Quote:
Originally Posted by Slava
Of course I'm basically agreeing because it's math!
But you can't just discount a 10% match either. That's a significant amount of money, and to just think that people are going to be able to save that is questionable at best.
And yeah, there are solutions. It's what I do for a living, so I'm not suggesting that this can't be done. I'm just presenting the rationale for why people aren't likely going that route on their own. Annuities are just not that palatable once you have built up those savings.
I question people at 25 making $55k in 1993, but it's not a big deal. I think that almost regardless of the income a 25 year old makes, the odds of them being willing and able to save 20% of that is pretty unlikely. Saving 10% is a goal for most people, but saving 20% is a stretch to say the least.
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But like I said, you wouldn't have needed to save 20% or have any kind of employer matching. The numbers are based on saving 11%, which is about what teachers contribute now.
And yeah, $55K is generous. I went with that because the backtesting relies on inflation-adjusted contributions, so I just reduced the salary by inflation as well. But even if the contributions are reduced to account for lower early career earnings (which would put them at about 8-9% contributions in the later years), it doesn't change things all that much; it still ends up over $1M.
And the same largely holds true over other periods assuming you invest 9-11% of income over the period (numbers assume salary was equivalent to $100K today):
1975-2005: $1.4M in today's dollars; enough to cover ~65% of pre-retirement income
1980-2010: $1M in today's dollars; enough to cover ~45% of pre-retirement income
1985-2015: $1.2M in today's dollars; enough to cover ~55% of pre-retirement income
So over the last 50 years, it would have been relatively simple for anyone to set themselves up for 50% of their pre-retirement income if they were able to save the amount that teachers are currently required to contribute to their pension plan.