[cbanek]

I'm 35, and have been saving for retirement and maxing out my 401(k) ever since I started working. I don't think I'll ever have 4 million dollars in my retirement account, but I think (hope?) I'll be fine.

I think it's the numbers that are suspect in this analysis.

1. The calculator asks for your salary, then uses your current salary to determine your need for money in retirement. If you're saving 20% of your salary, then really you are only living on 80%, and that 80% should be used as your 'living expenses money'.

(fine print of calculator: We then assume you can live comfortably off of 85% of your pre-retirement income. So if you earn $100,000 the year you retire, we estimate you will need $85,000 during the first year of retirement.

I think it should be at least 85% of what you're not saving. For example, if you're making 100k, saving 20k, then really you should take 85% of 80k, which is 68 - not 85.

Also costs change as you get older. While you may spend more for health care, you hopefully won't have to pay rent, for raising children, etc.

Finally, they seem to say they want to take all the money and purchase an annuity. It seems like as soon as you retire, your money stops growing (other than for inflation) because of the annuity, but if you kept that money growing while you were retired, it would probably be even less.

Really the big trouble is you can't rely on ever increasing markets with some 7% yearly rate of return. It could be higher, it could be lower. If it's lower for a long time, basically the US retirement systems (both 401k and pension) are in huge trouble.

[mindingdata]

They take the 85% of 100k because it's assumed when you retire, you won't be saving any of your income, just drawing down.

This calculator is often uses to demonstrate different savings rates : https://networthify.com/calculator/earlyretirement

The reason why saving more quite rapidly lowers your retirement age is because it's a twofold saving. Firstly you are saving more money which is good, and secondly you are learning to live on less.

To take a super simple example. Let's say you can live on 50k a year. And you can get 3.5% on term deposit rates (You can in NZ). Then you should need 50,000 * (100/3.5) = 1.4 million approx to retire and be able to earn 50k a year off interest alone.

[cbanek]

Totally agree with all that, and that's what I rely on, that I can live frugally.

But in the article, they link to the calculator that gave them the 4 mil figure, and that asks how much you make, and how much you are saving. But it doesn't take the savings out first. So it's saying you can live on 85% of what you need now, if you save 0% or 50%. Since they have the number you are saving, it doesn't make sense to me to bake that into the 85% number, when they can calculate it based on the info you provide. I really think it's that on average, you only need 85% of your income, likely due to some smaller cost of living changes, but also tax implications, etc.

Your calculator is much better, and assumes you have enough money to draw down only the gains, and not the principal, but that's not what the calculator in the article does (as they mentioned in the fine print), they buy a fixed income inflation adjusted annuity at 6%.