I think it’s 30% each so you have 10% left for candles
9 Likes
My comment was about Canada, which is where the book was written.
You can go buy the book and try to refute the analysis if you want. The main point is that a better model of retirement saving is have something that captures the dynamic of shifiting houshold priorities from early to mid to late career. The book is a fantastic demonstration of how to develop such an approach. As I said, there are 15 million unique Canadian households. No “rule of thumb” will work for all of them. The same applies in the US. When you have tens to millions of households it’s a fruitless exercise to say “oh, well your idea doesn’t work for me to it’s stupid”.
That wasnt what I was trying to imply, and maybe I read the original post wrong. Is it meant to be 30% each, or 30% of youe total income should be split and spread amongst the three things outlined?
This says that nearly half of American homebuyers in 2022 were spending 30-50% of their income on housing costs. It doesnt even take into account renters.
Like I said, maybe I misunderstood the original post, but for (most likely) more than half of Americans, the idea that you can spend 30% or under on housing, childcare, AND investing seems like an unobtainable pipe dream.
For a typical Canadian family that is struggling with balancing housing, retirement, and child care costs, an allocation of 30% of pre-tax household income across those three expenses will get someone to a sustainable retirement. This is in contrast to other standard industry studies that showed stuff like “you should save 15% of your salary every year to save for retirement” and people pointed out that in their 20s, 30s, and 40s that wasn’t really doable because of housing and the cost of raising kids.
Ok yeah, so that makes sense. It also means that, assuming the numbers you gave and the numbers I gave are correct, we are going to be in for a dismal retirement crisis in the next 10-40 years
People that start out spending 30% on housing will not spend 30% on housing forever. The point is that the 30% stays relatively stable and shifts between housing/kids/retirement as your circumstances change. If you spend 30% (or even 50%) of your income to buy a house, that % will decrease over time as your wages rise.
This is always possible, but experts have predicted 40 out of the last zero retirement crises in North America. In truth, policy makers can dedicate 95% of their retirement policy thinking to making sure that the old age poverty rate doesn’t rise. If they are doing that, the middle class and above are mostly going to sort this stuff out.
I get that concept, does it outline whether rates of income are increasing in line with the costs of housing and raising children?
In the US, each child costs roughly 13K per year to raise to age 18. If that was your only expense of the three, you would have to make roughly 50K per child per year just to stay in that 30% range. Considering the median salary in the US is right around that point, anybody with multiple kids isnt even close.
I’d have to dig out my copy of the book to look up the assumptions and methods. I didn’t memorize the whole thing.
Like I said, you can assemble household situations easily where the “rule” doesn’t work. That’s the nature of broad stroke rules. The model family in the book included two working parents, with enough income that the social security plans alone wouldn’t provide for adequate retirement, and they had at least one kid. It assumes the housing cost allocation is for a mortgage, that builds up equity and eventually goes away. The book is a really instructive way to think about shifting priorities and having a plan that works over a working career with retirement savings picking up when mortgage costs and child care costs are low. It isn’t a promise that any conceivable family with any conceivable lifestyle goals is guaranteed to reach them using a 30% “rule”. All I can tell you is that if you want to understand it better, read the book.
This definitely an interesting heuristic. I remember past meeting with a free financial planner as part of an employer benefit and was a lot of focus on looking at current spending and saving a % to maintain same level of spending in retirement.
And I was like “why do I need to plan to pay a mortgage and two kids daycare in retirement?” and the answer wasn’t super convincing, granted just having some plan to save is probably better than 90% of people so I certainly not complaining.
Practical retirement planning is super difficult for this reason. When you’re decades away from retirement, there are way too many moving pieces to make an accurate plan (you don’t know your future income, your future investment returns, your future cost of living before retirement or after retirement, you don’t know how long you’ll live, etc., etc.). That’s why when you’re young simple heuristics are helpful so that you will generally end up in the right place, but when you are close to retirement you need to get very specific and model out your specific expenses in retirement and how all of your sources of income in retirement are going to come together. An analogy I’ve often used is that it’s like driving from NY to LA. When you start, broad rules like “drive west” are helpful. The closer you get, the more you need to be sure to pick the exact interstates and exits and you have to periodically check to make sure you haven’t drifted farther north or south than intended, and adjust as needed.
3 Likes
I read otherwise. Meaning that 30% is the sum of those categories 3 categories.
1 Like
I had forgotten that the specifics are “mortgage payments, daycare costs and retirement savings”, I guess if you use terms like housing or childcare then it includes a bunch of other stuff like property taxes and utilities and food for the kids, etc.
1 Like
I used to stress out big time and do firecalc and shit but I’ve decided as long as I max out tax advantaged and throw spare cash into VTSAX when possible my retirement will be fine. I spend way more money than I used to and am absolutely happier for it.
This is the correct approach up until you are about 5 years from retirement, then I would tighten it all up and make a more structured plan where you go step by step projecting retirement expenses, then adding up all your sources of income and figuring out your after tax total, and then managing to a successful retirement date. If your situation is complicated enough, I’d even consider hiring an independent financial planner to run your situation through their tools and figure out the most tactical way to withdraw all your money in retirement. In Canada lots of people save many times the advisor fee in taxes to figure out the best way to coordinate social security, pensions, deferred tax savings, tax free savings, and taxable investments.
Those kinds of advisers exists in the US, but they are really hard to find.
I would absolutely hire someone to do this for me for a reasonable price. Right now I just post such questions on Bogleheads and wait for some answers while praying that no one links the thread over here for the lols.
I’m proud to say that none of my Bogleheads retirement questions have drawn the attention of our resident Boglehead hate readers. Hopefully, I can keep that streak alive.
1 Like
Guess you weren’t the “I have $9m and we spend $150/year - can we stop working?” port from a couple days ago lol
Edit: in fairness, reading it again, it was more about the psychology of retiring and the fear he’d feel bored/unfulfilled.
LOL not me. I was actually really interested in reading the thread for the lols until you posted your edit. That actually seems like a legit concern for most people. I don’t really have that problem, myself. If anything, I think I may have the opposite problem. There are so many things I want to do, I’m not sure how I’m going to find the time.
1 Like