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How do you know when you have enough saved for retirement?

Can you give some advice for someone who is 41 years old with a retirement portfolio of ~$1,200,000 (85% in traditional 401(k), 10% in Roth IRA, 5% in brokerage account) and wishes to retire by 65 years of age (ideally earlier)? Should I stop contributing to traditional 401(k) (I feel I have enough) and put all 15% into a Roth 401(k) (we are above the limit for a Roth IRA)? Do you feel I have enough saved in retirement savings? Should I instead only contribute the minimum to get the company match and then start to divert the rest of the contribution into other non-retirement investments, or perhaps pay my mortgage off more aggressively (no consumer debt)?

With the multitude of online calculators and investors, it can be confusing to understand exactly what they are assuming and whether they are talking about FV or PV. Some say to use a 10% ROI, 8%, or 5%. To best estimate how much I will have in 24 years, should I use a 7% return? And then to account for inflation, divide that total in half to get a close ballpark of what I can expect to have at retirement in present dollars? Or should I use a higher (or lower) ROI?

I am trying to figure out at what point I have enough saved for retirement where I can start to perhaps save for a bigger house or invest my money elsewhere. I know it's based on how my wife and I wish to live while in retirement, but my rough calculations tell me that I should be able to withdraw 4% yearly in retirement and have roughly what I currently make in salary today.

Financial Planning, Retirement Savings, Asset Allocation
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July 2017

Edward Thorp answered this question in his excellent book published earlier this year.  If you can afford to live on 2% of your total net worth which you withdraw each year, then you have saved enough for retirement.  Otherwise, you need to save more or to more intelligently do Roth conversions and other tactics to reduce your long-term taxes, while using a more disciplined approach to buying unpopular assets while selling trendy ones.

If you have 85% of your net worth in a traditional 401(k) then it is not really worth as much as you think, since you are going to have to pay taxes on all of the before-tax money when you withdraw it.  It is probably only worth about 60% of its notional value after paying federal and state income taxes (a bit more if you live in a state with no state income tax).

Withdrawing 4% a year probably won't work in the long run.  It might, but chances are that your total net worth will eventually get dangerously low.  If interest rates become much higher in the future, which is possible, then that could be more successful.

Do not assume something unrealistic like a 7% return.  You could suffer severe losses whenever we have the third U.S. stock-market collapse since 2000 which could happen sooner than you expect.

You didn't mention an HSA (health savings account).  Be sure to put in the family maximum of 8750 annually.  There are no income restrictions and the amount is fully deductible from your income on Form 1040, plus you can withdraw all of it and all gains completely tax-free when you reach age 65.

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