2X 4X 8X
Yield Contrib Contrib Contrib
4.532% 18.727% 37.454% 74.908% - Special Case: This produces 2X in ten years
AND falls along Fidelity's default solution curve.
6.00% 17.321% 34.642% 69.284%
7.00% 16.420% 32.840% 65.680%
8.00% 15.561% 31.122% 62.244%
9.00% 14.745% 29.490% 58.980%
10.00% 13.969% 27.938% 55.876%
Retirement solutions strongly depend upon the assumptions you use!
In this posting, we use a frequently-quoted set of assumptions appearing in the footnotes of a Fidelity Investments article,
how-much-money-do-i-need-to-retire
In short: begin contributing at age 25, ZERO prior savings, retire at 67;
45% of final years' salary, becomes first year retirement payout.
Inflation 2.5%; Real 1.5% raises at 2.5% inflation, become actual raises of: 4.0375% per year;
COLA (cost of living adjustment) each year of retirement, at assumed inflation rate.
CAUTION: Money runs out after age 93; this is a Fidelity stipulation, and is used in our Tables and our Discussion.
We would recommend recalculating with age 105 rather than 93, for the money runout age.
This would increase the savings difficulty, due to the larger nestegg required for 12 extra years of payouts,
but provide a larger margin of safety in case you live a long time.
In our Tables A & B, etc, these are the numbers that go into each calculation, except for the modifications
specified for each scenario, such as a different payout rate (not 45%) or different retirement age (not 67),
or different amount of savings at start (0X, 2X, 4X or 8X, of starting salary), or starting age (25 or 35).
In our vernacular, the data cell at the intersection of each row and column of Tables A & B, and their Supplements,
completes a RETIREMENT SOLUTION:
A combination of salary contribution and investment yield,
which together produce the exact retirement payout percentage specified.
Easier Default Retirement. Full Retirement Age (FRA). 45% Payout. Contributions reduced or eliminated.
See Table A and/or Table B -- default information appears in both tables.
Earlier Retirement. 45% Payout, begins at younger Age
See Tables A and A-Supp.
Higher Retirement Payout at FRA. More than 45%, begins at Age 67
See Tables B and B-Supp.
PARTIAL discussion: Combinations of Earlier retirement AND Higher payout, limited to the compensation for missed raises.
Also possible, but NOT DISCUSSED in this posting:
"De-risk" your investments at retirement (move your nestegg to lower yielding, safer investments).
For perspective, we will also discuss two CONTROL scenarios with NO savings sprint: 0X @25 and 0X @35.
0X @25 is: the standard vanilla scenario; start contributions at age-25, zero savings.
0X @35 is: Oops, 10 years happened with other priorities; start contributions at age-35, zero savings.
DEFAULT RETIREMENT: Coasting (1% contribution) would require 12.970% yield, thus is not feasible;
10% contribution with 6.401% yield is realistic for some;
20% contribution with 4.332% yield is realistic for the rest;
EARLY RETIREMENT at age-62 is doable via 10% contribution with 7.291% yield, or 20% contribution with 5.161% yield;
at age-57 is doable via 20% contribution with 6.016% yield,
at age-52 is doable via 20% contribution with 6.986% yield,
or 30% contribution with 5.613% yield
at age-47 is doable via 30% contribution with 6.681% yield,
or 50% contribution with 4.898% yield
at age-42 is doable via 50% contribution with 6.103% yield,
or 70% contribution with 4.892% yield
HIGHER PAYOUTS at FRA (age-67, and instead of the 45% default)
62.5% payout is doable, supported by a 20% contribution with 5.321% yield;
80% payout is doable, supported by a 20% contribution with 6.053% yield;
DEFAULT RETIREMENT: Coasting (1% contribution) would require 16.109% yield, thus is not feasible;
10% contribution with 7.826% yield is too risky for most;
20% contribution with 5.354% yield might be realistic for many;
30% contribution with 3.908% yield will work;
EARLY RETIREMENT at age-62 is doable via 20% contribution with 6.541% yield, or 30% contribution with 5.038% yield;
at age-57 is doable via 30% contribution with 6.295% yield, or 50% contribution with 4.347% yield;
HIGHER PAYOUTS at FRA (age-67, and instead of the 45% default)
62.5% payout is doable, supported by a 20% contribution with 6.526% yield;
DEFAULT RETIREMENT: COASTING is a stretch at yield of 7.75% but the standard retirement can be had via 10% contribution with 5.740% yield,
or 20% contribution with 4.345% yield
EARLY RETIREMENT at age-62 is doable via 10% contribution with 6.553% yield, or 20% contribution with 5.220% yield;
at age-57 is doable at 20% contribution with 6.150% yield;
at age-52 is doable at 30% contribution with 6.274% yield;
at age-47 is doable at 50% contribution with 6.288% yield;
HIGHER PAYOUTS at FRA (age-67, and instead of the 45% default)
62.5% payout is doable, supported by a 10% contribution with 6.707% yield,
or 20% contribution with 5.380% yield;;
80% payout is doable, supported by a 20% contribution with 6.156% yield;
INTERESTING: This scenario overlaps with the earlier 0X @25, because one pathway through 0X @25
actually creates 2X savings when it passes through age 35. The very first table in this posting,
showing different ways of doing the ten year sprints, mentions 18.727% contributions at 4.532% yield,
as the point where both scenarios agree. Hence the extreme similarities at contributions of 20% (close to 18.727%).
DEFAULT RETIREMENT: COASTING requires a yield of 6.035%; a 5.00% contribution with 5.342% yield will also work;
This is the only exception to use of Table A/B data, made here because we do not need to contribute as much as 10%.
EARLY RETIREMENT at age-62 is in reach for most, at 10% contribution with 5.371% yield;
at age-57 is doable at 10% contribution with 6.037% yield, or 20% contribution with 5.156% yield;
at age-52 is doable at 10% contribution with 6.793% yield, or 20% contribution with 5.976% yield;
at age-47 is a stretch at 20% contribution with 6.996% yield, or 30% contribution with 6.363% yield;
at age-42 is a challenge, at 50% contribution with 6.979% yield,
or 70% contribution with 6.233% yield;
HIGHER PAYOUTS at FRA (age-67, and instead of the 45% default)
80% payout is doable, supported by a 10% contribution with 6.316% yield;
115% payout is doable, supported by a 20% contribution with 6.462% yield;
150% payout is tougher, supported by a 30% contribution with 6.550% yield;
220% payout is tougher yet, supported by a 50% contribution with 6.654% yield;
290% payout is around the upper limit, supported by a 70% contribution with 6.714% yield;
DEFAULT RETIREMENT: COASTING to FRA becomes EASY. You only need a yield of 4.379%, to bypass all further contributions!
EARLY RETIREMENT at age-47 is easy at 10% contribution with 5.528% yield;
at age-42 is doable at 10% contribution with 6.209% yield;
at age-37 is still doable at 10% contribution with 7.178% yield.
The main reason to NOT retire before 47, would be discomfort with the higher investment yields required.
HIGHER PAYOUTS at FRA (age-67, and instead of the 45% default) are another alternative;
80% payout is very easy, supported by a 10% contribution with 5.035% yield;
150% payout is doable, supported by a 20% contribution with 6.138% yield;
220% payout is tougher, requiring a 30% contribution with 6.745% yield;
290% payout is tougher yet, requiring a 50% contribution with 6.782% yield;
360% payout is around the upper limit, requiring a 70% contribution with 6.806% yield;
Sprint Task: 2X 4X 8X
------ ------ ------
Difficulty: 12.317 18.016 24.778
Find the C=Y Value
Note that this information will not be present on a fresh
NesteggCycle.com Calculator screen.
It appears or refreshes AFTER each run of the calculator [after you click on the grey CALCULATE button].
Click the SHOW PLOTTED TRADEOFF button, which will appear just to the right of the grey CALCULATE button.
This will bring up a new tab in the browser, showing a plotted curve of contributions versus required yields for this scenario.
This is an instructive visual in its own right, but for now,
scroll down below the plot until you see a chart of X and Y values on the left side of the screen.
Locate the row where the two side by side values are the same.
That is the value you want.
Setting a Reasonable GOAL Salary Replacement percentage:
A "reasonable default" GOAL salary replacement is 50 (percent) but play with this and do some
homework as to your own personal expectations for retirement.
If your salary is at or above the Social Security taxable maximum, $160,200 in 2023, Social Security benefits might
replace about 20 percent of your salary or less. If your salary is very low, Social Security might replace close to 80 percent.
For a more detailed discussion of these replacement rates,
this article shows
a range of salaries and approximate replacement rates from Social Security benefits, but
your most reliable information comes from your own individual benefit projection report,
from the Social Security Administration (SSA).
Broad Contribution Range, to get yields for contributions of 10% & 20%
This is the default report provided by our software, presenting the yields required for contributions of:
2.5%, 5.0%, 10%, 20%, 40% and 80% of salary.
Custom Contribution Range, in general
Starting at top left of the light grey main area of the calculator screen, scan down to "Annual INFLATION% (best guess):"
The next row will contain the big grey CALCULATE button, and to its left, you will see " Contribution Range:" and then "Broad".
Click on "Broad". A dropdown list will appear. In this list, click on "Custom".
A grey screen will overlay the calculator, with a message,
"Custom: Read tooltips for 2 colored boxes between Custom and CALCULATE. Enter your 2 Values before clicking on CALCULATE"
and an "OK" button. Click the "OK" button.
There will now be a new
ivory colored data entry box,
and a new
sky-blue data entry box,
to the left of CALCULATE.
Type any Contribution percentage value of interest, with up to 2 decimal places, into the ivory box.
Type any Step percentage value of interest, with up to 2 decimal places, into the sky-blue box.
Enter only digits and optionally the decimal point. Do NOT enter the "%" character.
When the CALCULATE button is clicked,
your report will present five contributions incremented UP from your central value,
and five incremented DOWN,
and will calculate the required investment Yield% for each contribution shown.
By adjusting the size of the Step, you can focus as narrowly or as broadly as you want, around the central value.
Custom to Validate your own Contribution
Enter the amount you are actually Contributing, or interested in contributing, into the ivory box.
Enter any reasonable Step amount into the sky-blue box.
Start with steps of about 10% of your central amount;
Thus if centered on 15%, you might try steps of 1.5%.
You'd see your 15%, as well as 16.5% and UP, as well as 13.5% and DOWN.
Adjust to larger or smaller steps as needed, to find the information you want.
The object is to see the Yield required for your contribution, and evaluate whether you are earning that much.
IF you are NOT, you will need to do some combination of: contribute more, re-invest into something that earns more,
and/or lower your GOAL salary replacement expectations.
Custom 45 x 5 to get the data for Supplement tables.
Type 45 into the ivory box, and 5 into the sky-blue box.
This provided the 30%, 50% and 70% Contributions we needed in tables A-Supp and B-Supp.
Custom 1.05 x 0.20 followed by manual extrapolation to get yield at ZERO contribution (COASTING)
Type 1.05 into the ivory box, and 0.20 into the sky-blue box. Also be sure to select "Low-C_Extend".
This gets you very close to ZERO contribution. You need to manually do the extrapolation from 0.05% to zero%.
Take the Yield difference between contribs of 0.25 and 0.05, then add 1/4 of THAT, to the yield value at 0.05.
Custom 1.00 x 0.10 to get yield at 1% contribution (proxy for COASTING)
Type 1.00 into the ivory box, and 0.10 into the sky-blue box. Also be sure to select "Low-C_Extend".
Use this for scenarios starting with ZERO savings. We cannot use ZERO contributions here,
so we arbitrarily use a very small contribution of 1%.
To TOP of page
A B C D Ret_Age 67 - A 1.015 ^ B 45% x C 67 0 1.00000 45.00% 62 5 1.07728 48.48% 57 10 1.16054 52.22% 52 15 1.25023 56.26% 47 20 1.34686 60.61% 42 25 1.45094 65.29% SEE Example below. 37 30 1.56308 70.34%
Age 42 ...... ./Pay 65.29% ......
* Scenario (the Leftmost column) What you GET after you Retire, and When it Starts Paying OTHER Columns: Alternate ways to PAY for this retirement scenario Each is a combination of Salary Contribution (Contrib) and Investment Return. These fall along a continuum. You can always find intermediate solutions with the Calculator. * Difficulty The point where your retirement is properly funded with a Contribution rate that is exactly the same as the Yield you are getting: Contrib=Yield, or "C=Y". This seems to be a nice "Index of Difficulty" for ranking different scenarios. * Int at 20% Contrib Contribute exactly 20% of your income? - The Yield (Int, Interest Rate) you'd need. * Int at 10% Contrib Contribute exactly 10% of your income? - The Yield (Int, Interest Rate) you'd need. * Int at ZERO Contrib IF you want to COAST - to make NO more contributions after the 10 year sprint, This is how much Yield (Int, Interest Rate) you need your investments to earn. When savings started as ZERO (no sprint), we used contributions of 1% rather than 0%. In Tables A-Supp and B-Supp, the concept is similar, except that here, we focus on the more difficult scenarios, so we replace the 20%/10%/0% contribution columns with 70%/50%/30% contribution columns. As before, the data shown in each column, is the investment yield required to make the retirement succeed with that amount of contribution. More contribution requires less yield. Some scenarios appear in BOTH A and A-Supp, or in B and B-Supp to show the whole contribution spectrum. There are a few most-challenging scenarios which appear ONLY in the -Supp tables.
Table A: The PAYOUT is Always 45% (except where "./Pay" is shown)
AND we Vary the Retirement Age
Scenario: Difficulty 20% Contrib 10% Contrib 0% Contrib
------------
0X at age 25:
Age 67 7.314% 4.332% 6.401% 12.970@1%
Age 62 7.984% 5.161% 7.291% 14.407@1%
Age 57 8.725% 6.016% 8.274% 16.211@1%
Age 52 9.607% 6.986% 9.460% 18.645@1%
0X at age 35:
Age 67 8.434% 5.354% 7.826% 16.109@1%
Age 62 9.420% 6.541% 9.188% 18.611@1%
Age 57 10.627% 7.927% 10.896% 22.188@1%
------------
2X at age 35:
Age 67 6.376% 4.345% 5.740% 7.750%
Age 62 7.042% 5.220% 6.553% 8.456%
Age 57 7.794% 6.150% 7.447% 9.274%
Age 52 8.725% 7.251% 8.532% 10.301%
4X at age 35:
Age 67 5.303% 3.692% 4.730% 6.035%
Age 62 5.833% 4.420% 5.371% 6.562%
Age 57 6.402% 5.156% 6.037% 7.132%
Age 52 7.065% 5.976% 6.793% 7.795%
Age 47 7.915% 6.996% 7.743% 8.640%
8X at age 35:
Age 67 4.028% 2.819% 3.545% 4.379%
Age 57 4.815% 3.932% 4.494% 5.135%
Age 47 5.716% 5.119% 5.528% 5.984%
Age 42 6.326% 5.904% 6.209% 6.539%
./Pay 65.29% 7.931% 7.529% 7.861% 8.219%
Age 37 7.214% 7.051% 7.178% 7.309%
./Pay 70.34% 9.926% 9.760% 9.925% 10.094%
Table B: The Retirement Age is Always 67, and we Vary the PAYOUT
Scenario: Difficulty 20% Contrib 10% Contrib 0% Contrib
------------
0X at age 25:
Pay 45% 7.314% 4.332% 6.401% 12.970@1%
Pay 62.5% 8.005% 5.321% 7.361% 13.893@1%
Pay 80% 8.532% 6.053% 8.076% 14.585@1%
0X at age 35:
Pay 45% 8.434% 5.354% 7.826% 16.109@1%
Pay 62.5% 9.269% 6.526% 8.999% 17.310@1%
------------
2X at age 35:
Pay 45% 6.376% 4.345% 5.740% 7.750%
Pay 62.5% 7.168% 5.380% 6.707% 8.584%
Pay 80% 7.776% 6.156% 7.433% 9.221%
Pay 115% 8.691% 7.292% 8.505% 10.171%
4X at age 35:
Pay 45% 5.303% 3.692% 4.730% 6.035%
Pay 80% 6.668% 5.393% 6.316% 7.453%
Pay 97.5% 7.151% 5.975% 6.865% 7.952%
Pay 115% 7.559% 6.462% 7.322% 8.371%
Pay 150% 8.225% 7.243% 8.064% 9.053%
Pay 185% 8.759% 7.862% 8.651% 9.600%
Pay 220% 9.205% 8.373% 9.139% 10.055%
8X at age 35:
Pay 45% 4.028% 2.819% 3.545% 4.379%
Pay 80% 5.355% 4.405% 5.035% 5.749%
Pay 115% 6.220% 5.405% 5.983% 6.634%
Pay 150% 6.866% 6.138% 6.683% 7.291%
Pay 185% 7.384% 6.719% 7.239% 7.818%
Pay 220% 7.817% 7.199% 7.701% 8.257%
Pay 290% 8.516% 7.969% 8.443% 8.966%
Pay 360% 9.072% 8.575% 9.027% 9.526%
Table A-Supp: The PAYOUT is Always 45% (except where "./Pay" is shown)
AND we Vary the Retirement Age
Scenario: Difficulty 70% Contrib 50% Contrib 30% Contrib
0X at age 25:
Age 52 9.607% 2.918% 3.961% 5.613%
Age 47 10.736% 3.801% 4.898% 6.681%
Age 42 12.319% 4.892% 6.103% 8.137%
Age 37 14.842% 6.489% 7.949% 10.518%
./Pay 70.34% 17.034% 8.466% 10.170% 13.154%
0X at age 35:
Age 67 8.434% 0.886% 2.086% 3.908%
Age 62 9.420% 2.004% 3.191% 5.038%
Age 57 10.627% 3.127% 4.347% 6.295%
Age 52 12.266% 4.420% 5.738% 7.911%
Age 47 14.825% 6.206% 7.753% 10.423%
2X at age 35:
Age 52 8.725% 3.847% 4.854% 6.274%
Age 47 10.016% 5.247% 6.288% 7.747%
4X at age 35:
Age 47 7.915% 4.554% 5.346% 6.363%
Age 42 9.166% 6.233% 6.979% 7.908%
8X at age 35:
Age 42 6.326% 4.683% 5.121% 5.623%
./Pay 65.29% 7.931% 6.192% 6.672% 7.222%
Age 37 7.214% 6.476% 6.694% 6.928%
./Pay 70.34% 9.926% 9.024% 9.304% 9.603%
Table B-Supp: The Retirement Age is Always 67, and we Vary the PAYOUT
Scenario: Difficulty 70% Contrib 50% Contrib 30% Contrib
2X at age 35:
Pay 115% 8.691% 3.932% 4.956% 6.354%
4X at age 35:
Pay 150% 8.225% 4.552% 5.431% 6.550%
Pay 185% 8.759% 5.241% 6.101% 7.191%
Pay 220% 9.205% 5.810% 6.654% 7.720%
Pay 255% 9.589% 6.293% 7.125% 8.170%
Pay 290% 9.926% 6.714% 7.535% 8.564%
8X at age 35:
Pay 220% 7.817% 5.279% 5.951% 6.745%
Pay 290% 8.516% 6.136% 6.782% 7.538%
Pay 360% 9.072% 6.806% 7.431% 8.160%