Boston Gal’s Open Wallet asks do you have two times your income saved for retirement? The most interesting part of the article was concept of a crossover point your retirement savings. The crossover point is when you make more from compounding interest than you do from new contributions. This happens when you have two times your income saved.
I had never really thought about it in this way, but it won’t change how I contribute to my retirement. I have about 35 years left until I reach traditional retirement age. I calculate that I’ll make about 5% each year after investment fees, taxes, and most importantly – inflation. Thus, I figure if I put in $15,000 in retirement this year, I will have over $82,000 in buying power at age 66. Next year, I will think of that contribution giving me buying power at age 67. I’m doing better than this because I’ve putting money for my retirement almost ten years ago. The math with each year now translating to one in retirement isn’t exact. Towards the top of the hill, I may find that I can live off the investment gains. I think of this philosophy as building a hill up until the point of retirement. The bigger the hill the longer I can coast down in my retirement.
As for the crossover point, a year ago, I might have been closer, but with the increase in my income over the last year, I fall short. I’m almost exactly at 1X my income. I’ll happily postpone my retirement crossover point party if I can keep increasing my income.