- May 4, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Situation and Goals
At the age of 54, I have finally been able to start saving significantly for retirement in the past few years. With a gross income of $134,000 per year, I have managed to become debt-free and own my modest home valued at around $400,000. Additionally, I own three cars, two of which are recent models purchased new and one older car that I have owned for 18 years.
## Savings and Investments
I initially started with a $4,000 balance in my 401k about six years ago and gradually increased my contributions to take advantage of my company match. Currently, I have $85,000 in my 401k and $40,000 in savings. My goal is to continue contributing to my 401k for the next 10 to 11 years until I retire, aiming to accumulate around $1 million in the account. I also expect to receive social security benefits of approximately $3,500 per month.
## Future Planning and Concerns
As I plan for retirement, I have been making home improvements such as new insulation and foundation repairs to ensure a comfortable living environment in the future. I have approximately $3,000 left after covering living expenses, which I either save or allocate towards necessary house repairs.
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I don’t think your math is mathing very well. I do not believe in 11 years you will be at 1 mil. What retirement calculator did you use to come up with that?
No chance for retirement in 10 years with your actual spend. More precisely, you are spending close to 100k now and to support this spending you need to collect a 2M in the stock market and you have only 125k in retirement plans (house and cars are not a income to retirement if you don’t sell it…).
More, even if you maximize the 401k and IRA (I think you can put 30k in these, at your age – please recheck), in 10 years you might add around 400k extra. With the 125k existing, you go to 500k, that will support just a 20K annual spending.
Solutions:
* reduce the spending (sell not used cars, reduce eating out, cut subscriptions etc) to under 50k per year, including medical coverage.
* maximize the 401k and IRA
* create a solid cash (bond) buffer for emergencies (like to cover spending for 1-2 years) and for that wanted renovations
* retire AFTER you access the social security, 1-2 years after….that will help you to raise the EF from previous point.
OP, straight talk, you’re very behind on retirement savings. You need to save a lot more and don’t have much time. And it’s highly unlikely you’ll have $1 million saved for retirement because you don’t count the value of the house since you can’t spend it.
The value of your home and cars doesn’t count or help with retirement spending because you have to live somewhere/require transportation.
Why do you have 3 cars? Unless you have a good reason, recommend selling at least 1, probably 2 and reinvesting the car proceeds into diversified ETF. Also cuts down on car insurance and maintenance costs.
Recommend you maximize 401K savings which is $30,500 for 2024 ($23K regular contribution, $7,500 catch up contribution). This is saving more than 20% AND you have to specify catch up contributions with your provider.
Any funds available above that, save to a Roth IRA, maximum of $7,000 a year.
Overall, you have to save a lot more and hope you can continue to work. Good luck!
If you are less than ten years away from retirement, you can do less grenade math and focus more on goals and expectations that are tailored to your future.
I would determine what your expenses are right now and see if a comfortable withdrawal rate and social security would be.
For example withdrawal rate of 4% would produce 40K + 40K SS=80K. Could you live off 80K?
I would utilize the catch up provisions of the 401K as with less than ten years before retirement.
I would suggest at a minimum to open a Roth IRA. If possible, I would max out the 401K and Roth IRA but if not, I would prioritize contributing to the 401k up to the 6% company match, max out the Roth IRA (currently $8,000 post-tax income for 50+), and then contribute the rest to the 401k.
I would also suggest selling one or two of those vehicles to reduce your monthly expenses and get some additional cash which you can invest into the stock market. I think 10 years is a long enough timeline where you can invest in your typical S&P500 etf and not worry too much if it drops as there will be plenty time for it to recover and grow if it does end up falling. If your retirement date was < 5 years, I would be more hesitant.
I’m not sure where you live but I would also look into tax strategies to reduce your taxable income in retirement as taxes will likely be one of your largest expenses alongside healthcare and maintenance.
Dump 2 of the 3 cars. You may own them outright but they’re definitely costing you money.
Your math isn’t mathing. You aren’t going to sniff $1mm in 10 or 11 years at those contribution levels. $500-$600k optimistically.
1) 401k – Max this out. For 2024 you can contribute $23,000 plus $7,500 in catch-up, so $30,500 total. At 20% of 134k, you are almost doing this now but can up your rate to almost 23%. If I understood all of this correctly, you can contribute $308/month in addition to your current contributions.
2) Start and work towards maxing out an IRA and HSA. If you’re married your HSA contributions limit is higher, and you can have an IRA for both of you. If single, you can contribute up to $8,000 to IRA and $4,150 to HSA in 2024. If you aren’t contributing to either of these today, but begin maxing them out, that will be $1,012/month (each year check to make sure you maximizing contributions. I believe at 55 you can start adding catch up dollars to an HSA).
3) Put as many of the rest of your dollars to work as you can. Open a brokerage account and contribute to index funds that you expect will perform well over the next 10+ years (S&P500, for example is one I’d pick). DO NOT OVERTRADE. What I mean is, if you haven’t invested before you’re going to want to price check way too often. This leads to panic selling or FOMO buying, both of which will lose your money. There’s a decent chance at some point in the next 11 years there will be an extended down-turn in the markets, and it’s important to remember time in the market beats timing the market.
You are in a good position to increase savings but remaining time for compounding is less than ideal. Your estimate for $1M seems optimistic but in any case, you will be able to come up with retirement solution with what you have. Check out the newretirement.com site, ssa.gov, opensocialsecurity.com. Regardless of income, do you know your minimum budget for living expenses? You have to add cost for your Medicare choice after 65 / retirement.
You have less than 1 year of income in retirement savings at age 54. Most financial advisors recommend 4.5 to 8 times annual income at age 55. You are way behind. But you have a home paid off, good income, and time to catch up.
With $85k currently invested in the 401k and $2,200 monthly contributions with a 6% real return (9% actual return and 3% inflation), that gives you around $560k in current dollars at in 11 years. A 4% withdraw rate gives you $22k per year of income from the retirement fund.
If you increase contributions to $3k per month (27% of income) and work another 11 years, that could give you around $700k in current dollars with a 6% real return. Personally, I think a 5% real return is more realistic, especially as you get closer to retirement.
I would not rely on $3,500 per month ($42k per year) in SS. The Social security trust fund will be depleted and 2034 and it’s possible that future retirees will only receive 78% of their full benefits unless Congress acts. Are you looking at $3,500 per month in SS at FRA of age 67 or is this based on age 65? If you withdraw at 65 rather than 67, you will have a 16% reduction which could be around $2,900 per month. With a 25% shortfall in SS, you’re looking at projected $2,175 per month or $26k per year at 65. SS quick calculator of $134k per year for 35 years is $3k per month at age 67. Most people should plan for a 25% reduction in SS to be on the safe side. Go to SSA dot gov to see different projections. SSA dot tools also has some good calculators.
If you get $26k per year in SS and $22k in the retirement fund, that gives you annual income of $48k in current dollars. With no mortgage, most people can live comfortably on that with no dependents. But it sounds your expenses are a lot more than $48k per year. That only gives you around 35% of current income.
It’s not a dire situation yet, but these next 10 years will make a big difference in the type of retirement you have.
I don’t know how you get to 1 million in your 401k in 11 years. $85k initial investment, $30k/year ($2500/mo) for next 11 years at 10% rate of return is just short of $800k.
Realistically speaking, a safe withdrawal rate is 4%/yr. You’ll pay ordinary income tax. $32k/year plus social security. Probably in neighborhood totalling $4500-5k/mo. Is this satisfactory to you?
If you can get a ROTH ira, that would also benefit you if you could max out. Every dollar counts if you plan on retiring at 65.
Take advantage of catch up contributions. Save the max in an ira. Put any windfall in a brokerage.
Max 401K, max HSA, then put money into a brokerage account. You could also do 8K/yr into an IRA and roll that to a Roth which allows tax free growth. But I would say until you fill the tax advantaged buckets fully don’t worry about the rest.
Not sure why you’d post just to disagree with everyone single person offering advice/telling you that you might be short….
You’ve “only been able to start saving in the past few years” for retirement yet you own 3 cars, 2 of which are very new? It sounds like you’ve had ample opportunities to save in the past and have chosen your wants over your needs.
You’re nowhere near 1mil saved in a decade based on your current situation. You can get closer to that by getting rid of a couple vehicles.
OP is going to be okay. There’s a 3 legged stool here with a paid off home, a nice amount of social security, and a fair amount of savings. Assuming that OP will be happy with a relatively modest lifestyle.
Social Security may be worth significantly less in the future – but there will still be plenty of people with no other income. And if you add $50 a day to that (from 500k of savings), there should still be some wiggle room.
And the biggest threat to OP outliving their money is probably the cost of long term care – which can be so expensive that it’s impossible for most of us to budget for. But money from the house will last a few years – or pay for a place that commits to not kicking out residents who end up needing support from medicaid.
So my message to OP is to keep doing what their doing – and to balance savings with things that truly enhance one’s life, and to prepare for retirement with both financial prudence, and by being social and nurturing a community that will last a lifetime.
Your discretionary income is about $78k today, assuming you put $27k into your 401k annually, you are single and earning $134k. You have to replace $78k of after income- SS will get you part way, but you’ll need an another $1.2M in assets to generate around $60k per year. You’re pretty far behind if I’m being honest. It’s going to take a lot of effort to save enough to save $1.6m compared to where you are now. At the rate you are saving now, I’d expect to have about $530k in 10 years.
You have$100000 per year living expenses with no debt and paid mortgage and only banking$36000? You need to reverse that.
I’d stop buying cars new! They lose so much money as you drive them away . Why have 3 cars ? Sell 1 or 2, put cash in your fund.
Have you had a chat with a financial adviser to come up with a roadmap and some targets so you can track your progress?
Any inheritances coming your way ?
Would you move overseas where the cost of living is less ?
Good luck.
You’re best bet is to work until 67, live off social security and part time work, let your 401k grow another 10 years before you draw from it. No way by 65 you will have 1 million. There is just no way my friend. You came late to the party and want to leave early, doesn’t work like that.
You better plan on selling the home and investing instead. You’re way behind. Period.
I will add, I’m contributing a little over 2k a month to the 401k. Rest of my pay is spent on bills like electricity, internet, insurance for home and cars, taxes, grocery, gas. Trips a couple times a year. So living comfortable now on my after 401 contributing and still saving 2 to 3k a month into savings.