Money brings us the story of Jana Purdy and Tim Kramer. A May-December couple separated by 13 years, Purdy and Kramer are trying to manage their finances so they can retire at the same time. Ages 61 and 48 respectively (at the time of the article), they had already amassed a $1.8 million nest egg—$630K in retirement accounts, $595K in non-retirement accounts, $550K in real estate (their home and one other property), and $50K in liquid savings.
How did they do it? It looks like they accumulated about $1.2 million primarily through saving and investing. They have had a healthy income, about $120,000 annually; and they’ve been tucking away about $45,000 a year—about 38% of their income.
Is that good? A lot of published personal-finance advice suggests shooting for saving maybe 10% or 15% of gross income (see my brief discussion of this in, Six Ways To Set Personal-Finance Goals Without Doing Much Math)—but some of our reader discussion on this blog has suggested that numbers like 50% are quite attainable (see post and comments, Success Stories: $980,000 Retirement Kitty By Age 47).
I think 38% is great and sure wish I could get to that level myself. The 2007 U.S. marginal tax rate for a $120,000 income was 25% and the Colorado tax rate is 4.6% of federal-tax liability. Using very rough calculations based on marginal rate (rather than going dollar by dollar), their annual federal taxes would have been about $30,000 and state taxes around $1,380. That’ll be a little high because of only using the marginal rate, but roughly, their after-tax income was about $88,620. So they were living on about $43,620, before housing, utilities, medical, food, and so forth.
Some of that may have also been going to making more than the minimum mortgage payments. Purdy and Kramer have been married for about 20 years and expect to pay off their mortgage in 3 years. If they bought a house right after getting married (which is unclear) and had a 30-year mortgage (also unknown), they shaved 7 years off.
- Stating the obvious: higher income can super-charge savings and shorten the path to retirement. Kramer may be only 52 when they retire.
- If you have enough income to do them, investments outside retirement accounts are also important. Purdy’s and Kramer’s $45,000 annual savings has probably been above the annual limits for their retirement plans and other options available to them. (This is also consistent with what I saw in the investing patterns of a small set of millionaires discussed in another post: Lessons from the Millionaires — What Makes Up PFBloggers’ Net Worth? (Part 3).)
- Unexpected setbacks happen. The article describes how Purdy’s new and recently-diagnosed health issues have forced her to work less and is and will be costing them $16,000 every year in unreimbursed medical expenses. That sounds like they will take a double hit—less income and more expenses—in their last few years before retirement.
- Colorado’s income taxes seem pretty low to me!
If you’re in a couple (whether similar ages or with some separation), do you expect (or actively plan) to retire at the same time? I haven’t thought that much about this myself, though it wouldn’t surprise me if one of us ended up working longer than the other.