Trent at The Simple Dollar happened to link a much older article of his recently, A Closer Look at Money Magazine’s Retirement Benchmarks, from April 2007.

I’ll blockquote the benchmarks he blockquoted, just for the sake of discussion:

Assuming you want to retire at age 60 and plan to have no pension and no job in retirement, you need to have…
1.6 times your salary in savings at age 35
3.5 times your salary in savings at age 40
5.8 times your salary in savings at age 45
8.5 times your salary in savings at age 50
11.9 times your salary in savings at age 55
16.0 times your salary in savings at age 60

A lot of other stuff is figured in here: retirement at 60 with 80% of your current salary withdrawn each year, Social Security kicking in at age 62, an annual real rate of return of 4%, and 4% withdrawn every year.

Trent uses the example of Joe (the Plumber?) with a salary of $50,000. Joe needs to have $80,000 at age 35 to be on track with these benchmarks. Trent goes on to say that Joe needs to save $5,000 a year at 9% interest annually (This is how we can tell it was written in 2007!), or around $100 each week, if he starts saving at age 25, to reach this goal.

Okay, well, that’s great for Joe. I asked myself, what about me?

Right now I’m 28, my salary is $45,000 per year and I have about $10,000 in my 401(k) and IRA (I’m not counting my husband in any of this, just to simplify). I’m currently putting $56 per pay period x 26 paychecks per year = $1456/year into my 401(k). That means at 35 I’ll need a total of $72,000 to be on track.

I’m not going to assume a 9% annual return. But I’m not going to be a total pessimist, either. My money will need to grow at least 3% annually to keep up with inflation. I can earn 3.5 - 4.0% sticking it in a savings account (though that’s not tax-protected, of course). Since I’m investing every other week, I’m going to assume I have the power of dollar-cost averaging on my side. So let’s go with a more conservative 5%, and let’s take that number over to a compound interest calculator.

Here’s how it looks with the current amount I’m putting in per week (I’m assuming six years to grow because I only have about six months to my birthday):

Okay, $23,799 is a leeeeetle far off benchmark.

So how much extra WOULD I need to put away every pay period in order to meet this benchmark?

I would need to be saving $8,205 annually in order to meet my age 35 benchmark. That’s $6,729 MORE than I’m saving now in my retirement. That means I need to be putting away $316 per pay period, or $260 more than I currently am.

Can anyone be expected to save this much? That’s functionally a 16.9% savings rate. The average savings rate in the U.S. currently is less than 1% - not that I condone that, but let’s be realistic.

This is why I’m starting to think that Retirement, with a capital R, is not the answer. Maybe mini-retirements, a la Tim Ferriss, are, however.

And here’s the next part, for me: instead of putting $316 a month into my retirement, my husband and I are putting $500 extra/month towards our mortgage. Is this a smart choice? I’ll talk about that next time.

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