3/9/2012 12:22 PM ET|
Retiring at 50: You need how much?
Early retirement requires a savings and investing plan that begins early in life. Still, under some scenarios, it’s a goal you can achieve.
These days, most people plan to retire in their mid-60s. This is the age range when Social Security benefits generally kick in, providing at least some modest level of monthly income. When that income is supplemented with outside savings, be it via traditional defined-benefit plans or the more recent defined-contribution 401k plans, retiring couples or individuals can expect to live comfortably.
To accelerate retirement, individuals need to get motivated in setting aside income for the years that follow employment. Market returns could provide a boost, but the past decade has proved difficult for investments in the stock market. Additionally, interest rates have been on a steady decline since the early 1980s. The current interest rate on a 30-year Treasury bond is only about 3%. This makes it extremely difficult to earn a sufficient income from money saved up over the years.
The chart below presents a brief summary of the savings amount needed to ensure a $50,000 annual income in retirement, based on yield percentages. Back when interest rates were closer to 5%, an individual had less of a savings hurdle and needed to accumulate only about $1 million by retirement. These days, the average blended interest rate (including a mix of shorter-term, medium-term and longer-term bonds) is only around 2%, which suggests that the savings amount needed has more than doubled to $2.5 million.
The simplified information in this chart fails to take into account a number of other variables, including any Social Security income and the potential boost that can come from investing in equities or other assets that can grow over time (venture capital, private equity and hedge funds come to mind), as well as potential inheritance money or other income sources. However, it does indicate that individuals will likely need to be millionaires before they even consider retiring.
A volatile stock market, low interest rates and uncertainty over future Social Security benefits only add to the challenges for those who wish to retire early. Someone who plans to retire by age 50 instead of 65 will have 15 years less time to build a sufficient next egg. Using the retirement savings calculator here, you can see how some of the variables could play out to reach an annual income of about $50,000 per year.
A 35-year-old individual with an initial savings of only $10,000 would need to save approximately $33,000 a year to end up with $1 million by age 50. (Implicit in these estimations are an 8% annual return on a stock portfolio, a 2% annual return after retirement and a tax rate of 33%. It also assumes surviving 25 years after retirement, or until age 75.)
Starting a retirement plan early certainly has its advantages. If you begin at age 25, you'll need to set aside roughly $12,000 annually to reach the same savings goal. Conversely, waiting too long can make accumulating a healthy savings amount upon retirement nearly impossible. Under the scenario above, waiting until age 45 would require setting aside more than $150,000 annually to reach a seven-figure savings amount just five years later.
To accumulate between $1 million and $2 million by retirement, the best bet is to start saving modestly once you start working or by your early 20s. With decent stock market returns, this could mean retirement by age 50 is possible. Of course, attaining a six-figure salary could certainly help accelerate this objective, as could an inheritance, winning the lottery or some other stroke of luck, including double-digit annual stock returns.
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My generation will be lucky to retire at all, let alone at 50. While I managed to get an engineering degree and good job without student loans, and am saving in a 401k and roth IRA, retirement calculators tell me that without a pension, not being able to count on social security, and assuming modest inflation a 20-something will need nearly 4 mil to retire. That's simply not an attainable goal for most of us.
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I worked for 32 years for general motors corp and retired at 53. When I had 28 years in the branch I worked in at the time GMAC, GM sold GMAC to Cerberus for cash. Our pension, was stopped as of the date of sale, but thank god I was grandfathered for a 28 year pension after working for 32 years for the same company as nothing changed for me. Also as soon as the deal was signed we got no health care in retirement or Life insurance, however GM employees did and still do. and there pension did not stop.
Ok those of you in charge of this article, what should I do now? I did everything right, the Companies and our government have no morals and sold us employees out? I was one of many who got screwed. So as I asked before what should I do know. I have 10 years till I get medicaid if it is still there at that time. What am i suppose to do go back to work for medical for ten years, as buying health care is very costly.
Big numbers put out by people with vested interests to get your hard earned $$$. I retired @ 53.5 and haven't looked back!!! The secrets to a successful retirement are many, but the really big ones are: Reasonable expectations, paid for house, no debt except for maybe a reasonable car payment- aka paying off plastic at the end of each month, affordable healthcare with no caps- score one for OBAMAcare, and a monthly cash stream that is steady and allows you to do what you want to do. We cashed in right before the housing bust, moved to a cheaper living area- a lake in the mountains, found a fantastic HONEST builder who gave us a grreat retirement house (low maintenance design, energy efficient, everything new) at 1/2 the cost of our sale. We are living on less than 2K a month plus extraordinary expenses (HOA annual, Prop Tax, and Fun) and are getting ready to do a Transatlantic/Baltic cruise for the month of May! Wife was a suburban teacher so our medical insurance is very affordable. With a total of 2 pensions, 1 SS, and our investment income (no where near what the "experts" preach) we are fine. When my SS kicks in at 62, we really will start traveling!
Final tidbit- don't forget to take your annual pension income add it to expected SSA payments, divide by the going "safe" rate of return, then multiply by 100 and you'll get a lump sum that when you add it to your actual savings is the equivalent of your "total savings value" for income generation purposes. In other words, you may only have 250K in the bank, but when you add the other income sources to it- the total $$$ coming in to you may be equal to having 1.7 million in your name! Think about it- AND remember, you can't buy time and when too many of my pals were kicking the bucket in their 50's, I saw the light!!! Retirement is fabulous, you can do it if you really want! Good Luck!!!
No one under age 50 will ever see a retirement. If this election goes the wrong way, those > 10 years out of SS will have the 'benefit' they've been paying for from age 18 or 22 to age 55 taken away. If you think you have a better program, fine; go for it; just refund my money paid in, first.
The "retirees' on here lecturing the rest about how they did it need to reframe their reference point to today. The last 12 years of real estate value are gone; the last 7 - 9 years of 401k growth are gone. Save? The focus right now is enough food for the table and $ to cover the mortgage payment. And don't presume to lecture us about how those are extravagant costs, live within means, blah, blah, blah. Don't attempt to comment unless you've reviewed the household balance sheet.
Given the instability of the economy now, and the impending complete collapse of it, I really don't see anyone retiring. Not in the near future, anyway.
In a stable economy, I could see someone like myself (single, no dependents, decent annual salary) retiring much easier than anyone with a family to support.
I've been punched in the face, kicked and bit this year for an anual salary of $14,000. In case you don't watch the news, police get shot all the time. Do you have that problem at your job? Next time your house is on fire, put it out yourself.
Gov pension for only 20yrs service - assuming modest $60,000 yr final salary - would be 30K/yr. This requires 1.5 million of our tax $ locked in the bank earning 2%. Paid for by our children? Bernie Madoff would be proud.
How many private sector folks can reach 1.5 mill, unless damn lucky in the stock market or Vegas?
Millions of gov employees - obviously not a sustainable approach. This is why private industry switched 30 years ago to 2 or 3% match to pension fund or 401K.
Sadly, the article mentions 50K as a target, but that's in 2012 dollars - 50K would be small change in 2050 when the new graduates will retire.
First lets get rid of all retirement that has to do with government employees. Up the amount that people put into SS but invest the money and don't use it for a slush fund. Also force retirement at the age of 50 to be able to collect SS that way you open up the job market.
If you look at some of the private union funds they have so much money in these funds the people collecting off the funds will never use them. That is the way SS should of been setup. I'm so tired of hearing that the people let it happen, we the people of this country don't control the politicians they are controlling us, time to say enough is enough.
You really don't need to save anything, you only need to get a government job to retire at 50. That way you can pay some of your excess money as dues to use to help the people who get you raises and more benefits. Those of us who were to dumb to go to work for the government should be happy to pay more so those smart union employees can retire 16 tears earlier than us with better benefits and higher pay, since we let it happen by letting the public sector unions exist and back the democrats.
I am not against private unions either...they support their own and only the company know whether they can meet their commitments on pensions, etc. However, look around at the states who can't even fund their pension plans for teachers, police and firemen. I agree, all of these people should be paid well while doing their jobs, but I don't need to support them after they are out of the workforce until they are in the ground.
It is pretty easy math to calculate a state and public sector employees' investment in their pension plan. Put a pencil to it and you will see that you personally make a very small investment into your plan to collect on the many, many years of "entitlement pension dollars" gained, paid for by your neighbors in the private sector. Are you willing to help fund my retirement and health care when I retire from my job?
. The other issue of insurance is also out of whack. Public sector unions pay on average 7-1/2% -12% of total health insurance compared to the private sector, where employees pay a range of 25%-75% of the insurance costs. If we retire early, there is no carry-over insurance form our employer to cover these costs.
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