I read a lot of websites that say, "I've run the numbers, and you should be saving around X% of your income for retirement in order to be safe, and have fruitful golden years." With X% being a number at or around 15%.
Getting to their assumptions when they "ran the numbers" has proved to be nigh impossible. They also seem to be limited to items like, you make $50,000 per year and your investments return 10%. There has to be more underlying assumptions, therefore, I am asking:
What assumptions are tacit in the statement that "saving and properly investing 15% of one's income over a lifetime is a pathway to a successful retirement?"
By this, I mean items along the lines of:
- Single, married, or single and dating at time of retirement?
- Retire at 55, 60, 65, 80?
- 25K/yr income, 50K/yr income, 150K/yr income?
- That 15% goes to a tax advantaged account? (i.e. 401k, IRA, Roth, your nephew's 529?)
- Kids or no kids?
- Paying for said kids' college or not paying?
- 2003 to 2007 returns, 2008 to 2009 returns, or "I averaged the whole S&P500 over 2 world wars and order of magnitude technology advances" returns?
- Dual incomes the whole time?
- Making a lot more money at time of retirement, or making about the same money as early to mid career at or about the time of retirement?
- Renting a house the whole time, or owning a house as early as possible?
- Obscene ROR's on that house, or assuming it loses money?
- Your expenses go down at retirement, stay the same, or go up?
- Medicare exists? Social security exists? Tax rates go up, down, stay the same?
- You'll never get laid off, you might get laid off, you get laid off often?
- Family helps you out with major purchases, or does not?
- No, big, or modest inheritance?
- Live in a cheap area, or live in a "statistically average for costs, land, CPI, wages" area of the US?
- Taxes go up, taxes go down, taxes stay about the same?
- Leaving a nest egg when you die? Or, dying broke?
- Living to the statistical average age of men and women in the US, or, living to be 101.2?
- Inflation under control? Inflation to the moon? Has it considered deleveraging and deflation?
- State with an income tax? Or only a state with sales tax?
I like to run little what if spreadsheets for retirement and every time I do, 15% comes in woefully inadequate for retirement. This surprises me, as, I consider my life plan to be among the easier (read, cheaper) ones to find a tenable retirement solution. I.e. age 31, no kids, no plan to ever have kids, no debt, home buying adverse, upper income per capita job, eventual wife will likely work full time, extremely mobile and willing to move, and with a job skill set that is likely to not be out of work often.
Edit: Assumptions that usually land me in hot water are: long term rates at 4% to 5%, salary adjustments of ~4% per year up to a cap (a cap equal to what a senior person in my industry is paid, has mimicked my salary raises surprisingly well actually), I assume a 20% tax rate on earnings averaged over all accounts, then I seek to replace an "inflation" adjusted 100K at ~1.5% per year (my real goal would be a CPI adjusted 100K into the future, which very likely would not be driven by inflation, but no one has one of those crystal balls).
Using those, 15% doesn't cut mustard. Which makes sense since most estimates below seem to boil down to replace $X salary at age Y assuming Z% ROR.