Guilt Money

Almost everyone knows that they need to be saving more money for retirement. Good advice about budgeting is everywhere. People always feel like they need to be saving more, and they don’t always know how much is enough. That means that the motivator for most people is guilt or fear. But having a clear goal and knowing you are on the right track would be more effective than always combating feelings of inadequacy and dread.

The first steps are obvious. You need to get an income if you don’t have one. Then you need to pay down high-interest debt if you have it. Next put aside enough emergency cash for several months of necessities. After that is the time to seriously consider retirement savings.

You have to decide how big of a nest egg you want to build. There’s a formula that can take the guesswork out of it. Someone once taught me the following definition for wealth:

You are wealthy when your investment income is enough to cover your expenses.

When your investments earn enough to pay for your lifestyle, you are free from needing employment income. This strategy will bring more peace of mind than a strategy that allows you to live off of your retirement account for a certain number of years. The prospect of outliving your retirement money is nerve-wracking. The safe alternative is to plan well enough that you could live off of your investments forever. This doesn’t mean that you have to be super-rich. There are only two numbers that really matter–how much you want to save, and how much you want to spend. So if you want to be wealthy, you can get there by either saving more, or by scaling back your retirement spending. (Paradoxically, the people who learn to live with the least are also the wealthiest).

To make a concrete goal, you need to come up with a number. First decide how much you are going to live off of. You can do that by adding up all your current expenses, for necessities like food, clothing, housing, transportation, and medicine. Alternatively, you can take your current income and subtract the amount that goes to taxes and debt and savings. Either way you should get a number close to how much you consume right now. Don’t include housing in the figure if you will have paid your mortgage before retirement. Then, you can adjust the number downwards if you know you will retire frugally, or upwards to retire extravagantly.

Suppose that you currently earn $36,000 annually, but you think you could live off of $12,000 after retirement. The first thing you should know is that you are going to need to put in the bank a little more than 20 times your estimated budget. So since $12,000 × 20 = $240,000, your savings target is around a quarter of a million dollars, before adjusting for inflation. Once you reach that goal, your investments will produce enough gains to support you forever. That’s going to be attainable as long as you start early. (Some of these calculations require guesses about the future, such as 8% returns, 13% volatility, 3% inflation, monthly periods, log-normal returns and some income elasticity).

The following chart shows the importance of starting your savings young. In the left column, find the number of years until you retire. Then look at the highlighted number across from that. That is the percentage of your retirement budget that you need to continuously save. For example, suppose you are going to retire in about 30 years. The highlighted number in the correct row is “43.3%.” That means that in order to live off of $1,000 per month, you need to save $1,000 × 43.3% = $433 per month.

Years Pessimistic Neutral Optimistic

-2 -1.5 -1 -0.5 0 0.5 1
5 462% 437% 412% 389% 367% 346% 326%
10 228% 210% 193% 178% 163% 150% 138%
15 145% 131% 118% 106% 95.8% 86.1% 77.3%
20 102% 90.9% 80.5% 71.2% 62.9% 55.4% 48.8%
25 76.4% 66.6% 58.0% 50.5% 43.8% 37.9% 32.8%
30 58.8% 50.5% 43.3% 37.0% 31.6% 26.9% 22.9%
35 46.2% 39.1% 33.0% 27.8% 23.4% 19.6% 16.4%
40 36.9% 30.8% 25.6% 21.2% 17.6% 14.5% 12.0%
45 29.7% 24.4% 20.0% 16.4% 13.4% 10.9% 8.84%
50 24.1% 19.6% 15.8% 12.8% 10.3% 8.24% 6.59%

The highlighted column is appropriate if you want to be conservative and assume that the markets will have moderately poor performance. If you feel like you want to be either more optimistic or more pessimistic, then you can choose one of the percentages in the other columns. The numbers from -2 to 0 to 1 in the column headings are a measure of how optimistic you are. Negative, pessimistic numbers are better, because they leave less chance that market conditions will force you to modify your plans.

As you can see, if there are only 10 years until your retirement, you would have to save a huge percentage of your income to meet your goals. One way to make that possible is to tighten your retirement budget to fit what you are capable of supporting. The only other solution is if you have already been contributing to a retirement fund. If you already have an investment account, then use the following chart to calculate how effective it will be. Find the highlighted number corresponding to the number of years until retirement, just like before. Multiple that percentage by the amount you have already saved. That’s the annual stipend that you’ll be able to draw, even if you don’t save any more. For example, suppose you already have $150,000 saved and you retire in 10 years. The table gives a percentage of “6.0%.” Since $150,000 × 6.0% = $9,000, your existing savings will earn you $9,000 annually after retirement. That’s equal to $750 per month. That means that for your total budget of $1,000, you only need to worry about how to get the remaining $1,000 − $750 = $250 per month. Going back to the chart above, you need to keep saving another $250 × 193% = $482.50 per month.

Years Pessimistic Neutral Optimistic

-2 -1.5 -1 -0.5 0 0.5 1
5 4.3% 4.7% 5.1% 5.5% 6.0% 6.6% 7.2%
10 4.7% 5.3% 6.0% 6.8% 7.6% 8.6% 10%
15 5.3% 6.2% 7.2% 8.3% 10% 11% 13%
20 6.2% 7.3% 8.7% 10% 12% 15% 17%
25 7.2% 8.7% 11% 13% 16% 19% 23%
30 8.5% 10% 13% 16% 20% 24% 30%
35 10% 13% 16% 20% 25% 31% 39%
40 12% 15% 19% 25% 32% 40% 51%
45 14% 18% 24% 31% 40% 52% 67%
50 17% 22% 29% 39% 51% 67% 88%

The important thing is to get started. Even if you don’t have a good idea of a realistic budget for your retirement, a rough estimate is better than nothing. The figures above are also only estimates, but they are accurate enough to be useful. Eventually you can talk to a financial planner to get more precise personalized recommendations, and to plan for other variables like a child’s education fund. Meanwhile, if you are following this formula, you know how much of your money is needed for savings and how much you can afford to play with. You can feel peace of mind knowing that you will be able to pay for your retirement plans and you will never outlive your savings.

504 thoughts on “Guilt Money

  1. mirrorball free coins

    I received royalties from BMI for a promo spot for the first quarter of 2011. It was under “U.S. Performances Other” and a small bold headline that said “Promo Announcements” It mentioned the name of the network, but not the name of the spot. So it is true, in my case at least

  2. fifa fut

    Art stores have metallic sheets for use in art projects. If you can find a gold colored one that is the right size, it will look like the original. You can try the big online art supply houses, but there is so much stuff on these sites that I could not find anything quickly for you.Keith

  3. fifa coins free

    Very interesting points you have observed , thankyou for posting . “The biggest fool may come out with a bit of sense when you least expect it.” by Eden Phillpotts.

  4. ninja kiwi coins hack

    La signora Monti l’avete candidata voi, l’avete votata e ora l’avete scaricata.La rettifica la faccio volentieri ma la sostanza del post e la mia opinione non cambia: seguite un demagogo professionista e se non lo seguite ne fate comunque una bandiera.Per il resto grazie a te per avermi fatto notare il mio errore, ti garantisco che di solito verifico meglio.

  5. how to get free coins on agario moblie

    We are breeding a bunch of kids that shouldn’t live!Mankind is allowing genes that should have died out to exist and that is bad. Sure it’s good to have compassion but how do these people benefit society? They don’t deserve all the nice googly comments by people and, most of you would not have the balls or stomach to stick by your comments if you had a disabled child.

  6. madden 25 ps4 free coins

    Sr. presidente da TAM, deem mais importância e mais oportunidade para recife, pois aqui agora é o canteiro de obras do nosson pais que muitos veem trabalhar na construçao da refinaria abreu e lima em porto suape. precisamos mais voos, rj, sp, sa,nt e outros…..a familia agradece

  7. fifa 15 fut coin generator

    il est de gauche certes, mais un homme vertueux de cette génération inédite d’entre deux guerres . ce n’est pas le cas de Glasmann , homme de médisance, et colportage resté pour cette raison troisieme secretaire d’ambassade pendant plus de 20 ans. cela n’empeche que son blog est excellent et il arrive à écrire souvent des choses justes et respectale . nul n’est parfait

  8. farmville 2 cash to coins cheat

    stackingpennies: I know, and I feel completely sheepish when I realize that’s been the answer for a while. I’m not sure when I’ll feel comfortable. It’s funny how our needs grow exponentially once you remove the moving-home option.

  9. how to get free coins on madden mobile 16 without using money

    Max, én is elÅ‘fÅ‘zöm hozzá a rizst és én is szoktam fagyasztani. Csak egész káposztalevél, ez az , ami csak a piacon van.Max, valld be, hogy az egész hurkatöltés alatt a fényképezÅ‘t kezelted:D ( Na jó, ez tényleg csak vicc volt ám, ne vedd komolyan…)Tök jó, hogy így végig van dokumentálva az egész!Garffykának minek hozzá paradicsomlé? :O Lemaradtam valamirÅ‘l?

  10. csr racing

    I dont think ive ever tried matki before (or maybe i have and only recognize it my its tamil name!). This looks so spicy and yummy! Thanks for visiting my blog and leading me to yours

  11. fifa ut coin generator

    io ultimamente ho accoppiato twitter con bit.ly, che ha il tracking che è molto utile. Mentre friendfeed lo uso più per aggregare. E’ chiaro che come tutti gli altri faccio fatica a leggerlo.

  12. slotomania free coins and spins

    SiteDad – please change your heading – the rally is on TUESDAY, not Thursday. And if you want to know what it means, look at the other 23 states that are “right to work.” We have ample evidence of how that’s all working out for them. There’s no reason to think MI would be better off, in the long term.Bonehead, collective bargaining for public workers – like all of us who work at EMU – is not protected by federal law. This was a lie perpetuated by the anti-prop 2 people. The major piece of federal legislation here, the National Labor Relations Act (NLRA), applies only to workers in the private sector.

  13. csgo wild free coins

    Widukind…I think it is +Chaput’s message that is counter productive. Aligning the Church with left wing policy–healthcare coverage for illegals–alienates the vast majority of Americans who oppose that. I see him do the same thing with capital punishment. He is entitled to his opinion, but he is wrong to impose his opinions on the rest of us as though they are the only moral view.

  14. clash of clans unlimited gem hack for android

    Vamos lá pra te dar um abraço, André, pó de chá….E diz uma coisa.. tanta coisa pra contar, que não coube no blog .. não vai dar uma palestra contando um pouco dessas histórias, desses causos?Eu mesmo tenho muitas perguntas, sobre montes de assuntos[]s e t+

  15. ea fut coin generator ps3

    hej Patrick…først og fremmest elsker jeg din blog..:-)og jeg kan kun give dig ret, H&M har virkelig lavet en god kollektion denne gang. jeg er specielt totalt forelsket i herretøjet, det er casual men ogsÃ¥ ret ekskusivt. den kvindelige kollektion syntes jeg desværre de skudt lidt ved siden af ved, men der er ogsÃ¥ bestemt nogle lækre ting der skal købes!…

  16. sildenafil

    Hi! Superstar in my Facebook congregate collective this situate with us hence I came to check it absent. I’m positively loving the information. I’m bookmarking and will be real chirping this to my followers! Outstanding blog and terrific design.

  17. buy viagra online

    Hoppas du kan fÃ¥ hjälp med din mage, ser jobbigt ut! Ser inte ut som din…Härliga bilder pÃ¥ Joel!Trots allt elände hittar du nÃ¥t att var glad för! Det finns inte ord!Tänker pÃ¥ dig varje dag!All världens kramar!Lena

Leave a Reply

Your email address will not be published.