Assume a 40 year old couple have a combined income of 200K, have saved 100,000 for retirement to date, each have a match of 75% of the first 6%, and can both save 18K per year into their 401Ks.

Assuming working until 65 and a 10% annual rate of return they will end up with 5.5 million.

Is that enough?

They could contribute more as limits change, and when catch up contributions kick in. However, with a 4% withdrawal rate, they can take home 220K, with some reductions to their expenses (no more payroll taxes, no more retirement savings, etc...) assume that this is more than enough for a comfortable life.

However, are they better off just taking some money home and using it for non-tax favored investing? Where does the balance lie?

  • 6
    Your annual expenses are a very important input and missing from the above.
    – rhaskett
    Apr 7, 2015 at 15:24
  • 1
    Eh, not really, assume that 220K is more then enough.
    – Pete B.
    Apr 7, 2015 at 15:32
  • 4
    Your 10% assumption is likely not inflation-adjusted, so the $5.5 million will not be in present dollars, but in future dollars, which are worth less.
    – BrenBarn
    Apr 7, 2015 at 17:10
  • 1
    Definitely need some input on what they consider 'comfortable' - excluding my mortgage payments, I live quite comfortably by my standards (which I freely admit aren't everyone's) on about 10% of that $220K (though I make a good bit more). Only drawback I see is that putting a lot in 401k & IRAs might put them in a position where taking just the required minimum distributions in retirement would still leave them in a high tax bracket.
    – jamesqf
    Apr 7, 2015 at 22:29
  • 10% rate of return? Where are you going to get that safely these days?! Apr 8, 2015 at 2:26

2 Answers 2


Pete, 25 years of inflation looks like 100% to me with back of napkin math. $220K will feel like $110K. In today's dollars, can you live on $110K? (Plus whatever Social Security you'll get)?

My concern from what you wrote, if I'm reading it correctly, is that you have this great income, but relatively low savings until now.

From the recent question Building financial independence I offered a guide to savings as it compares to income.

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Even shifted 5 years for a later start, and scaled for a 70-75% replacement ratio, you should be at 2X (or $440K) by now. That's not a criticism, but an observation that you've been spending at a nice clip so far. The result is less saving, of course, but also a need for a higher replacement ratio.

Last, a 10% return for the next 25 years may be optimistic. I'm not forecasting doom or gloom, just a more reasonable rate of return, and wouldn't plan to see higher than 7-8% for purposes of planning. If I am wrong, (and if so, we can both laugh all the way to the bank) you can always scale back savings in 10-15 years. Or retire earlier.

Note: Pete's question asks about a 40 year old working till 65, but the comment below has him 48 and planning to work until 62. 14 years of $45K deposits total less than $700K. Even at 10%, it wouldn't grow to much more than $2M, let alone $5M.

  • Thanks Joe for the thoughtful response, but the numbers are all contrived. For one, I am 48 and I intend on (partially) retiring at 62. :^)
    – Pete B.
    Apr 7, 2015 at 16:56
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    Forecasting that far out is always a crapshoot, anyway. What's important, in my opinion, is to look at the numbers, have a reasonable set of assumptions, and formulate a plan. Apr 7, 2015 at 20:33

Good news! It will be enough if you make the most important decision after retirement; that is, the decision to live within your means. With $220,000 per year in 2015 resources, will you live in the same size home in the same location as you do now? Or will you downsize a bit and move to a town with more reasonably priced homes and lower taxes? Apply the same thinking to all of your expenses.

In my opinion, making the decision to live within your means is the biggest decision you can make going into retirement.

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