Math is scary

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mikemikemike
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Math is scary

Post by mikemikemike » Mon Sep 16, 2019 1:12 pm

I'll be retiring in about 30 years. With inflation roughly halving the real value of money over that period, and a 4% withdrawal rate, that seems to imply that I will need $5MM in year 2050 savings to be able to spend $100K/year (in 2019 dollars). That is around my annual spend.
Do I really need that much in savings?

livesoft
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Re: Math is scary

Post by livesoft » Mon Sep 16, 2019 1:16 pm

No, you don't need that much in savings because if you save $2 million it will magically became $5 million by the action of inflation. And you will get to complain about young whippersnappers spending $10 on a BigMac that used to cost me 49 cents.
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alex_686
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Re: Math is scary

Post by alex_686 » Mon Sep 16, 2019 1:19 pm

Maybe. Social Security? Lower expenses - such as a paid off home? Inflation is running at low levels - is this because of a structural change in the economy?

2 more thoughts.

Consider the trade off between current consumption and savings. Obviously you trade one for the other. Does a high rate of savings today to pay for very comfortable retirement make sense. What happens when you cut your retirement goals?

Next, many of here don't use nominal rates, which is inflation plus "real returns". What really matters is real returns, and future real returns are easier to estimate the future inflation.

To dig a little deeper - what is driving this fear? Low current savings, a low savings rate, the enormity of the problem, or something else?
Last edited by alex_686 on Mon Sep 16, 2019 1:20 pm, edited 1 time in total.

HomeStretch
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Re: Math is scary

Post by HomeStretch » Mon Sep 16, 2019 1:20 pm

Have you taken into account whether your $100k per year living expenses will be reduced by income from SS and/or a pension?

If your living expenses are $100k after SS/pension income, for a 4% withdrawal you would need savings of 25x or $2.5 million in today’s dollars. By making the maximum annual 401k and IRA contributions, you will contribute close to $900k in today’s dollars. A bit higher savings rate, company match and decent returns will get you to $5 million in 30 years.
Last edited by HomeStretch on Mon Sep 16, 2019 1:26 pm, edited 3 times in total.

student
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Re: Math is scary

Post by student » Mon Sep 16, 2019 1:20 pm

I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.

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Stinky
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Re: Math is scary

Post by Stinky » Mon Sep 16, 2019 1:22 pm

And don’t forget to take into account Social Security. Even though there appear to be some funding challenges right now, it’s hard to imagine that there won’t be a Social Security when you retire.
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RickBoglehead
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Re: Math is scary

Post by RickBoglehead » Mon Sep 16, 2019 1:41 pm

It's not a problem, because the world won't exist in 2050...

Do your best to save, invest wisely, and enjoy life. 30 years ago I didn't have a clue when I would be able to retire, or if.
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mikemikemike
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Re: Math is scary

Post by mikemikemike » Mon Sep 16, 2019 2:05 pm

HomeStretch wrote:
Mon Sep 16, 2019 1:20 pm
Have you taken into account whether your $100k per year living expenses will be reduced by income from SS and/or a pension?

If your living expenses are $100k after SS/pension income, for a 4% withdrawal you would need savings of 25x or $2.5 million in today’s dollars. By making the maximum annual 401k and IRA contributions, you will contribute close to $900k in today’s dollars. A bit higher savings rate, company match and decent returns will get you to $5 million in 30 years.
I haven't factored in SS -- and don't want to, in case my expenses go up (though some, like insanely expensive childcare, will drop off), returns on investment go down, or SS is jeopardized. With my current savings rate and employer match, I'm pretty sure I'll be able to comfortably retire. But I was surprised when I dug in to the numbers, about just how much $ that requires.

Kudos to those who are comfortably retired: you've clearly won the game.

Thegame14
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Re: Math is scary

Post by Thegame14 » Mon Sep 16, 2019 2:17 pm

mikemikemike wrote:
Mon Sep 16, 2019 1:12 pm
I'll be retiring in about 30 years. With inflation roughly halving the real value of money over that period, and a 4% withdrawal rate, that seems to imply that I will need $5MM in year 2050 savings to be able to spend $100K/year (in 2019 dollars). That is around my annual spend.
Do I really need that much in savings?
you should have paid off your house, which should take a big chunk out of your current expenses, also your current contributions to retirement goes away, so if you have $40K a year going to your mortgage and $15K going towards retirement, then your expenses in retirement would be $100K less mortgage less retirement contributions or in this example $100K-40K-15K=$45 spending needed in retirement, then less commuting costs, less work costs like clothes, gas, lunches, etc...

Then add in about $1,500 a month in today's dollars for Social security, so then take out about $20K a year, now you need to come up with $25K, that seems a lot more doable

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greg24
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Re: Math is scary

Post by greg24 » Mon Sep 16, 2019 2:22 pm

Making projections 30 years in the future is scary.

Save a good chunk of your income.

Spend the rest and live a good life.

Worry about 2050 when you're a heck of a lot closer.

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willthrill81
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Re: Math is scary

Post by willthrill81 » Mon Sep 16, 2019 2:29 pm

mikemikemike wrote:
Mon Sep 16, 2019 1:12 pm
I'll be retiring in about 30 years. With inflation roughly halving the real value of money over that period, and a 4% withdrawal rate, that seems to imply that I will need $5MM in year 2050 savings to be able to spend $100K/year (in 2019 dollars). That is around my annual spend.
Do I really need that much in savings?
You're adjusting for inflation twice.

If you need $100k in today's dollars, then you need $2.5 million in today's dollars with 4% withdrawals. Inflation will increase your annual spending, the size of your portfolio, and the size of your savings along the way.

And as noted above, SS benefits will likely reduce your needed savings significantly. If you're spending $100k now, you're probably close to maxing out your SS benefits, so you'll probably get at least $50k of annual benefits, reducing your needed portfolio size to $1.25 million. That's very doable with the income you likely have.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

alex_686
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Re: Math is scary

Post by alex_686 » Mon Sep 16, 2019 2:32 pm

mikemikemike wrote:
Mon Sep 16, 2019 2:05 pm
I haven't factored in SS -- and don't want to, in case my expenses go up (though some, like insanely expensive childcare, will drop off), returns on investment go down, or SS is jeopardized.
I will point out that at a projected 100k per year you probably have some control over your expenses. It might help if you created a minimum, desired, and stretch set of goals.

Next, your retirement expenditures and investment returns are independent of expected Social Security income. Best not conflate these. You are adding needless chaos and complexity. Fear and paralysis.

See what happens with a set of minimum expenditures, a 3% withdrawal rate, and 60% of expected S.S. Use that as a worse case scenario.

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calmaniac
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Re: Math is scary

Post by calmaniac » Mon Sep 16, 2019 2:44 pm

mikemikemike,

Just the fact that you are thinking about this now and not 10 years before the fact is wonderful! You have 30 years to take advantage of savings and compounding.

stuper1
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Re: Math is scary

Post by stuper1 » Mon Sep 16, 2019 2:51 pm

Are you saving at least 15% of your total income for retirement? If so, you're probably going to be okay. If you can get it up to 25% or more, you'll be even better.

There, that wasn't so scary was it? Actually ... for a lot of people that would be very scary.

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9-5 Suited
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Re: Math is scary

Post by 9-5 Suited » Mon Sep 16, 2019 2:52 pm

RickBoglehead wrote:
Mon Sep 16, 2019 1:41 pm
It's not a problem, because the world won't exist in 2050...

Do your best to save, invest wisely, and enjoy life. 30 years ago I didn't have a clue when I would be able to retire, or if.
The great thing about the world ending in 2031 is that a 10% withdrawal rate is totally feasible! Party on!

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Re: Math is scary

Post by MathIsMyWayr » Mon Sep 16, 2019 4:00 pm

student wrote:
Mon Sep 16, 2019 1:20 pm
I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.
Comparing today's dollars against the inflated dollars of the far future is meaningless. Make sure that everything (earnings, savings, investment returns,,,) stays with or ahead of inflation. Don't keep money under the mattress.

Wenonah
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Re: Math is scary

Post by Wenonah » Mon Sep 16, 2019 5:29 pm

Not only will you have a paid off home, you won't be putting money away for retirement. If you need 100,000.00 now, you will need that less a mortgage payment and 20% or whatever you are contributing to your 40lk/Roth, etc.

student
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Re: Math is scary

Post by student » Mon Sep 16, 2019 7:00 pm

MathIsMyWayr wrote:
Mon Sep 16, 2019 4:00 pm
student wrote:
Mon Sep 16, 2019 1:20 pm
I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.
Comparing today's dollars against the inflated dollars of the far future is meaningless. Make sure that everything (earnings, savings, investment returns,,,) stays with or ahead of inflation. Don't keep money under the mattress.
Are you agreeing or disagreeing with what I wrote? I always look at today's dollars. If my expense is $50,000 this year, my goal is to support have $50,000 per year in my retirement. Next year, if due to inflation, it is $52,000, then that will be my new goal.
Last edited by student on Mon Sep 16, 2019 8:26 pm, edited 1 time in total.

inbox788
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Re: Math is scary

Post by inbox788 » Mon Sep 16, 2019 7:56 pm

mikemikemike wrote:
Mon Sep 16, 2019 1:12 pm
I'll be retiring in about 30 years. With inflation roughly halving the real value of money over that period, and a 4% withdrawal rate, that seems to imply that I will need $5MM in year 2050 savings to be able to spend $100K/year (in 2019 dollars). That is around my annual spend.
Do I really need that much in savings?
Yes, 4% of $5M is $200k.

If you're "spending" $100k/year in 2019, are you counting taxes, savings and investments? Or are you making $200k/year?

What is your savings rate?
student wrote:
Mon Sep 16, 2019 7:00 pm
Are you agreeing or disagreeing with what I wrote? I always look at today dollar. If my expense is $50,000 this year, my goal is to support have $50,000 per year in my retirement. Next year, if due to inflation, it is $52,000, then that will be my new goal.
Don't panic. Most folks don't top out their salary 30 years before they retire or when they're very young unless they're superstar athletes or something like that. Hopefully, you're at a job that keep up with inflation, and those promotions come with additional raises above and beyond. Take these opportunities to increase your savings rates, the sooner the better, so you don't have to be playing catch-up later.

finsterfolly
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Re: Math is scary

Post by finsterfolly » Mon Sep 16, 2019 8:23 pm

So, this thread has given me an aha moment, I think. I am 10-15 years from retirement. I've been digging in for about a month figuring out my current expenses and anticipated future expenses, and I keep bumping up against inflation. I've got expenses in today's dollars and expected social security benefits in today's dollars. I've been trying to reconcile that with anticipated future retirement savings, and I'm not always clear how retirement calculators are doing it. So, if I always use calculations on my savings using an expected real rate of return, does that put my retirement savings in today's dollars as well?

dbr
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Re: Math is scary

Post by dbr » Mon Sep 16, 2019 8:29 pm

finsterfolly wrote:
Mon Sep 16, 2019 8:23 pm
So, this thread has given me an aha moment, I think. I am 10-15 years from retirement. I've been digging in for about a month figuring out my current expenses and anticipated future expenses, and I keep bumping up against inflation. I've got expenses in today's dollars and expected social security benefits in today's dollars. I've been trying to reconcile that with anticipated future retirement savings, and I'm not always clear how retirement calculators are doing it. So, if I always use calculations on my savings using an expected real rate of return, does that put my retirement savings in today's dollars as well?
Firecalc, for example, which considers what would have happened to your retirement in a range of actual past years, uses the actual inflation data for each of those "experiments." If you have entries that are not inflation indexed, such as a fixed pension, it does not apply inflation to that.

Other calculators select or ask for a guess for inflation. A really thorough Monte Carlo model should probably consider inflation to be a random variable and sample it within each run of the simulation.

In your case, you can do everything in real dollars and you would compensate for inflation. That assumes you know such things as real returns, etc. If you do have fixed dollar entries, though, you are going to have to guess inflation somewhere in the process.

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Re: Math is scary

Post by MathIsMyWayr » Mon Sep 16, 2019 10:48 pm

student wrote:
Mon Sep 16, 2019 7:00 pm
MathIsMyWayr wrote:
Mon Sep 16, 2019 4:00 pm
student wrote:
Mon Sep 16, 2019 1:20 pm
I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.
Comparing today's dollars against the inflated dollars of the far future is meaningless. Make sure that everything (earnings, savings, investment returns,,,) stays with or ahead of inflation. Don't keep money under the mattress.
Are you agreeing or disagreeing with what I wrote? I always look at today's dollars. If my expense is $50,000 this year, my goal is to support have $50,000 per year in my retirement. Next year, if due to inflation, it is $52,000, then that will be my new goal.
Of course, you are right. This kind of thing shouldn't be an issue in the first place. The age of a son is smaller that that of a father when compared in the same year. Son's age in the future may be greater than father's age now.

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wjo
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Re: Math is scary

Post by wjo » Mon Sep 16, 2019 11:16 pm

Yup - retirement math is scary no matter how you cut it - building up 25X expenses is no small feat. It can discourage many.

Fortunately, the power of compounding is amazing - the eighth wonder of the world. Time is on your side - start saving a decent percentage and don't worry about it too much other than motivation to save. At some point the compound growth on your savings exceeds your yearly contributions and things start to take care of themselves. Take the example of many here that have enough (or more than enough...)

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jakehefty17
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Re: Math is scary

Post by jakehefty17 » Fri Sep 20, 2019 3:45 pm

Math isn't scary... but uncertainty is.

Like you, I have a very long time horizon. Build a portfolio based on Boglehead principles and stay the course. The rest should work itself out.

I don't advocate "save until it hurts"... my mindset more closely resembles "save until it's comfortable". Build a budget to meet all your needs, give yourself some wiggle-room for discretionary expenses. From there, save whatever you can. Include your savings in your planned budget.

Nobody knows what the world will be in 30 years. Social security, healthcare, employment, lifestyle, obligations may all change.

To quote a co-worker of mine... "All you can do is the best you can do"
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

GrowthSeeker
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Re: Math is scary

Post by GrowthSeeker » Fri Sep 20, 2019 4:44 pm

I don't think it's the math that is scary.
Debt is what is scary.
jakehefty17 wrote:
Fri Sep 20, 2019 3:45 pm
Math isn't scary... but uncertainty is.
Yes, and uncertainty is.

I never realized until it happened how much of a relief it would be once I paid of the mortgage and had zero debt. The relief of not having what had for so long been an ever-present monthly payment was a large weight lifted.
Just because you're paranoid doesn't mean they're NOT out to get you.

Juice3
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Re: Math is scary

Post by Juice3 » Sat Sep 21, 2019 5:53 am

mikemikemike wrote:
Mon Sep 16, 2019 1:12 pm
I'll be retiring in about 30 years.
(1+.02)^30 = 1.8
1.8*current expenses*25 = ...
... sorry didn't mean to scare you.

Of course the scary part is will inflation be .02, will retirement be in 30 years, and what are expenses then. The math is pretty simple.

grettman
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Re: Math is scary

Post by grettman » Sat Sep 21, 2019 7:05 am

student wrote:
Mon Sep 16, 2019 7:00 pm
MathIsMyWayr wrote:
Mon Sep 16, 2019 4:00 pm
student wrote:
Mon Sep 16, 2019 1:20 pm
I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.
Comparing today's dollars against the inflated dollars of the far future is meaningless. Make sure that everything (earnings, savings, investment returns,,,) stays with or ahead of inflation. Don't keep money under the mattress.
Are you agreeing or disagreeing with what I wrote? I always look at today's dollars. If my expense is $50,000 this year, my goal is to support have $50,000 per year in my retirement. Next year, if due to inflation, it is $52,000, then that will be my new goal.
But if you want to plan for a retirement that is 10 years out, as an example, you would want to compare future year dollars for both savings and expenses correct? I am terrible at math so I have to ask the question. I inflate my current expenses and compare it to what I think I will have at the time of retirement...

student
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Re: Math is scary

Post by student » Sat Sep 21, 2019 7:12 am

grettman wrote:
Sat Sep 21, 2019 7:05 am
student wrote:
Mon Sep 16, 2019 7:00 pm
MathIsMyWayr wrote:
Mon Sep 16, 2019 4:00 pm
student wrote:
Mon Sep 16, 2019 1:20 pm
I think you should either use today dollar for both numbers or future dollar for both numbers. Personally I prefer today dollars. So you need to have $2.5m (in today dollar) to support a $100k per year lifestyle. Also, you will have SS, so your portfolio needs to generate (100k-SS) per year and your SS annual statement for give you a projected number in today dollar. So you need a 25*(100k-SS) portfolio in today dollar.
Comparing today's dollars against the inflated dollars of the far future is meaningless. Make sure that everything (earnings, savings, investment returns,,,) stays with or ahead of inflation. Don't keep money under the mattress.
Are you agreeing or disagreeing with what I wrote? I always look at today's dollars. If my expense is $50,000 this year, my goal is to support have $50,000 per year in my retirement. Next year, if due to inflation, it is $52,000, then that will be my new goal.
But if you want to plan for a retirement that is 10 years out, as an example, you would want to compare future year dollars for both savings and expenses correct? I am terrible at math so I have to ask the question. I inflate my current expenses and compare it to what I think I will have at the time of retirement...
You can do that. Either both today's dollars or both future inflated dollars. I personally prefer today's dollars and I believe most forecast software use it. Your social security statement also uses today's dollars. https://www.moneytree.com/blog/bid/1378 ... re-dollars

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whodidntante
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Re: Math is scary

Post by whodidntante » Sat Sep 21, 2019 8:57 am

The next drawdown could be a real fright. But with 30 years to save, bring it on.

GrowthSeeker
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Re: Math is scary

Post by GrowthSeeker » Sun Sep 22, 2019 9:27 am

Here is a scary thought (and one I had when I was about 40; I'm now 67).
Suppose you invested every penny into something that grows at exactly the inflation rate, no more, no less.
Suppose you work 30 years and then are retired 30 years.
Suppose you spend the same in retirement as while working.
And suppose there's no Social Security, no pension, no inherited money.
Then you'd have to save half of your after tax income during the 30 working years, so pay for the 30 retired years.

Scary: "you'd have to save half".

Fortunately, none of the assumptions are at all accurate, so neither is the conclusion; but I found it to be a scary thought at age 40.
Just because you're paranoid doesn't mean they're NOT out to get you.

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Cheez-It Guy
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Re: Math is scary

Post by Cheez-It Guy » Sun Sep 22, 2019 9:31 am

Unless you already save half or more.

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Re: Math is scary

Post by willthrill81 » Sun Sep 22, 2019 10:05 am

Cheez-It Guy wrote:
Sun Sep 22, 2019 9:31 am
Unless you already save half or more.
:thumbsup :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

bogglizer
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Re: Math is scary

Post by bogglizer » Sun Sep 22, 2019 10:12 am

Just to simplify the math, don't think about inflation on its own. Just consider the difference between your expected portfolio growth and inflation. So, if you expect inflation to be 2% and your portfolio to grow 6% (numbers are random), then just use 6% - 2% = 4% in your calculations.

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unclescrooge
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Re: Math is scary

Post by unclescrooge » Sun Sep 22, 2019 10:15 am

mikemikemike wrote:
Mon Sep 16, 2019 2:05 pm
HomeStretch wrote:
Mon Sep 16, 2019 1:20 pm
Have you taken into account whether your $100k per year living expenses will be reduced by income from SS and/or a pension?

If your living expenses are $100k after SS/pension income, for a 4% withdrawal you would need savings of 25x or $2.5 million in today’s dollars. By making the maximum annual 401k and IRA contributions, you will contribute close to $900k in today’s dollars. A bit higher savings rate, company match and decent returns will get you to $5 million in 30 years.
I haven't factored in SS -- and don't want to, in case my expenses go up (though some, like insanely expensive childcare, will drop off), returns on investment go down, or SS is jeopardized. With my current savings rate and employer match, I'm pretty sure I'll be able to comfortably retire. But I was surprised when I dug in to the numbers, about just how much $ that requires.

Kudos to those who are comfortably retired: you've clearly won the game.
Don't fall into the Suzy Orman "everyone needs $5 million" style of retirement planning.

You should not plan for a bleak future. Doing so is pointless. SS will be around... Maybe you'll get a bit lower than projected and maybe a bit later, but you should get something.

US stocks might have lower returns going forward, but that is likely to be offset by higher returns from foreign markets.

I also used to over save for retirement until I read "spend till the end".

You will probably have much lower expenses in retirement.

After taxes, our biggest expense is saving for retirement, followed closely by mortgage interest. In 30 years, all of these will go away.

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unclescrooge
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Re: Math is scary

Post by unclescrooge » Sun Sep 22, 2019 10:21 am

stuper1 wrote:
Mon Sep 16, 2019 2:51 pm
Are you saving at least 15% of your total income for retirement? If so, you're probably going to be okay. If you can get it up to 25% or more, you'll be even better.

There, that wasn't so scary was it? Actually ... for a lot of people that would be very scary.
15% is a great rule of thumb.

Saving 15% of your income over 30 years and investing @8% returns replaces 85% of your income for another 30 years.

But life is complex, a lot depends on the above variables. And how much you should save gets more complicated the more money you make.

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Re: Math is scary

Post by Dottie57 » Sun Sep 22, 2019 10:22 am

You can’t know the future or what it will bring. Stuff as much as you can into retirement accounts and after that into taxable.

Save 15% as a bare minimum. Be prepared to be flexible in spending in retirement.

Good luck.

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Re: Math is scary

Post by abuss368 » Tue Sep 24, 2019 9:51 am

Cheez-It Guy wrote:
Sun Sep 22, 2019 9:31 am
Unless you already save half or more.
Agreed and well said. Vanguard has been saying this for a long time with the expectation of lower future returns possible.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Math is scary

Post by abuss368 » Tue Sep 24, 2019 9:52 am

livesoft wrote:
Mon Sep 16, 2019 1:16 pm
No, you don't need that much in savings because if you save $2 million it will magically became $5 million by the action of inflation. And you will get to complain about young whippersnappers spending $10 on a BigMac that used to cost me 49 cents.
That was good and probably will be true!
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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willthrill81
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Re: Math is scary

Post by willthrill81 » Tue Sep 24, 2019 9:57 am

unclescrooge wrote:
Sun Sep 22, 2019 10:21 am
stuper1 wrote:
Mon Sep 16, 2019 2:51 pm
Are you saving at least 15% of your total income for retirement? If so, you're probably going to be okay. If you can get it up to 25% or more, you'll be even better.

There, that wasn't so scary was it? Actually ... for a lot of people that would be very scary.
15% is a great rule of thumb.

Saving 15% of your income over 30 years and investing @8% returns replaces 85% of your income for another 30 years.

But life is complex, a lot depends on the above variables. And how much you should save gets more complicated the more money you make.
15% is okay if people maintain it for their entire career and don't experience significant wage growth and lifestyle inflation during their career. It's probably a good starting point for those in their 20s, mainly because it instills good behavior, but significant wage growth should be accompanied by a significant increase in one's savings rate. Otherwise, the amount needed to reach financial independence may grow faster than one's nest egg.

I think that it's wise to plan on becoming financially independent by age 55-60. That helps to reduce many risks that accumulators face (e.g. age discrimination in one's 50s, family financial hardships, poor returns during the last decade of accumulation).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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abuss368
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Re: Math is scary

Post by abuss368 » Tue Sep 24, 2019 11:34 am

unclescrooge wrote:
Sun Sep 22, 2019 10:21 am
stuper1 wrote:
Mon Sep 16, 2019 2:51 pm
Are you saving at least 15% of your total income for retirement? If so, you're probably going to be okay. If you can get it up to 25% or more, you'll be even better.

There, that wasn't so scary was it? Actually ... for a lot of people that would be very scary.
15% is a great rule of thumb.

Saving 15% of your income over 30 years and investing @8% returns replaces 85% of your income for another 30 years.

But life is complex, a lot depends on the above variables. And how much you should save gets more complicated the more money you make.
Agree. Aim for 15% and always look for ways to increase.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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willthrill81
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Re: Math is scary

Post by willthrill81 » Tue Sep 24, 2019 11:38 am

Dottie57 wrote:
Sun Sep 22, 2019 10:22 am
You can’t know the future or what it will bring. Stuff as much as you can into retirement accounts and after that into taxable.

Save 15% as a bare minimum. Be prepared to be flexible in spending in retirement.

Good luck.
Yes, 15% is a minimum, and even that may be problematic if the accumulator experiences significant wage and lifestyle increases along the way. Kitces demonstrated this very well.
In fact, as the chart below illustrates, simply assuming a retirement goal of 25X inflation-adjusted spending after netting out a $1,294/month Social Security benefit, by saving 10% of his take-home pay (and adjusting his standard of living every year by the other 90% of your raises), Jerry never really makes much progress to retirement at all, as his standard of living and the necessary retirement funding ramps up as quickly as the savings itself, and a huge retirement gap remains at the end!
Image
Ultimately, to make this approach work, it actually takes a whopping 20% annual savings rate to accumulate about $3.4M of wealth in 40 years, for Jerry to be able to fund the remaining 80%-of-take-home-pay standard of living in retirement (again, after netting out Social Security payments). Notably, the reason this works is not “just” because Jerry saves twice as much, but because he needs a bit less to retire when his standard of living is lower (because he was “only” spending 80% of his annual take-home pay).
https://www.kitces.com/blog/dont-save-1 ... -tomorrow/
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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abuss368
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Re: Math is scary

Post by abuss368 » Tue Sep 24, 2019 11:44 am

Stinky wrote:
Mon Sep 16, 2019 1:22 pm
And don’t forget to take into account Social Security. Even though there appear to be some funding challenges right now, it’s hard to imagine that there won’t be a Social Security when you retire.
Agree and this makes a difference for everyone. In additional Social Security has a COLA adjustment when calculated inflation rises.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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Re: Math is scary

Post by LeftCoastIV » Tue Sep 24, 2019 3:44 pm

With 30 years to go until retirement, the best you can do right now IMO is put as much of your savings on auto-pilot as you can. 401K. IRA. Roth. Employee stock plan if you have one. HSA if you have one. 529s if needed. After-tax contributions. Think of your "spendable" paycheck as everything after that.

Auto-investing and an AA you feel good about... and then you'll get busy with the rest of your life, but the automated savings will continue onward.

And, don't panic like I did in the last 2008/9 downturn.

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