still, this is a good point.

In reality if you are smart enough to max two 401(k)'s for life you probably paid off your house and saved a few other duckets in addition to having max SS. Layer in reduced consumption in every category but medical and, well, I wouldn't worry about it.I agree, but my point here isn't that you won't be fine. My point is that even if you are in a situation to consistently max out two 401(k) (and most people aren't), you'll most likely be living pretty middle-class retirement lifestyles. So, if you are shooting for more than that, you won't be able to just rely on your maxed out 401(k). Also, if you are not able to max out two 401(k)'s, and most people aren't, at best you are probably looking at lower-middle class retirement.


Actually at best (at least using these little things called facts to back up a position) you could have over 5M+. But hey keep using fake numbers based on nothing factual. Sorry just pointing out the reality. Again of the last 50 35 year periods every single one of them, as in 100%, have been between 9.8% and 11.6% using a 60/40 portfolio of low cost index funds. Please point me to facts (not opinions) of why your 7% number is remotely relevant.

Hey I will point out that this thread has reminded me that 99% of posters here no little to nothing about Finance, but they all think they do so thanks for that.

Ok, So if you redo it, and work for 40 years, and the first 10 years you only put in 5% to meet the employer match, then max it out from year 10-40, taking into account the same things as above, you would end up with around ($3,941,278.23), or 324k/year if you plan to live to 90.


This example is for a SINGLE person contributing. If two people maxed it out, you could double the numbers. 648k/year in retirement sounds A-O-K to me.

soundtechie said:   While we're on the topic, 60k a year with no job is well into the range of lifestyes I would call "wealthy"I am not here to debate the definition of "middle class" or "wealthy" or what not. My point is that most people out there just haven't run their retirement calculations in today's dollars and thus incorrectly think that based on seemingly large future dollar calculations, maxing out their 401(k)'s will allow them to lead much more luxurious lifestyles than they really are.

I think that it is fair to say that most couple who are consistently able to max out two 401(k)'s for 30 years are probably making pretty good money. If, while they work, they use the rest of their money to live on rather than to put away, based on these calculations they will have to pretty substantially scale down their lifestyles in retirement. I don't think that most couples in their situation realize that, as maxing out two 401(k) is typically considered to be pretty impressive and is often thought to ensure a rather comfortable retirement lifestyle.

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