Concept of Bogleheads needing to "Save more"

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SpartanBull
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Concept of Bogleheads needing to "Save more"

Post by SpartanBull »

Hello,
Like many other bogleheads, I'm often trying to advise friends and family members to follow this type of investing. That being said, I've noticed something in the commonly stated bogleheads principals and don't fully understand the need for it. To put it simply, why does it constantly need to be said that Bogleheads "Believe in saving more, being cheap, etc etc".
The reason I say that is that isn't the reason we believe in passive, low cost index funds and staying the course because we believe that is the maximum return, plain and simple? Even if you're a frivolous sports car driving, vacation taking, womanizing bottle service kind of guy (certainly not myself, just making an example), doesn't that guy also want the best return possible for whatever he invests? What led me to this question is that sometimes I'll show many commonly stated bogleheads principles to people, and they kind of point to the "save more" part and are like "see theres the catch. You get lower returns with this which require you to save more"
First and foremost, personally I'm not the one who needs the convincing, I'm a firm believer in the bogleheads investing strategy. However I'm trying to understand why the "save more" needs to be in there. Whether somebody saves $100/month, $1,000/month, or $10,000, Isn't this (in this boards opinion and mine as well) the best way to obtain the best risk adjusted return that the average investor can hope for, long term? Is the save more stuff just saying that its good for any investor to save more? Sorry if this question seems silly, I just find it interesting how non-bogleheads relate to some of the views here. Curious to hear any opinions on that.
dbr
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Re: Concept of Bogleheads needing to "Save more"

Post by dbr »

The correct admonition is to save enough. The context is that most people are not saving enough. Therefore the message can be to save more.

It has been discussed before that being frugal or even a miser has little to do with BH investing.

I think that what goes on here is trying to help people understand investing well enough to make good financial decisions. It might even be in some cases that the advice would be to stop saving so much.

I don't think the object is to get the best return, or even the best risk adjusted return (a technical concept the application of which is ambiguous). I think the object is to help people find the best way to accomplish what they want for themselves.
sambb
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Re: Concept of Bogleheads needing to "Save more"

Post by sambb »

Agree. I can afford to not drive a 1999 Camry. And what's not to like about business class to Europe. I save enough. I use mostly passive index investing and lifestrategy funds. All is good.
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Watty
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Re: Concept of Bogleheads needing to "Save more"

Post by Watty »

I don't think the characterization is really true.

There are often posters here that have to be encouraged to strike a more reasonable "Now vs Later" balance. There have been a number of times when I have encouraged people in their 20's to budget for then do things like taking budget backpack trips to Europe while they are young single, and don't have kids.

There are also often posters the post things like, "I am 60, I hate my job and have a million dollars, a paid off house, and a nice pension but I can't afford to retire." that are receive encouragement that they do have enough to retire.

There are also a lot of people that do need to save more.
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HomerJ
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Re: Concept of Bogleheads needing to "Save more"

Post by HomerJ »

SpartanBull wrote:What led me to this question is that sometimes I'll show many commonly stated bogleheads principles to people, and they kind of point to the "save more" part and are like "see theres the catch. You get lower returns with this which require you to save more"
You cannot control the return you get. You CAN control your savings.

"Save more than the average person" is probably what it's really trying to say. Because most people don't save enough.

If returns aren't what we expect (and remember, the universe owes you nothing), saving "more" will still have you in a good spot come retirement.
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Re: Concept of Bogleheads needing to "Save more"

Post by Wagnerjb »

SpartanBull wrote: To put it simply, why does it constantly need to be said that Bogleheads "Believe in saving more, being cheap, etc etc".
I believe this forum is home to many people who enjoy being thrifty. Simple as that. In addition, these people feel like others cannot be saving "an appropriate" amount for retirement....thus the constant admonition to "SAVE MORE".

I believe a Boglehead is one who makes good financial decisions, one of which is to save an appropriate amount for retirement. That also means that a Boglehead can enjoy luxuries and a standard of living commensurate with their earnings power (or assets).

You are not going to change the tendency to push aggressive savings by others on this forum. Just provide your own opinions on how to have a balanced life through enjoying the fruits of your hard earned income.

Best wishes.
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telemark
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Re: Concept of Bogleheads needing to "Save more"

Post by telemark »

isn't the reason we believe in passive, low cost index funds and staying the course because we believe that is the maximum return, plain and simple?
Index funds give you the average return, pretty much by definition. Obviously (I hope) that is not the maximum return. Unfortunately the maximum return is an elusive and wily beast, and I have no particular talent in hunting for it. Fortunately, getting the average return is likely to be good enough and is well within my abilities.

On saving, you have to have money to invest with, preferably lots of it, and for many of us saving is the way to get it.
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Re: Concept of Bogleheads needing to "Save more"

Post by saltycaper »

SpartanBull wrote:
What led me to this question is that sometimes I'll show many commonly stated bogleheads principles to people, and they kind of point to the "save more" part and are like "see theres the catch. You get lower returns with this which require you to save more"
This way of thinking illustrates the point well. The person describing the "catch" believes there is a superior way to invest that will allow you to save less but still meet your financial goals. Well, what strategy do they recommend? Picking individual stocks? How? Finding a hot fund manager? How? A market-timing strategy? "Save more" means your chance of obtaining superior results using alternative investing principles is poor, and the consequences of a achieving a poor outcome may be severe, so the prudent thing to do is admit to reality and save more rather than betting you will be able to make up for not saving enough by winning the lottery.
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Re: Concept of Bogleheads needing to "Save more"

Post by Fallible »

SpartanBull wrote:Hello,
Like many other bogleheads, I'm often trying to advise friends and family members to follow this type of investing. That being said, I've noticed something in the commonly stated bogleheads principals and don't fully understand the need for it. To put it simply, why does it constantly need to be said that Bogleheads "Believe in saving more, being cheap, etc etc".
...

Here is part of what the Bogleheads' philosophy actually says, followed by a link to the page. It would be a good idea to show this in the wiki to those you wish to convert.
Once you establish a regular savings pattern, you can begin the process of accumulating financial wealth. How much saving is enough? Twenty percent of income is a good baseline number. If you plan to retire before age 65 or plan to leave significant assets to charity or children, you probably need to save even more.[1] The reason starting a regular savings plan early in life is important is that compounding of investment returns can be magnified over a longer period. Figure 1. demonstrates the benefit of starting early.
https://www.bogleheads.org/wiki/Boglehe ... philosophy
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MIretired
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Re: Concept of Bogleheads needing to "Save more"

Post by MIretired »

Here's some info from wiki:

https://www.bogleheads.org/wiki/Boglehe ... _and_often
Bogleheads® investment philosophy
Contents
1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course
11 Conclusion
Conclusion

In summary, a Bogleheads investor tends to (1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course.
I looked thru, and there's some nice picto-graphs within the link above.

I think all invest-for-retirement sites emphasize saving early and enough. Just goes with the territory.

To me, saving for one's own retirement is generationally newer. 30 years ago is kinda when self-retirement saving started enmasse.
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Re: Concept of Bogleheads needing to "Save more"

Post by warowits »

SpartanBull wrote: I'll show many commonly stated bogleheads principles to people, and they kind of point to the "save more" part and are like "see theres the catch. You get lower returns with this which require you to save more"
Well first the average American's savings rate is 5.7%, which isn't really great. However it is actually much higher than it was, at 1.9%, and adding in employer match and you are up to 8.5%. Lets say a reasonable savings rate is 15%. On average you should be telling people to save more.

http://www.fool.com/investing/2016/10/0 ... -rate.aspx

"The Catch" with following investment advice from someone like Dave Ramsey is that they just tell you to expect higher average returns, but then don't tell you a reliable way to actually get returns that high. Everyone can't plan to have above average returns. Taken as a group it is unreasonable for investors to plan to have above average returns.
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Re: Concept of Bogleheads needing to "Save more"

Post by Grt2bOutdoors »

Insert "do" where "save" is. When you "do" more, you usually achieve more. When you achieve more, you command more: income, respect, promotions, etc. Everyone would like to do less, and get more but it usually doesn't quite work out that way in life. The lottery is a prime example of that, for a dollar you can dream and maybe, just maybe you might hit it big, usually though it's just a dream and your money going into someone else's pocket but not your own.
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SpartanBull
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Re: Concept of Bogleheads needing to "Save more"

Post by SpartanBull »

Several replies said something along the lines of "Its not the best/maximum return, its the average return." As an index investor myself I understand the subtle point there trying to make, but disagree with the statement in this context--because there is not a practical way for most people to consistently be better than "average" at investing. I firmly believe that for most people, indexing is the best, highest return choice for them. As we all know, choosing some hot hedge fund, or advisor, is LIKELY to trail indexing, and if it doesn't then fees begin to cancel out small differences. Individual stocks, again, theres a possibility that you do better, like flipping a coin, but over months, years, decades and trading, your odds are horrible. So I again stand by my position that if the object of the game is to get the highest returns possible, or make the best decision possible...its indexing. There are not "higher return" options out there for average investors. There is gambling, which might work. Throw some money on "Red" at the casino, buy some individual stock, etc, any of those good work short term...but long term index investing will almost certainly have a higher return. Yes, I said higher.
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Re: Concept of Bogleheads needing to "Save more"

Post by orca91 »

Are you asking how to explain to others that indexing is a very good option for investing?

I'm really not sure what your point is here, or what is actionable. It's almost as if your trying to convince us that indexing is a great way to invest. Thanks, we never knew... :wink: :happy

As for the "save more" part... for the average person out there, saving more is likely the best way to increase their accounts and net worth. I.E. someone just starting out, or the average person out there with under $100k... not people with millions of dollars. Adding $20k a year is likely to increase their net worth much more than most years returns.

Others want to save less and shoot for the moon hoping for huge returns to increase their net worth. As you have explained, that's not likely to work out in the long run. If you're trying to convince these types to start indexing and saving more instead,.... well, there's only so much you can do. You can lead a horse to water and all.....

Realize when you're wasting your breath with some folks.... and stop doing that. :happy
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Re: Concept of Bogleheads needing to "Save more"

Post by SmileyFace »

As a side-note to your post not directly in response to your question:
You mention Bogleheads might be "cheap" and others that might be "frivolous"...I think of myself as neither cheap nor frivolous but rather frugal (not liking to waste money but willing to spend on quality items that make sense for me). Based upon many of the discussions here I believe frugality (rather than cheap) to be a Boglehead trait. Many Bogleheads believe in spending money when they get the value they are looking for in what they are purchasing while not wasting it if not.
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Re: Concept of Bogleheads needing to "Save more"

Post by oldzey »

Steve Dunn's remarks about savings are interesting in regards to this discussion, originally found at: http://socialize.morningstar.com/NewSoc ... 62377.aspx
ORDER OF IMPORTANCE IN MANAGING ONE'S FINANCIAL AFFAIRS:

As a rather sluggish slice and dice type, I think that issue versus going total stock market is way down the list of what is important in managing one's financial affairs. In order of priority, I would list what is important in the following order of priority:

1. How much you earn (the value of your human capital).
2. An intelligent insurance program.
3. Your savings rate.
4. Your allocation to stocks versus bonds.
5. Have a reasonable diversification to your portfolio (anything reasonable will do).
6. Rebalancing to manage risk.
7. Tax management.
8. International versus domestic
9. Value versus growth.
10. Small versus large.
11. Slice and dice.

After number 7, it just doesn't matter much IMO, for about 99% of investors. I say that as one who has watched the numbers pop up on my Quicken computer screen over the passing years. Some things matter a whole lot more than others as to what really influences those numbers.
Note that the top 3 of Mr. Dunn's list pertain to the acquisition and protection of assets, before any investing starts. You can't invest if you don't save. Saving more means you have more to invest. I'd also add that low costs/expenses of financial instruments should be included in there somewhere, too (maybe #3.5).

When asked once, "How much money is enough money?" John D. Rockefeller replied, "Just a little bit more."
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Re: Concept of Bogleheads needing to "Save more"

Post by dbr »

You can invest if you inherit money, marry money, collect an insurance settlement, sell a business, cash in stock options or win the lottery. Maybe there are others. Obviously if you spend away the money it can't be invested, but save more is not necessarily necessary.

Again, if people want to understand how to reach their objectives it can well be that saving more is important, but I don't think it is central to the subject of this forum.
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Re: Concept of Bogleheads needing to "Save more"

Post by Dottie57 »

I usually think I should save more because the future is uncertain. The Financial crisis really threw me for a loop.
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Re: Concept of Bogleheads needing to "Save more"

Post by Wakefield1 »

In the past when people assumed that a pension would be there for them investing was mostly about improving one's standard of living and abode,both during the working career period and after having retired. So not quite as much urgency for saving a lot. (Saving and investing are not quite exactly the same thing but saving usually precedes investing [destination of savings])
Now for most people the pension will not be there except for the 401/457/and IRA type do it yourself programs so not saving enough is more dangerous. And more saving logically should lead to more possibilities and freedom in the years after retirement and hopefully the gaining of the ability to choose a location for one's abode.
Saving might also be seen as a way of helping the future generations of one's family.
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Re: Concept of Bogleheads needing to "Save more"

Post by Nate79 »

Too many people think that the stock market has some magically high return that if they just put a little bit of money in and let it ride that one day they will be rich. What they fail to realize is that it is the amount you save in your early accumulation years that is much more important than market return.
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Re: Concept of Bogleheads needing to "Save more"

Post by mickeyd »

Save as much as you can now so that you can spend as much as you want later on. Makes sense to me.
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Re: Concept of Bogleheads needing to "Save more"

Post by blueblock »

If you read widely here, you'll find that many bogleheads are not all that frugal. Lots of expensive tastes and interests around here. Me, I'm frugal when it comes to many things--I dumped cable years ago, and am perfectly happy with my iPhone 5S--but I don't think twice about paying a yard service to tend the yard in summer and remove snow in winter when I could do it myself. For no better reason than I simply don't want to.

We all find our personal balance with these "wants versus needs," and I think bogleheads' lists of these things will look quite different depending on the person's circumstances and priorities.

Also, and maybe I depart from the norm on evangelizing, but except for my partner, I don't talk to anyone about how I invest, never mind try to sell them on the philosophy. Too many pitfalls. Talk about high risk, low return.
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Re: Concept of Bogleheads needing to "Save more"

Post by blaugranamd »

I think your response should be it's not that Bogleheads need to save more because of their investment strategy but rather that Bogleheads think EVERYONE needs to save more regardless of their investment strategy. My guess is the people you are having discussions with view investing as a way to get rich at a rapid pace, the sort that are always thinking they'll buy the next Google or Apple when it's only a $1 per share. Most likely they don't have a real understanding of how much they will need later on nor what the reality of long-term investing is.

That being said, I've found there is a very strong push for a save til it hurts mentality here, often seeming to border on a competition to see who will die with the largest portfolio. Take a look at any of the "should I buy XXX" threads around here. IMO, you gotta set yourself up for success in the future, but you shouldn't completely sacrifice your youth.

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Re: Concept of Bogleheads needing to "Save more"

Post by swguy »

Because so many posts wind up being discussions about maximizing returns it's easy to infer that's important. I think BH investing, however is more about minimizing costs, maximizing simplicity, and accepting market returns. Because of that, maximizing saving and investment contributions is one of the few things a buy-and-hold investor has control of.
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Re: Concept of Bogleheads needing to "Save more"

Post by DVMResident »

As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
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telemark
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Re: Concept of Bogleheads needing to "Save more"

Post by telemark »

I agree that indexing is likely to be the best choice for the average investor, especially when fees are involved, but we should not confuse that with pretending that it provides the maximum possible return. That's a very different concept, and a not at all subtle one.
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Re: Concept of Bogleheads needing to "Save more"

Post by B. Wellington »

dbr wrote:The correct admonition is to save enough. The context is that most people are not saving enough. Therefore the message can be to save more.

It has been discussed before that being frugal or even a miser has little to do with BH investing.

I think that what goes on here is trying to help people understand investing well enough to make good financial decisions. It might even be in some cases that the advice would be to stop saving so much.

I don't think the object is to get the best return, or even the best risk adjusted return (a technical concept the application of which is ambiguous). I think the object is to help people find the best way to accomplish what they want for themselves.
^^^+1

The book The Millionaire Next Door suggests that "frugality is the cornerstone to wealth building, especially in one's early years if possible. That said, bogleheads are firm believers in a "balanced" life as well. Many here are probably "natural born savers" to some degree. However, I can't see myself not enjoying a percentage of that money, not taking a vacation for example.

However for those deep in debt and living a life that they can not afford should indeed, save "more." If the debt is now so large any amount of extra saving will probably have a very small impact, if at all.
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Re: Concept of Bogleheads needing to "Save more"

Post by tennisplyr »

Financially there are 2 things we can control...saving and spending...why not do so?
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Re: Concept of Bogleheads needing to "Save more"

Post by dbr »

tennisplyr wrote:Financially there are 2 things we can control...saving and spending...why not do so?
Exactly But control means exactly that, setting the right level of both. It does not mean mindless admonitions for "more." You probably agree.
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Hi,

Is the saving rate = Gross Saving Rate -> Percentage of Gross Income

Or,

Saving rate = Net Saving Rate -> Percentage of the income after tax

I read through the article but I am not sure which one does the article refer to.

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Re: Concept of Bogleheads needing to "Save more"

Post by dbr »

The article refers to earnings and refers to annual salary. There is no mention of after tax income. That would mean to me that everything is based on gross salary and gross savings rate. An implication is that required income is before taxes, and the investor must include estimates of tax costs as expenses.

I think this is a pretty standard approach as actual tax costs are highly dependent on individual circumstances and trying to include an estimate of average tax costs would complicate the work and be harder for the individual to apply.
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

dbr wrote:The article refers to earnings and refers to annual salary. There is no mention of after tax income. That would mean to me that everything is based on gross salary and gross savings rate. An implication is that required income is before taxes, and the investor must include estimates of tax costs as expenses.

I think this is a pretty standard approach as actual tax costs are highly dependent on individual circumstances and trying to include an estimate of average tax costs would complicate the work and be harder for the individual to apply.
dbr,

Thanks.

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Re: Concept of Bogleheads needing to "Save more"

Post by alfaspider »

DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high? They key is saving early. Someone with a 40-year accumulation phase can save pretty modestly (in my mind) and still end up with 70% replacement.
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

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Re: Concept of Bogleheads needing to "Save more"

Post by LarryAllen »

SpartanBull wrote:... What led me to this question is that sometimes I'll show many commonly stated bogleheads principles to people....

Did they really want you to show them or did you just think they wanted you to show them? I think a lot of people on this site feel their investment style and/or lifestyle are superior to others. I know I, for one, would take offense if I was at a cocktail party and some know-it-all starts telling me about how great his etf plan is, how bad financial advisors are, and using words like "Even if you're a frivolous sports car driving, vacation taking, womanizing bottle service kind of guy" when talking about others.

We all do things differently my friend. It strikes me that you are worried about what others think about your investment style and/or lifestyle. It works for you and that's great but why worry about what someone else thinks?
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high? They key is saving early. Someone with a 40-year accumulation phase can save pretty modestly (in my mind) and still end up with 70% replacement.
alfaspider,

How many people can safely say that they will be fully employed for 40 years? Not me and most of my peers. 20 years maybe.

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Re: Concept of Bogleheads needing to "Save more"

Post by Grt2bOutdoors »

It's not shockingly high when expected real rates of return are expected to be abnormally low as compared to previous years.
Save up, because to do otherwise might cause you an even bigger shock down the road. Something pre-retirees and current retirees are realizing now.
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Re: Concept of Bogleheads needing to "Save more"

Post by mptfan »

SpartanBull wrote:Hello,
Like many other bogleheads, I'm often trying to advise friends and family members to follow this type of investing.
I used to try to do the same thing myself, but I have learned the hard way that it is better to avoid the subject of money and investing with friends and family, unless they specifically ask for my advice. I don't know how old you are, but I suspect you may eventually come to the same realization.
Last edited by mptfan on Mon Dec 19, 2016 8:58 am, edited 1 time in total.
alfaspider
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Re: Concept of Bogleheads needing to "Save more"

Post by alfaspider »

KlangFool wrote:
alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high?
alfaspider,

Which row and column do you refer to?

In my case, I am looking at

"Replacement rate = 50% of final salary" Accumulation - 20 years, retirement = 20 and 30 years. The gross saving rate = 30+%.

This is consistent with my normal saying:

Spend 1/3, save 1/3, and pay 1/3 in taxes.

KlangFool
Sorry about the edited post. I'm looking at 40-year time horizon investing. Someone who begins their career at 22 and intends to retire at 62 can safely save only 10-13% according to this. You only need extremely high savings rates if you are starting late or are planning on retiring early.
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Re: Concept of Bogleheads needing to "Save more"

Post by Grt2bOutdoors »

alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high?


Sorry about the edited post. I'm looking at 40-year time horizon investing. Someone who begins their career at 22 and intends to retire at 62 can safely save only 10-13% according to this. You only need extremely high savings rates if you are starting late or are planning on retiring early.[/quote]

You should avoid banking on that, most folks do not have a 40 year working career, if you are not working how can you save what you haven't earned.
Try to save more, much more than the suggested "safely save only 10-13%", unless you are employed in a recession proof, termination proof position, there is no "safely saving" anything, you need to save alot, period.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
alfaspider
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Re: Concept of Bogleheads needing to "Save more"

Post by alfaspider »

KlangFool wrote:
alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high? They key is saving early. Someone with a 40-year accumulation phase can save pretty modestly (in my mind) and still end up with 70% replacement.
alfaspider,

How many people can safely say that they will be fully employed for 40 years? Not me and most of my peers. 20 years maybe.

KlangFool
If we change from the relatively early 62 year retirement age, to the standard 67 retirement age (for the younger generation to claim SS), we can still get 40 working years in with some prolonged periods of unemployment. I would wager that the vast majority of workers could spend 40 years employed over the course of 45 years. Also, keep in mind that those savings are still compounding during periods of unemployment. You are better off with 30 years of contributions spread out over 40 than 30 years spread out over 30.

Personally, I am fortunate to be able to save considerably more than the 10-13%. We are in a two income household with similar incomes. We live off one income and save the other. The goal is to be able to retire at 50, but with considerable room to run if careers don't turn out as planned.
Last edited by alfaspider on Mon Dec 19, 2016 9:07 am, edited 1 time in total.
bigred77
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Re: Concept of Bogleheads needing to "Save more"

Post by bigred77 »

alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high? They key is saving early. Someone with a 40-year accumulation phase can save pretty modestly (in my mind) and still end up with 70% replacement.
I agree it's not shockingly high. What was shocking to me is the drastic difference in savings rates to retire early.

If I want to work until full retirement age and replace 70% of my salary with a 60/40 portfolio, I need a savings rate of a hair over 12%. Maybe my employer offers a nice match and I only need to elect 6% - 9% of my own salary to defer.

If I want to only work for 20 years then I probably ought to plan for a 40 year retirement period. That means even if I adopt a 80/20 portfolio and settle for 50% of salary replacement I need to save 36%. That's awfully tough to do starting from day 1 (I know many here have probably done it, I'm talking in general terms). If you want to retire early and replace 70% of your income than you start talking about a 50% savings rate which is just going to have many people tune you out as being unrealistic. Of course, why you would want replace 70% of your income when your living on only 50% of it during your working years to begin with is kind of beyond me.
KlangFool
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

alfaspider wrote:
KlangFool wrote:
alfaspider wrote:
DVMResident wrote:As others have said, the advice is "save enough." What's enough? Wade Pfau has put a lot research into this area and the answer is shockingly high:

Image

Additional reading (a bit dense):
Safe Savings Rates: A New Approach to Retirement Planning over the Life Cycle
Is it just the bogglehead in me, or that not shockingly high?
alfaspider,

Which row and column do you refer to?

In my case, I am looking at

"Replacement rate = 50% of final salary" Accumulation - 20 years, retirement = 20 and 30 years. The gross saving rate = 30+%.

This is consistent with my normal saying:

Spend 1/3, save 1/3, and pay 1/3 in taxes.

KlangFool
Sorry about the edited post. I'm looking at 40-year time horizon investing. Someone who begins their career at 22 and intends to retire at 62 can safely save only 10-13% according to this. You only need extremely high savings rates if you are starting late or are planning on retiring early.
alfaspider,

<< Someone who begins their career at 22 and intends to retire at 62 can safely save only 10-13% according to this.>>

If a person cannot safely assume that he/she can be fully employed for 40 years, how could the 10% to 13% saving rate be safe?

KlangFool
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hand
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Re: Concept of Bogleheads needing to "Save more"

Post by hand »

SpartanBull wrote:Hello,
Like many other bogleheads, I'm often trying to advise friends and family members to follow this type of investing. That being said, I've noticed something in the commonly stated bogleheads principals and don't fully understand the need for it. To put it simply, why does it constantly need to be said that Bogleheads "Believe in saving more, being cheap, etc etc".
Beyond the core Boglehead principles, there is a vocal subset of members here who are either 1) frugal & conservative by nature, or 2) successful due to frugal and conservative decisions. If you think about it, it makes sense that adherents of an investment philosophy based partially on aggressively managing expenses would skew towards the frugal.

Coupled with the number of questions from posters who don't have their financial houses in order and need help understanding that a certain retirement, luxury car, all access cable package, and giant house aren't all possible for most people, you can see why there is a volume of comments / threads that may make it seem that being cheap / over-saving are core tenants rather than a by-product of the types of people and types of questions this community attracts.

For those who have their financials in order, a bigger focus on optimized consumption is likely appropriate - there is no benefit to dying with the biggest pile of money. That being said undersaving is a much bigger problem than oversaving globally, and possibly for this community, so it probably more helpful to continue the focus on saving more, being cheap....
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Re: Concept of Bogleheads needing to "Save more"

Post by Grt2bOutdoors »

Savings are not compounding if you need to tap retirement assets to live on because you have no other assets or sources of funds. Ask the long term unemployed or underemployed, how well those dollars are compounding for them. :?:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
KlangFool
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Re: Concept of Bogleheads needing to "Save more"

Post by KlangFool »

alfaspider wrote:
If we change from the relatively early 62 year retirement age, to the standard 67 retirement age (for the younger generation to claim SS), we can still get 40 working years in with some prolonged periods of unemployment. I would wager that the vast majority of workers could spend 40 years employed over the course of 45 years. Also, keep in mind that those savings are still compounding during periods of unemployment. You are better off with 30 years of contributions spread out over 40 than 30 years spread out over 30.

Personally, I am fortunate to be able to save considerably more than the 10-13%. We are in a two income household with similar incomes. We live off one income and save the other. The goal is to be able to retire at 50, but with considerable room to run if careers don't turn out as planned.
alfaspider,

It is 40 years of accumulation. If a person is unemployed, how could the person save and invest any money?

<< I would wager that the vast majority of workers could spend 40 years employed over the course of 45 years.>>

How would you know? At least within my peers, that is definitely not true. Most of my peers are not employed up to the 60s.

KlangFool
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Re: Concept of Bogleheads needing to "Save more"

Post by dbr »

What are some of the conclusions from that table:

1. There is a huge jump in required savings if you try to do it all in 20 years and a much smaller gap from 30 to 40. That is a pretty well known result.

2. Required savings rate goes down the more you invest in stocks. In this table there is no provision to change the asset allocation between accumulation and retirement, but I am pretty sure the advantages of having more in stocks apply throughout.

2. The longer you expect your retirement, the higher your savings rate needs to be, but that is less and less true the more you invest in stocks.

3. There is a bigger jump from a 20 year expected retirement to a 30 year expected retirement than from 30 to 40.

4. There is a strong dependence on replacement rate, which would be obvious. However, this indicates that one should do some work to estimate actual expenses in retirement and not use arbitrary replacement rates.

5. For reasonable circumstances that could apply to many people the required savings rates are reasonable and achievable as long as one is somewhere in the upper half or two thirds of average income. It is easy to see how there are many people in our economy who do not have enough income to play this game.
alfaspider
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Re: Concept of Bogleheads needing to "Save more"

Post by alfaspider »

KlangFool wrote:
alfaspider wrote:
If we change from the relatively early 62 year retirement age, to the standard 67 retirement age (for the younger generation to claim SS), we can still get 40 working years in with some prolonged periods of unemployment. I would wager that the vast majority of workers could spend 40 years employed over the course of 45 years. Also, keep in mind that those savings are still compounding during periods of unemployment. You are better off with 30 years of contributions spread out over 40 than 30 years spread out over 30.

Personally, I am fortunate to be able to save considerably more than the 10-13%. We are in a two income household with similar incomes. We live off one income and save the other. The goal is to be able to retire at 50, but with considerable room to run if careers don't turn out as planned.
alfaspider,

It is 40 years of accumulation. If a person is unemployed, how could the person save and invest any money?

<< I would wager that the vast majority of workers could spend 40 years employed over the course of 45 years.>>

How would you know? At least within my peers, that is definitely not true. Most of my peers are not employed up to the 60s.

KlangFool
Obviously, this is heavily industry specific, but I don't know any late-career professional who has spent more than 5 years unemployed over the course of their career. I know plenty of people who have been laid off and even spent a year or two unemployed once or twice, but more than 5 years not working is quite a lot. But, I think you are over-interpreting my comments here. The analysis posted was simply of the math without regard to qualitative risks, which I found unsurprising.

You can do your own personal qualitative risk analysis. If you are a serial entrepreneur, it's likely you will have several periods of minimal income. If you are a dual income household of two government employees, the chances of a zero income period are much reduced. But there's no reason not to save more than the minimum. I certainly do!
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Re: Concept of Bogleheads needing to "Save more"

Post by rbaldini »

The investment strategy (loosely described as low-cost indexing in stocks and bonds) has nothing to do with the encouragement to save more. They're both good ideas, independently, if you want financial independence and a comfortable retirement. We encourage both. That's it.

So, to answer your questions,
SpartanBull wrote:Even if you're a frivolous sports car driving, vacation taking, womanizing bottle service kind of guy (certainly not myself, just making an example), doesn't that guy also want the best return possible for whatever he invests?
Yes.
SpartanBull wrote: Is the save more stuff just saying that its good for any investor to save more?
Yes.
Last edited by rbaldini on Mon Dec 19, 2016 9:29 am, edited 1 time in total.
bigred77
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Re: Concept of Bogleheads needing to "Save more"

Post by bigred77 »

I also want to point out that these SAFEMIN savings rates represent the rates that would have worked in the absolute worst of times (from the past).

From the article: "Using the SAFEMIN savings rate was always sufficient to finance desired retirement expenditures regardless of the actual wealth it provided at the retirement date. The actual MWR, which could not be known until 30 years after retirement, was always at least as high. The year that the required and actual withdrawal rates were the same, which was 1918, defines 16.62 percent as the SAFEMIN savings rate."

In other words, if you save at these levels for the stated number of accumulation years, with the stated static AA, you can replace 50% (or 70%) of your final salary over the given retirement years and be assured you did not run out of money. These numbers worked in the worst of all cases.

Now, most people do not begin their career in the absolute worst year to start a lifetime of investing. Most of the time you end up fabulously wealthy if you adhere to these savings percentages. The vast majority of people who dutifully saved and invested 25% of their earnings over their career were able to retire after about 30 years of working, replace their full post savings salary, and died with more money in the bank than when they retired.
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