Wednesday, January 30, 2008

And when I am old....

This is a really long p0ast, so you better go grab a cup of tea.[2]

Since it's still a few days before payday and I can't do anything productive about my financial resolutions, I was rereading some msn money articles to psych (sp?) myself up and came across this. It's a little interactive thingie where you enter in various values like your current age, savings, age at retirement, life expectancy, blah blah, and it calculates all this info about what your retirement will be like. Curious to see if I would be in the "old people that live in the Bahamas and flash their flabby old-people-bods at tourists" category or the "old people that eat cat food" category, I decided to give it a try. Things that I noticed:

A) Life expectancy? Ha ha. I have no idea. It had 85 as a default value. I like to be optimistic, so I upped it to 90.
B) There was a box you could change for "retirement age," but I left it at 65 for now. Just for kicks.
C) With my employer's 3% matching, I am currently contributing (my) 3% + (their) 3% = 6% of my little salary. At least that does include bonuses, so I just used the salary it showed on the W2 I just recently got, which included some bonuses but less than I will be getting at Big Campus, where I moved to in September. But you know, estimate small.
D) Under "amount currently saved for retirement," I got to put $700. That is very small, but it is much bigger than $0, so I am pretty excited about it!
E) There is a box asking how many dollarz you feel you will need per year to live on when you retire. As if I have any idea about this! But I was reading a different financial article yesterday that was this funny program to calculate how much you would need to invest/find/WIN IN THE LOTTERY (you can tell my personal preference) in order to quit your job (another thing which from time to time sounds like exactly what I need to do), and anyway that article suggested a "reasonable" $30,000 a year. Since I until recently was not making $30,000 a year, I feel that this is indeed a reasonable amount and I went with it.
F) The default value for "current age" was 40. I stopped for awhile to feel good about myself that I am looking at (and playing around with) this website when I am only 28. Sure it would have been even better if I had started when I first started having gainful employment (more or less 6 years ago), but whatever!

So the results, with my current contribution level were:
"Your savings today: $700
Your savings at retirement: $348,984
Age when your savings runs out: 91 (very impressive, since I die at 90!)
What's left for your heirs: $35,200"

Holy shit. I leave money for my heirs. I am going to have to make some adjustments to this. Like upping that "how much you will need to live on after you retire" until my heirs get nothin, and have to earn their own damn way in the world. Let's see what happens.

*plunk, plunk, plunk* (typing noise)

Ok, I can up my annual spending to $30,947 and leave the kids $3. Well, they can buy themselves an ice cream.[1]

And you know, $30,947 a year is not bad. Much, much more than I expected it would be.

But wait, there's more. In all my reading yesterday, I also read an article that had some quick "money tricks" to use when estimating what you need for things like life insurance, what you can spend on a down payment, etc. etc. Anyway, that article suggested re: retirement that you should save "10% for basics, 15% for comfort, and 20% to get away." (It also said the percentage can include your employer's contribution and that it's affected by how old you are when you're making the estimate, i.e., starting 20 years later it's more like 15% for basics and 20% for comfort, etc.). So let's play around with the numbers. (I love this, can you tell?)

Assuming my salary stays current (which it better not), and adjusting my monthly percent contribution:

to 10% (including employer's 3%):
"Your savings today: $700
Your savings at retirement: $577,367
Age when your savings runs out: 147 (holy shit, I'm like the bionic woman!)
What's left for your heirs: $518,235"

What, are you actually kidding me? A half a million dollars?! If I adjust it so I blow all the money myself before age 90, that would give me $43,943 per year. Per retired year. Note that is more than I make now and I would not actually have to be working.

to 15% (including employer's 3%) - let's see what "comfort" looks like:
"Your savings today: $700
Your savings at retirement: $862,846
Age when your savings runs out: Never (that's what it actually says!)
What's left for your heirs: $1,122,029"

Ha ha ha ha. WTF? And spending it all personally: $60,188 per year. Yes, please.

And now, I don't think any rational person can actually save %20 of their income per year for retirement, even if you do include %3 matching. Maybe that's for people with better matching plans. But just because this is getting ridiculous, let's give it a shot and see what 20% (or a "get away" retirement plan) would look like:
"Your savings today: $700
Your savings at retirement: $1,148,325 (ZOMG I AM TEH MILLIONAIREZ!)

Age when your savings runs out: Never
What's left for your heirs: $1,725,822"

I have so much money in this scenario my money actually continues to grow after retirement. Actually, it did in the last scenario too only I didn't notice. How can you not notice that? Anyway, this theoretical 20% situation would give me $76,433 to live on per year and still leave $32 to the kids.

Now all of those calculations assumed that Social Security still exists and I get $11K per year as a benefit from that. I have no idea what my "estimated Social Security benefit" will be - I get that little statement every five years just like you do, but like most members of my generation (I think), I just laugh at it and disregard it completely. With as gloom-and-doom as the grownups always sound about Social Security, I don't count on it much. But even if I take any Social Security benefit out of the picture completely (this really is a snazzy calculator, after all):

10% yields $577,367 at retirement ($106,124 for the kids or $32,856/year for me)
15% yields $862,846 at retirement ($709,917 for the kids or $49,100/year for me)
20% (yeah, right) yields $1,148,325 at retirement (STILL A MILLIONAIREZ!!) ($1,313,711 for the kids or $65,345/year for me)

If I were to only continue contributing my current measly little %6, however, without Social Security I run out of money at 79. So I guess I better up it a bit. A few more plunks showed that 9.2% is enough to last me til 90 with about ten grand left in the bank.

I'm going to call our bookkeeper tomorrow and have her tell me what those different contribution levels would look like in actual paycheck terms. I may decide to increase my retirement percentage sooner, rather than later. I'm likin' the look of my old age. ;)

[1] Yes, I really did enter in like fifty-seven values to calculate the highest possible amount I could spend and leave my heirs as little as possible. I'm serious, kids. Learn how to handle your own money, because I am blowin' mine.
[2] This p0ast was so long, blogger's spellchecker couldn't even handle it. Ha!

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