Pre-retirement savings rates for renters – with and without investment cost improvements Improving on Fran and Fred’s lifetime financial plan through lower investment costs
Fran and Fred Frugal, both age 30, are a married working couple with $100,000 in combined annual earned income. They want to understand how valuable different personal finance strategies could be to their lifetime finances and their retirement security. In a baseline projection scenario, they planned always to rent, not to have children, to retire at age 65, not to use any tax-deferred investments, and to pay average investment costs.
Obviously, in this baseline scenario Fran and Fran have NOT adopted many of the lifetime financial planning practices that would make it easier to achieve financial success in life. See the “Fran and Fred’s Baseline Lifetime Planning Assumptions:” section at the bottom of this article for more information about Fran and Fred’s current personal finances and their other lifetime financial planning assumptions.
In a series of articles, The Skilled Investor will compare different lifetime financial planning projections for Fran and Fred to illustrate the relative value of adopting different financial planning strategies. To find a list of other articles about Fran and Fred as renters, click “Age 30 Renters” in the right hand column under “Find More Articles on These Topics.”
How much should Fran and Fred save to have enough financial assets until age 95, when they adopt a very low lifetime investment costs strategy?
At age 30, Fran and Fred have begun to reevaluate their financial practices. They want to know how much they “need to save” or “could spend” this year and in the years ahead and still have enough over their lives until age 95.
In an investment cost improvement scenario over their baseline financial planning case, Fran and Fred decided to commit to a significant reduction in their lifetime investment costs. Instead of paying average investment costs during their lifetimes, they decided to pay much lower investment costs. They intend to pay investment costs that would be typical of a passive, broad market, index investment strategy that is also managed to have very low costs.
Fran and Fred realize that reducing investment costs will take a some effort on their part. Instead of waiting to have costly brokers or advisors sell them expensive investments, they will seek out lower cost investments by themselves. Despite the additional effort on their part, their [...]