quote:

Originally posted by pedropcola:
I respectfully disagree. Time value of money is the single biggest tool you gave in your toolbox. Period. Unless you have a crystal ball in there as well. Lol

Adjusting for inflation tells only a part of 5he equation. Yes a dollar at 20is harder to come by than a dollar at 30.

I think this is directed at my comment about the twins. As I said, there is no question that starting early is a tremendous benefit.

I'm not talking about disposable income at a certain age, but the value of the "equal contributions" made. The twin example that we've all heard leads one to believe that the early start has a 3.5X greater effect (10 years vs 35 years). It does not. When you figure out the value of the dollars contributed, it is about 1.7X.

I AM NOT saying that the difference is insignificant. It is very significant, but not as great as the raw number makes it seem.

Here is one version of the concept. It’s fucking math so I don’t understand why you are arguing. This example uses 5000 a year. The amount is meaningless, substitute any amount you like. The math remains the same. The twin who starts 10 years later puts in 3X the principle. In this case 150,000 dollars vice 50,000 and ends up coming up short by a little. That is the time value of money. If the first twin keeps contributing instead of stopping he obliterates the second twin.

You can try to blur the argument in many ways but you are just wrong. The math doesn’t lie or change. Starting early is the simplest most effective method of accruing wealth. Period.

Almost everyone, not everyone but most people, spend their money on things they should avoid because saving money is just too hard. That is the sad truth.

Start early and it will pay large dividends later in life. Rationalizing that putting off savings is ok is kicking the can down the road hoping for the best. It’s stupid and short sighted and you can talk about inflation rates and income levels to obscure the reality but nothing nothing nothing beats starting early. I literally started my retirement with 50 dollars a month. Put away what you can early and don’t touch it.

Yes, it's fucking math, and I'm not blurring anything.

Assuming 3% inflation, that $5,000 that Bill contributes at age 65 (40 years after Susan's initial investment) is worth less than 1/4 the $5,000 that Susan invested at age 25. Even Susan's age 35 dollars are worth less than her 25 dollars. Those are not equivalent dollars and he did not invest 3X as much purchasing power.

AGAIN: Not arguing against saving early, but these examples grossly exaggerate the effect.

quote:

Originally posted by MNSIG:
Yes, it's fucking math, and I'm not blurring anything.

Assuming 3% inflation, that $5,000 that Bill contributes at age 65 (40 years after Susan's initial investment) is worth less than 1/4 the $5,000 that Susan invested at age 25. Even Susan's age 35 dollars are worth less than her 25 dollars. Those are not equivalent dollars and he did not invest 3X as much purchasing power.

AGAIN: Not arguing against saving early, but these examples grossly exaggerate the effect.

Let’s concede a certain artificiality to such charts and projections. Aassumptions are made for simplification and cannot hope to accurately portray real life outcomes. No tax impact, for example, among other complexities.

If you want to make assumptions, pick whatever you want, 3% inflation, 5%, 10%, each of which was experienced, although not continuously over 30 years. Use various assumptions about rate of return, too.

These charts and graphs are for illustrating a principle, not creating an audit trail.

quote:

These charts and graphs are for illustrating a principle, not creating an audit trail.

This!

The point is save from the time you get out of college, high school, trade school, military, etc. Save whatever you can, no matter how little. If you do it will pay off in the long run. Especially if you continue to save and increase savings with increased pay later in life.

There is no arguing this, it's fact.

You are being purposely obtuse and you are just wrong. Your argument holds no water. You are talking out of both sides of your mouth. On one hand you agree starting early is best then you point out that it really won’t matter much because inflation will minimize the gain to the point of irrelevance. What?

This chart is simplistic by nature. It is designed to show people with a poor math aptitude what the value of compounding is. Most people think this chart can’t possibly be true. You appear to be one of those.

Bottom line. There are ZERO scenarios where putting money into savings/investment/retirement accounts earlier rather than later is not a good idea. Zero. Encourage early investments unless you enjoy the idea of working late into your life whether you want to or not. This argument is tantamount to arguing whether or not the sun rises in the East. You just won’t concede it is just plain truth. Or math.

Btw, Midwest guy explained the rules of 7’s well, or more correctly as he pointed out the rule of 72’s. Also just math.

quote:

Originally posted by pedropcola:
You are being purposely obtuse and you are just wrong. Your argument holds no water. You are talking out of both sides of your mouth. On one hand you agree starting early is best then you point out that it really won’t matter much because inflation will minimize the gain to the point of irrelevance. What?

Never said it doesn't matter. Never said it was a bad idea. Never said inflation makes it irrelevant. Show me where I did.

Our argument has nothing to do with the 4% rule in the OP. Time to move on.

The biggest problem, sabotage if you will, is someone borrowing from their 401k, for the purpose of paying off credit cards, buying crap, new cars, down payments, etc.

Don't do that.

Save and NEVER take a penny out until after you are retired.

Man, pedropcola, you really get fired up for time value of money and compounding don't you?

MNSIG, What's the point of your argument? The chart and math clearly shows that your better off starting earlier. If you really want to know how much value was contributed you can calculate the present value of Bill's contributions in year ten based on inflation and the future value of Susan's contributions at year 10. If you did this they are starting with similar values of money. Either way it's still best to be Chris.

How about you guys try not to turn an interesting discussion into a pissing contest please.

I think I’m doing alright. Putting 6% per paycheck which my employer matches 50% of. In 3.5 years my 401k is sitting around 15k. At 32 years old with another 30 years of similar contributions I should end up able to retire without my wife needing to work around 65 years old. When my wife goes back to work in a few years. our retirement savings will double as she makes a similar salary and has a similar retirement package.
Looking at it now I wish I started investing 10 years ago.

quote:

Originally posted by Skins2881:

quote:

These charts and graphs are for illustrating a principle, not creating an audit trail.

This!

The point is save from the time you get out of college, high school, trade school, military, etc. Save whatever you can, no matter how little. If you do it will pay off in the long run. Especially if you continue to save and increase savings with increased pay later in life.

There is no arguing this, it's fact.

Good points.

There are a variety of assumptions and analyses pertinent to the topic. The reality seems to be that a majority of Amnericans will not be able to afford retirement. Another reality is that social security and many public defined benefit pensions have significant unfunded liabilities, meaning those who may depend on such for their retirement will get shortchanged, or the taxpayer will get slammed.

Bottom line, there is an economic tsunami headed our way.

quote:

Originally posted by Graniteguy:
With a few exceptions, there is nobody on this Forum that can come even close to knowing how much they will actually need for retirement. 70,80, 90? How long will you live and what medical conditions will you have to deal with during those periods?

I get the impression that you and I are kindred spirits. I strongly agree with your point-of-view.

The question is always the same; is doing the right thing REALLY the right thing to do? There is a very slippery slope you'll be treading on when answering that question.

Truth is, there are companies that study what you make, what you save and what you invest in order to price EVERYTHING associated with your daily life. Everybody and everything you associate with will be oriented towards extracting every penny they can get from you.

Then, there is the devil of inflation.......

Your job is to differentiate between what's real and what's not. Loosely phrased, this is what lawyers call "due diligence".

Personally, I would suggest taking whatever number you come up with for retirement and then doubling it. I know too many people that have done the right things outlined in this thread and have still ended up in the red.

I'll agree with the pundits that starting early is going to be better. However, a carefree retirement requires some very shrewd thinking.

V.

Yes, I’m sorry, this subject gets me fired up. I’ve got plenty of extended family that are always short. Need help. Have no money for retirement. Blah blah blah. It pisses me off that most bad financial decisions are just due to bad choices and bad information. So yes, arguing against starting early for whatever reason annoys me because it is HORRIBLE advice.

As for the 4% rule. It was and always will be just a guideline. A starting point for your planning. I think it still has value. Is it accurate? Dunno. You tell me what your return rates and expenses and date of expiration is and I can tell you the percentage point to multiple decimals. Lol.

To me, the 4% rule was ballpark stuff. You have people using weird unreasonable numbers to plan. 10% a year return, 10% withdrawals,etc. I think it’s still valid or close enough to be a reasonable planning tool. Which is all it ever was.

Sorry if I got heated.

quote:

Originally posted by chellim1:

quote:

Nice to know I'm in the 13% crew.

Good job!

Take a look at that graph again.
Add the first 3 categories together....
33+23+10=66
Two thirds of all Americans have under 50K saved for retirement... what are they planning on doing?

They are not planning, obviously. However, they will happily vote to take everything away from those of us in the 13%, even though that will not be enough for everybody. But it will be “fair”.

Molon labe. Copper/lead investment goes first.

quote:

Originally posted by feersum dreadnaught:

quote:

Originally posted by chellim1:

quote:

Nice to know I'm in the 13% crew.

Good job!

Take a look at that graph again.
Add the first 3 categories together....
33+23+10=66
Two thirds of all Americans have under 50K saved for retirement... what are they planning on doing?

They are not planning, obviously. However, they will happily vote to take everything away from those of us in the 13%, even though that will not be enough for everybody. But it will be “fair”.

Molon labe. Copper/lead investment goes first.

They are not planning, obviously. However, they will happily vote to take everything away from those of us in the 13%, even though that will not be enough for everybody. But it will be “fair”.

That needs a repeat.

A couple of thoughts on the 4% rule which i had never heard of. But I do like the concept.

A lot of it has to do with spending once you retire. How much do you need vs. want.

For some, they will have had most everything they wanted in their lives. All the goodies. Think about living out a life like your grand parents or great grand parents if you new them. A simple life. An enjoyable life for them.

Then for others it will be luxury time. New this, new that. A new home, travel all over, etc. etc. etc.

And then some in between those two.

Having a retirement that mirrors the lifestyle you hope to have is key in my mind.


For most, even those in the 13%, amassing great wealth is not necessarily the greatest priority. Or shouldn't be. But rather just getting to the point where you feel like you can be satisfied in the life you choose to live in retirement. Whatever that is.

A couple of thoughts, in no particular order.

Compound interest is a powerful tool, and is one of many in your financial toolbox.

It's harder to generate money in your 20's than it is in your 30's. For the same amount of "effort", one can likely put away more money in their 30's than in their 20's.

Reward typically follows risk. Saving and investing from an early age is considered a safe bet in the long run, and the reward is commensurate. Taking that same money and doing something riskier (like starting your own business) might lead to better returns, or it might lead to ruin.

Experiences can generate "compound interest" as well. Meeting a hot chick in Paris and spending the summer drinking and shagging your way through Europe on a motorbike in your 20's will, over time, probably generate considerable more enjoyment than doing the same while in your 60's.

Compound interest becomes more powerful the longer the money sits and earns. The corollary is that most of that power comes at the very end, and that catching up is easier at the beginning. Bill would be in the (nearly) the exact same position as Chris if Bill dumped $50k into his account at year 35, and continued saving at the same rate as Chris until age 65--on the other hand, Bill injecting $50k into his savings at age 55 has barely any effect on his overall account value at age 65.

The value of your retirement is also affected by lifestyle creep. Having an extra $1000 at age 25 is not the same as having an extra $1000 at age 45. At age 25, an extra $1000 a year meant a significant upgrade in some aspect of the quality of your life--new clothes, an extra date night every other week, a new computer to go to class with, etc. At age 55, an extra $1000 is a rounding error on your taxes.

Well if we are going to generalize I’ll play too! Lol People who learn to put away even a relatively paltry amount when they are young tend to continue that habit and when they have more money they increase their contribution accordingly. Saving, like learning to hit a curve, is a learned skill. You probably weren’t born with it. You whiffed at the first bunch thrown at you. But, if you started early and practiced it became much easier to do.

That is a poor analogy but you get the point. The whole idea that you will learn an unnatural habit later in life is a huge fly in the ointment to this argument. Human nature tends to the easy, the fun, the not too tough to pull off. If people don’t cultivate this habit, and a fairly painful one at that at first, odds favor they won’t do it at all. Or they put it off to the point it becomes a mathematical nightmare to solve.

I argue that finding 1000 dollars as a 20 something is as simple or hard as ordering water instead of a drink. Making your own coffee instead of Starbucks. Etc etc. We all can do the math. Less than 85 bucks a month. Barely a 20 dollar bill a week. Your European tour picture was pretty but let’s be honest, that 20 bucks a week is easily doable.

It’s a habit. You have good ones and bad ones. You guys can rationalize all you want. Start early and doing it later in life won’t even seem like a chore.

What’s the old saying? First check you write every month should be to yourself. (I know, no one writes checks). My Dad got through the 8th grade, always worked for some one else, was a laborer and died a multi millionaire. And enjoyed his life.Start early. Learn a good habit for once.

The 4% rule was fine back when I could make 5% on my bank savings accounts. That was reality for the longest part of my working life and I had to make adjustments after the (interest rate) rug was pulled out from under us.

The 4% rule can still get a person started, and if they don't get started, they will be screwed. I'm not smart enough to predict how my government may favor someone else's situation over mine, but I worked and saved for a long time to give retirement the best shot that I can.