## Saturday, October 15, 2016

### Calculating Required Retirement Savings Rates: Part 4

In the prior posts in this series I outlined a method for estimating how much you should be saving for retirement, discussed how to estimate expenses in retirement, and discussed how to estimate your Social Security retirement benefit. In this post I'll discuss how to estimate a reasonable range for real rates of return on your investments. There's a lot of uncertainty in the rate of return you'll be able to earn on your investments over the next 30 or 40 years, yet that rate of return has significant impact on how much you must save. The lower the rate of return, the more you must save, and vice versa. In the prior posts in the series I assumed a 4% real rate of return. Is that reasonable?

## Thursday, October 6, 2016

### Calculating Required Retirement Savings Rates: Part 3

In Part 1 of this series I outlined a method for estimating how much you need to save to have a good shot at a financially secure retirement. I put this in terms of a retirement savings rate, calculated as your required annual savings divided by your gross (before tax) annual income. For example, if your gross annual income is \$50,000 and you estimate that you must save \$7,500 annually, your required savings rate is 15% (7,500 / 50,000).

In Part 2 I discussed how to estimate living expenses in retirement, and gave a few examples of how this affects the retirement savings calculations. In this post I'll discuss how to estimate your Social Security retirement benefit, since this can have a significant impact on how much you need to save for retirement.

## Tuesday, October 4, 2016

### Calculating Required Retirement Savings Rates: Part 2

In Part 1 of this series I outlined how to estimate the savings rate required to ensure a financially secure retirement. The required savings rate estimate depends a lot on various projections and assumptions that I outlined in Part 1. In this post I'll discuss how to estimate your expenses in retirement. In subsequent posts in the series I'll discuss how to estimate your Social Security retirement benefits, how to estimate the expected rate of return on your investments, and how much you should expect to be able to safely withdraw from your retirement savings each year.

## Saturday, October 1, 2016

### Calculating Required Retirement Savings Rates: Part 1

In one of my early blog posts, written in December 2009 for recent college graduates , I wrote, "You must manage your spending so that you can save a significant portion of your income -- at least 10%, and more if possible." How do we determine if 10% is enough, or could it even be more than you really need to save? Although there are too many unknowns to answer this precisely, we can make various assumptions to calculate a range of savings rates that are likely to enable you to enjoy a financially secure retirement.

In this post I'll show how we can calculate that a savings rate of about 14% of gross (before-tax) income is required, given the following facts and assumptions:
• Current savings: \$0.
• Current age: 25.
• Retirement age: 65.
• A steady income with annual raises equal to the annual inflation rate.
• A 4% annualized real rate of return on your investments.
• Annual living expenses in retirement will be 80% of your current salary (adjusted for inflation).
• Social Security benefits will cover 35% of your living expenses.
• The remainder of your retirement living expenses will be covered by annual, inflation-adjusted withdrawals of 4% of your retirement savings.
So the 10% savings rate I mentioned in my 2009 post was too low given these facts and assumptions. I'll discuss the assumptions listed above in subsequent posts in this series, and make some different assumptions to see what other required savings rates we come up with.