Wednesday, December 14, 2011

When is 10% annual income savings rate enough?

I ran several scenario - annual contributions as percentage of annual salary, inflation, interest returns on the investments, Company (employer ) contributions:

Due to inflation expectations and the risks, once retired I would keep my money in the inflation protected vehicles - precious metals, government bonds.
Even if somebody says s/he needs less during the retirement:
 - You have to prove it to yourself, by living pre-retirement on less money for 5 years plus.
- It will only adds additional 2-3 years.

For simplicity I ran through a few  prudent investment scenario :

I would be very happy with a meaningful growth above inflation, i.e. 3% a year would late me to accumulate enough money to retire graciously.  But the tone has changed, I do not see how I could retire earlier, unless market conditions improve dramatically.

My answer to the savings rate question
- 10% is enough  when your company contributes more than 7% annually and you will work for it for 35 years.

For myself  if I do it religiously at 30 years,  I should aim to save at least 20-25% my after tax income in absence Company contributions.  

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