Retirement Savings

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Big news in the Outta Debt Household..

Note to self:  Need to come up with a cool nickname. Get Rich Slowly has ‘GRS’, Budgeting in the Fun has ‘BFS’..  But somehow the ‘OD’ for Outta Debt doesn’t read right… ‘Got Outta Debt’ leads to ‘GOD’, would be pretty bad idea too..

But I digress… My Better Half just started working Full Time as a Kindergarten Assistant!  She’d been a substitute for the past few years at one of the schools, and they finally had an opening and she’s in!

We had used her subbing money to help us with our Debt Snowball and now we’re in the nice position of figuring out what to do with her salary.  This led us to talk about where we are in life (not quite 50), what needed to be done around the house, repairs, etc.

And of course, how we’re prepared for retirement.  Answer there is ‘not so hot’.  According to a recent Fidelity Investments report, the largest 401(k) administrator in the US says the average balance for a 401(k) is around $73,000 at the end of June.

So thanks to some recent upswings in Apple stock, we’re sitting right about with the average.  Not where we’d like to be.  And that brings the age-old question, at least for me.  How much DO we need to retire?   As you might expect the answer typically starts with ‘It Depends’.

A number of rough tools or ‘Rule of Thumb’ exist:

Expect to live at 80% of your current salary.

While this may make a certain amount of sense at first glance, there are a number of variables that play into it.  For many people, retirement will see a decrease in commuting, dry cleaning, lunches out, etc.  For me, I work at home 90% of the time which means my ‘work clothes’ can be an old Van Halen T-shirt and shorts or a ‘Monty Python’ sweatshirt when it’s colder (pants here as well). Lunches are at home, and my commute is to another room in the house.  Not seeing much of a difference there.

On the flip side, retirement can also provide a way to spend MORE money on travel, you do have more free time!

And even financial pros have differing opinions on the size of that final nest egg. Some, like Fidelity suggest at least eight times your annual salary.  Others say as high as 12 times the annual salary. Sorry, but that’s a pretty large sum for some people.  Especially for those approaching retirement age.

So what to do?  Short of finding a working model of Doc Brown’s fabled DeLorean and starting earlier, your options become a little more limited.

Here’s what we’ve chosen to do. (I bet you were wondering how we get back to the new Job question)

We’ll start by taking 50% (yes.. 1/2) of her salary and splitting it into bolstering our Emergency Fund, ‘House Maintenance’ and ‘New Vehicle’ accounts.   The other 50% will go into a 403(b) retirement fund. The maximum contributions for 2012 at $17,000 and once she turns 50, we can add additional money.  As we all know, Educators don’t get paid a whole lotta money, so I don’t think we’ll need to be too concerned about those limits.

As we hit the goals in these accounts, we’ll re-balance the 50% for the accounts until we hit the goals for all of them.  At that point, we’ll turn to either increasing her contributions up to 100% or accelerating payments on the home mortgage.

To all of those who’ve made it this far in the post, how are you looking to handle retirement? Where do you fit in the Fidelity Average?

Any ideas for us to get to a more comfortable place, so we’re not working into our 80’s?  


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