Why save so much for when you're old?

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JonnyDVM
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Re: Why save so much for when you're old?

Postby JonnyDVM » Fri May 05, 2017 3:47 pm

flyingbison wrote:I don't think you should save so much that you aren't enjoying your life now.


You can save for the future and still enjoy life now. They also give you a nice tax break to save now. It's a win-win. You don't need to be super frugal to save for retirement. Just cognizant that it's important.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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celia
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Re: Why save so much for when you're old?

Postby celia » Fri May 05, 2017 3:48 pm

imareal1 wrote:I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.

Life is full of unknowns. What will your health be like? your spouse's health? How much will senior home care cost you? Will you own your house someday or forever pay increasing rent? How will you pay for a new roof (they usually last 30 years, and you might be retired more than that so may even have to re-roof twice in retirement)? What will inflation be between now and then? Will any of your future kids have special needs? Will your parents depend on you for your support in their golden years?

You know that thing that hasn't been invented yet that everyone will have, I'm sure you will need one too! (helicopter cars, anyone?)

Wakefield1
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Re: Why save so much for when you're old?

Postby Wakefield1 » Fri May 05, 2017 3:53 pm

How about "why save so much so that you can fully enjoy your early middle age years" or be "independent" as early in life as possible

Dandy
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Re: Why save so much for when you're old?

Postby Dandy » Fri May 05, 2017 4:03 pm

Here are some of my thoughts

1. By saving early (like age 24) you have to be far less frugal than if you start say at 30.
2. You work from age 24 to say 60 - 36 years - you have a decent change to live to age 90 - so 30 years in retirement
So your earning years are just slightly longer than your retirement years. Expenses might be less in retirement but that is
a lot of years to have your portfolio fund.
3. Pensions are becoming very rare and/or not fully funded - even government pensions. Firms/governments are tying to get out of
ongoing obligations like pensions and retiree health care.
4. Lots of concerns about health care especially Medicare/Medicaid
5. Jobs, even good jobs are not as secure as they once were. Global competition, technology, automation, mergers the pace of change, etc. There are probably a lot fewer people who start out today that will be fully employed in a good job for their whole career. Much more likely to have a few jobs with some unemployment time in between.

Today more risk and responsibility is on the individual. So, it makes more sense then ever to build a nice nest egg as early as possible. If you come up short a helping hand may not be there for you and your family. I'm retired and my wife was at a gathering of her friends who were at or nearing retirement and were worrying about having enough to retire. They discussed when they got serious about saving/investing. They asked her when did you husband start saving for retirement. Her answer was as soon as he got his first job. I was employed by 2 very large and national companies. I lost my job twice - at 52 with 2 kids in or about to be in college and again at age 60 both due to outsourcing/ mergers etc. I was lucky to have pensions/retiree health insurance and a large investment portfolio. Today both companies no longer have pensions - they just set aside some cash each year for their employees - they have no ongoing risk.

Good luck.

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climber2020
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Re: Why save so much for when you're old?

Postby climber2020 » Fri May 05, 2017 4:52 pm

imareal1 wrote: to live adventurously (AKA lavishly)


Those two words do not mean the same thing. You can be poor and live an adventurous life. Or you could spend six figures on a lavish car and live an otherwise boring existence. I know plenty of people in each situation.

I also work with a guy who is in his 70s and can't retire due to poor planning despite having made well over 10 million dollars over the course of his lifetime. I don't want to end up like that guy.

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Re: Why save so much for when you're old?

Postby Grt2bOutdoors » Fri May 05, 2017 4:54 pm

knpstr wrote:Money can buy time or things.

You spend money to buy things.
You save money to buy time.

Money is nothing more than claim checks to use at your own discretion.

If you always spend what you save you must always work for everything you have.
If you invest your money will work for you to make more money.
People have been known to reach a critical mass where their money makes so much money for them they no longer have to work. In this way they bought themselves time to be able to enjoy life and spend money without having to work for it.


+1 If you haven't yet, consider becoming a motivational speaker or financial author. Excellent advice you posted. :beer
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

frugalecon
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Re: Why save so much for when you're old?

Postby frugalecon » Fri May 05, 2017 5:15 pm

I have a friend who questioned why I focused so much on stability and prudence, when I could be enjoying life and cutting loose. He is now in his mid-60s, broke, unable to find a job, without sufficient SS to cover his bills. He periodically needs help to cover basic living expenses. I have a seven-figure net worth. That is why I saved decades ago.

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Re: Why save so much for when you're old?

Postby Exodus » Fri May 05, 2017 6:29 pm

imareal1 wrote:Thanks for all the feedback. It seems like my perspective of middle/old age life is grimmer than what it is in reality. It's great to hear that people are able to find a balance and I'm super glad I'm starting to save already. Cheers.


I think you are missing the point of saving at an early age. When you are young you have time and little capital, you want to get the ball rolling when you are young. Also, you need to balance your savings with spending. If you are saving so much that you can't enjoy the present, then maybe you need to relax on the savings. I live in a HCOL and with my currently salary I wouldn't be able to buy big ticket items like a house in the next 5 years, but if I diligently save when I'm young, it makes it more of a reality that I will be able to one day afford these things. Middle/old age is gloomy because we won't be able to hangout with our friends as much, people get married, or work gets in the way, but those years will be the most profitable years in your life. Maybe you are having a quarter life crisis, but I think you need to figure out a balance between what makes you happy now and what will make you happy in the future.

-B
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Re: Why save so much for when you're old?

Postby Dottie57 » Fri May 05, 2017 6:46 pm

imareal1 wrote:.... My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


I am 60 and guarantee I like money as much as I did at 24. I have plenty of energy to spend. And expenses are real.

Try running numbers to see how much you need to generate 50k a year.

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Re: Why save so much for when you're old?

Postby nisiprius » Fri May 05, 2017 6:50 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.
Well, if you're an actuary you should be able to do the necessary math for yourself, so go do it and see what answers you come up with. That's not a brush-off, you really should give it a whirl.

"Less expenses" when we're old is not "no expenses." As a matter of fact, I think the idea that "old folks spend less" has a fair amount of myth to it. It doesn't take into account health-care expenses (sum of insurance premiums plus out-of-pocket... in my case, so far, out-of-pocket has been close to zero but Medicare premiums plus Medicare supplemental policy is not at all zero). You have to eat. You need a place to live. You want a phone. And a cell phone to call for help. And TV and internet. And so forth. You don't watch less TV as you age. (Oh, yeah... we were having a little trouble understanding the dialog on drama shows, add another $250 for a sound bar with a dialog-boost feature).

Furthermore, to some extent the energy of youth enables you to same money on some things, whereas as you get older you spend/waste money on small luxuries if you have the money to waste. Young people buy fast cars, old people buy comfortable cars if they can afford to.

We had a slowly dripping kitchen faucet, one of the new "cartridge" kinds. In Ye Olde Days I'd have taken it as a little adventure, shut off the water, figured out how to open the faucet, taken out the cartridge, gone out to the local plumbing supply place etc. If I'd gotten the wrong replacement or somehow bunged it up putting it in, I'd have cussed a bit and gone out for another, while my wife made do without a kitchen sink for a day. Well, all this stuff is harder when you're wearing bifocals... and aren't anywhere near ready for a cataract operation but still need a little headlamp to see into dark places... and it kind of hurts to scrooge yourself around into the right shape to get into the cabinet with the latch that digs into you when you reach around to where the shutoff valve is... and it won't turn because you haven't used it in fifteen years... and you really give it the muscle and it snaps off in your hand and you bang your funnybone and... well, I am ashamed to admit it but we called a plumber and we paid (gasp) $125.

Young folks stick a toothbrush, a sleeping bag, and a tiny bivvy tent and head out into the back country. Old folks pay $7,000 to go on those trips the alumni association mails out literature for. We want our busses, someone to cook food for us, and a place to plug in our CPAP machine.

My wife and I still mow our own lawn and clear our own snow. For how long, do you think? Someday we're likely to hire a yard service and a "snowplow guy."

Old people like little luxuries and nice things. You don't think of them as luxuries because the very idea of a stairlift disgusts you.

So, what do you think is a sensible planning number for your life expectancy at age 65? (Do you seriously think you're going to shoot yourself just because you can't windsurf any more?) Do everything in real dollars so that inflation drops out of the equation. Guessimate what you think your household budget will be. Guesstimate what you'll get in Social Security. Decide whether or not to use the official numbers or discount something for the possibility that Social Security won't pay out as much then as it does now. Guesstimate something for health insurance. If your Social Security really and truly exceeds your estimated expenses, then, fine, stop right there, don't save anything. Otherwise...

...well, the basic proposition as I see it is that you have to save enough money during your forty earning years to support yourself during twenty-five retirement years. Now, figure that Social Security is something like saving 15% of your salary, and do the rest.

Seriously, you're an actuary, run the numbers. Tell us how it comes out. That will be much better than any rule-of-thumb or workbook answer, and you'll believe it and act on it because you understand what's behind it. And you can decide for yourself whether to assume that you'll be pulling up roots and moving to a lower-cost-of-living place.

Oh, I forgot the cost of spoiling grandchildren. Very important.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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warowits
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Re: Why save so much for when you're old?

Postby warowits » Fri May 05, 2017 7:50 pm

Say you want 40k a year in retirement to spend above social security, you will need about a million dollars (ignoring inflation). You are 25 and you want to retire when you are 65, and you expect about a 6% return (ignoring inflation). For a 25 year old saving $538 a month isn't impossible, but it will be tough. However if you wait until you are 45 then you have to save 4.5 times as much per month ($2,265), which is over half of the average households income. Wait until you are 55 to start saving and you need to save 148% of the average household income to get there ($6,322 a month). The sooner you start, the easier it is. Old you is still you, and 'maybe I will die young' isn't a super solid retirement plan.

Save $ 538 a month for 40 years at 6% you get ~$1m
Save $1,054 a month for 30 years at 6% you get -$1m
Save $2,265 a month for 20 years at 6% you get -$1m
Save $6,322 a month for 10 years at 6% you get -$1m
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

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Re: Why save so much for when you're old?

Postby gkaplan » Fri May 05, 2017 8:44 pm

gouverneur wrote:To take a tack counter to conventional wisdom on this board -- since OP's 24, why shouldn't he spend to his fullest capacity (hopefully not getting into debt on top) for a few years and see how much he likes it? Or save a little bit, 5-10%, and spend more in youth? I do agree with the perspective that depriving oneself in one's 20s may be a mistake because never again will one have as much freedom from obligation (parents not yet too old, not yet obligated to care for children), as much physical vitality, and as much need to experience the broader world and its pleasures -- some of which cost a fair amount of money!

I'm also not a huge believer in people being able to change their attitude toward money or spending through other people's advice--some people want instant gratification, as the OP candidly admits, and I doubt he will be happy saving a high amount of his income. On the other hand, people who are naturally frugal have no problem following the advice of other frugal people to be frugal.

A modest amount of savings (5-10%) is perfectly fine for someone at the very beginning of his or her career. Perhaps experiencing a high consumption lifestyle will lead to a sense, after a few years, that there are other sources of happiness, and then he'll save more.

Until then, why not spend "lavishly" and see how much one likes it? While the ideal (and non-existent) rational person would save an optimal amount to ensure they capture the benefit of tax advantaged accounts, compounding, time value, etc., and ensure they save the least amount to get the maximum amount of retirement spending they desire, the reality is most of us take meandering paths to the end (and probably run into one or two big changes or unexpected events along the way). It seems to me that a period of "sowing his oats" could be a good thing.



When someone gets used to a lavish lifestyle at a young age, it's difficult to switch gears and adopt a more frugal lifestyle.
Gordon

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Re: Why save so much for when you're old?

Postby Oblivious » Fri May 05, 2017 8:49 pm

As an actuary if you can make it through the exams, your income is going to increase very quickly in the beginning. Never forget the miracle of compounding. Don't leave money on the table. Enjoy the first couple of years and the pay. As your pay increases by 20%, 30%, 40%+, use those increases to max out your 401k, hsa, etc.

As you might or might not have exposure to. Different accidents, disabilities, life events impact people at certain times in their life. Given that you get to certain ages, the chances of you getting impacted by these things changes.

I've met a lot of actuaries. I don't think I've met a non-frugal one yet.

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Re: Why save so much for when you're old?

Postby Stormbringer » Fri May 05, 2017 8:58 pm

imareal1 wrote:I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.

Next time you are in a McDonalds and see a 70 year-old working the register, just realize that may be you if you don't save for retirement. You may not have one.

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Re: Why save so much for when you're old?

Postby Call_Me_Op » Sat May 06, 2017 6:56 am

Why is living lavishly a good thing?
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Re: Why save so much for when you're old?

Postby carolinaman » Sat May 06, 2017 7:31 am

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


Your question is good. There is a lot of emphasis on saving for retirement on this forum. Some seem to see the distant retirement as a nirvana that we sacrifice the present for. IMO, one should strike a balance between living life today and saving for retirement. Both are important.

In a recent post, someone stated that you cannot over save for retirement. I totally disagree with that statement. Life is a continuum from the present until you die. Do not sacrifice the present for tomorrow nor sacrifice tomorrow for today.

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Re: Why save so much for when you're old?

Postby CyclingDuo » Sat May 06, 2017 7:55 am

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


You could have a little fun reading a few quotes (not to mention books everyone recommends here at BH).

Here are a few Bernstein quotes...

https://www.goodreads.com/author/quotes ... ein?page=1

“The easiest way to get rich is to spend as little as possible.”
― William J. Bernstein, The Four Pillars of Investing

“Would you believe me if I told you that there’s an investment strategy that a seven-year-old could understand, will take you fifteen minutes of work per year, outperform 90 percent of finance professionals in the long run, and make you a millionaire over time? Well, it is true, and here it is: Start by saving 15 percent of your salary at age 25 into a 401(k) plan, an IRA, or a taxable account (or all three). Put equal amounts of that 15 percent into just three different mutual funds: A U.S. total stock market index fund An international total stock market index fund A U.S. total bond market index fund. Over time, the three funds will grow at different rates, so once per year you’ll adjust their amounts so that they’re again equal. (That’s the fifteen minutes per year, assuming you’ve enrolled in an automatic savings plan.) That’s it; if you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors. More importantly, you’ll likely accumulate enough savings to retire comfortably.”
― William J. Bernstein, If You Can: How Millennials Can Get Rich Slowly

“My rule of thumb is that if you spend 2 percent of your nest egg per year, adjusted upward for the cost of living, you are as secure as possible; at 3 percent, you are probably safe; at 4 percent, you are taking real risks; and at 5 percent, you had better like cat food and vacations very close to home. For example, if, in addition to Social Security and pensions, you spend $50,000 per year in living expenses, that means you will need $2.5 million to be perfectly safe, and $1.67 million to be fairly secure. If you have “only” $1.25 million, you are taking chances; if you are starting with $1 million, there is a good chance you will eventually run out of money.”
― William J. Bernstein, The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between

MnD
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Re: Why save so much for when you're old?

Postby MnD » Sat May 06, 2017 8:02 am

At around age 25 we started saving what we guessed would be needed to maintain our standard of living if we retired 30 years later, in our mid-50's.
It was pretty easy because we went from broke students to double income no kids so our financial standard of living went up very nicely despite not going up as much as it could have. Anything not saved we spent and still spend like drunken sailors. I doubt many people regret spending on nice extras and special experiences in their 20's or 30's for themselves and/or with their young children.

16 months out from a mid-50's retirement we should have a bit more income when not working versus working with a continued high level of discretionary spending. Do we have double what we need and plans for a 2% SWR? - No and I'm very glad we don't. I'm thrilled we weren't frugal.
I agree 100% one should not defer living life to the fullest in your 20's, 30's, 40's and 50's for some fortress-funded old person future.
You and/or your SO may never get there, and if you do the giant pile of money might not bring as much enjoyment as it would have brought your younger selves. And I doubt someone that has spent 40 years being miserly can or will enjoy spending on the good life. They'll likely end up the richest person in the graveyard.

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Re: Why save so much for when you're old?

Postby stoptothink » Sat May 06, 2017 8:37 am

I have two very good reasons. My in-laws have lived with us for much of the past year and it is only a matter of time before they move in permanently. My FIL is 60 and still works full-time, but they can barely cover their bills let alone make any progress on their debt. During my wife's childhood he made good money (owner of a multi-practitioner chiropractic practice), but it was spent on vacations, boats, every gadget ever made. Whatever he is likely to get in SS will be garnished to pay his 6-figures in school loans (yes, the loans he took out 30+ years ago). They already are a financial burden on us, that will only get worse. My own mother is nearly 60 and makes a good living. Better situation, but she literally has zero in retirement savings. She has recently admitted to me that she is very concerned that her and her husband will have to work until the day they die and likely need our help. My in-laws and parents are or will likely be financially dependent on me; it sucks. I will never do that to my children.

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Re: Why save so much for when you're old?

Postby TX_Man » Sat May 06, 2017 8:40 am

I'm 31 and I don't know what the future holds. Another major crash and I could be out of the job. Car crashes, marriages, health problems and an array of issues that could happen. I save in the good times to prepare for the bad. People tell me to stop being so negative. I'm positive there will be major drawbacks and negative financial events. Hopefully not many, but after the unrelenting brutal nature of my 20s I would like to have a bone tossed my way. However if that doesn't happen, I am more ready now that I ever have been before.

I save for retirement because one day I will no longer be employed. It will happen either by consent or by forces outside of my control.

I save for emergencies because life does happen.

I save for investments so I can have money grow before I hit the magic 59 1/2 number.

There appears to be very different minds of thought among the millennials. Those of us on the older side, late 20s/early 30s who had a devastatingly difficult time due to the financial crisis in '08/'09 and that shaped us, for better or worse. And the younger ones, early-mid 20s, who maybe had the luxury of being in high school or college while the worst of it was occurring and graduating into a growing economy.

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Re: Why save so much for when you're old?

Postby Impromptu » Sat May 06, 2017 9:03 am

Young people can have great adventures without spending much money. Use that extra energy. Part of the adventure is finding things to do that do not put you in the poor house. Traveling Europe living in hostels with a Eurrail pass is a great example.

Grow into your income slowly. Lifestyle creep is a great reason not to ramp up your expenses too fast. Once you grow accustomed to a certain level of spending, you will not voluntarily go back down, even though your happiness level would have been the same had you slowed your lavishness.
I'll gladly pay you Tuesday for a hamburger today.

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Re: Why save so much for when you're old?

Postby hicabob » Sat May 06, 2017 9:13 am

So that your physical capital increases as your human capital decreases which keeps life relatively balanced in a manner.

MnD
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Re: Why save so much for when you're old?

Postby MnD » Sat May 06, 2017 9:29 am

CyclingDuo wrote: "For example, if, in addition to Social Security and pensions, you spend $50,000 per year in living expenses, that means you will need $2.5 million to be perfectly safe, and $1.67 million to be fairly secure. If you have “only” $1.25 million, you are taking chances; if you are starting with $1 million, there is a good chance you will eventually run out of money.”
― William J. Bernstein, The Investor's Manifesto: Preparing for Prosperity, Armageddon, and Everything in Between


Given that few have pensions, just save $3 million for a perfectly safe retirement that might not suck on gross income of $5000 a month plus your Social Security check. EZ-Pee-Zee other than the fact that virtually no-one can afford to retire ever following the 2% Berstein Rule.

sambb
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Re: Why save so much for when you're old?

Postby sambb » Sat May 06, 2017 9:41 am

I can see the OPs point.
I am so glad that i DIDNT save money in my 20s - blew money to go on great dates, trips to europe with friends and girlfriends, had parties and threw them, road trip to vegas, etc
Those experiences were well worth it. I am sure the $3000 i blew in europe might be worth more these days - who cares, I am so so so glad I spent the money and had some great times to show for it.

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Re: Why save so much for when you're old

Postby nimo956 » Sat May 06, 2017 10:12 am

delamer wrote:I've been in my early 20's and I am now in my early 60's.

Yes, there are a few things that I can't do, or are more difficult to do, now relative to 40 years ago. But that is a long way from being ready to sit in a rocking chair and crochet all day. And if the people in their 60's who you know are like that, you are seeing an unrepresentative sample. Which is something that an actuary should understand.

Do things now that you enjoy, but don't assume that you won't be able to enjoy life in 40 years.


I keep laughing at the image of people in their 60s sitting in a rocking chair on their porch and knitting, as if that's all they have energy for nowadays! When people don't have to worry about work, they have time to eat right, get enough sleep and stay in shape. I was climbing a few of the 4K peaks in the White Mountains last summer, and there were a number of gray-haired people in their 60s passing me on the way up!
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Re: Why save so much for when you're old?

Postby runner540 » Sat May 06, 2017 10:30 am

TX_Man wrote:I'm 31 and I don't know what the future holds. Another major crash and I could be out of the job. Car crashes, marriages, health problems and an array of issues that could happen. I save in the good times to prepare for the bad. People tell me to stop being so negative. I'm positive there will be major drawbacks and negative financial events. Hopefully not many, but after the unrelenting brutal nature of my 20s I would like to have a bone tossed my way. However if that doesn't happen, I am more ready now that I ever have been before.

I save for retirement because one day I will no longer be employed. It will happen either by consent or by forces outside of my control.

I save for emergencies because life does happen.

I save for investments so I can have money grow before I hit the magic 59 1/2 number.

There appears to be very different minds of thought among the millennials. Those of us on the older side, late 20s/early 30s who had a devastatingly difficult time due to the financial crisis in '08/'09 and that shaped us, for better or worse. And the younger ones, early-mid 20s, who maybe had the luxury of being in high school or college while the worst of it was occurring and graduating into a growing economy.


+1

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willthrill81
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Re: Why save so much for when you're old?

Postby willthrill81 » Sat May 06, 2017 3:06 pm

I've been thinking about the OP's statement lately, which is really just an honest expression of what many people in first-world nations believe. They believe that money buys happiness. There seems to be some truth in this, but the bottom line is that you don't need to spend much or any money to really enjoy life once your basic needs are met.

Here's a great list from Jonathan Clements on this precise topic.

NO DOUBT YOU WOULD DRAW UP a somewhat different list. But here’s what I consider life’s greatest pleasures:

Talking to my wife over a glass of wine at the end of the day
Losing myself for a few hours in an interesting piece of work
Walking in nature
Spending time with my kids
French fries
Waking up after a great night’s sleep
Knowing I did the right thing
Wrapping up work on a Friday
Making ****
A raucous dinner party
Feeling physically spent after a good workout
Finally sorting out a long-simmering problem
People watching
Taking a nap
Ending the day with a sense of accomplishment

To me, these are among the finest things life can offer—and they have a common element: You don’t need to be rich to enjoy any of them."

http://www.humbledollar.com/2017/04/nothing-better/
“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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Re: Why save so much for when you're old?

Postby Hawaiishrimp » Sat May 06, 2017 7:21 pm

Welcome to BH. This is the best website for folks who are looking for advice on financial independence.

First of all, what do you mean by "so much"? Can you give us your definition?

Personally, I don't plan to save too much. I plan to accumulate around 3 millions and call it a day. It'll be enough for me and my wife's retirement lifestyle. Whatever left, after we departed, will be funding our kids' future adventure.

Nothing is guarantee and life is full of surprises. Doesn't hurt to save a little more when we can in case SHTF. That's just my risk management mentality.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Why save so much for when you're old?

Postby chinto » Sat May 06, 2017 9:53 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job)...

... My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


I am responding with some fatherly advice for a couple of reasons. One my son is 22 and just sat for his FCAS so I have a soft spot for your career choice and two I was one of those who enjoyed life to the max on a song budget until the family urge called for me in my early 30s so the perspective may help you.

In general the largest inhibitor to living a life of adventure is family, responsibilities,and time. These days, due to the Internet, if you have few responsibility to others and time flexability you can travel extensively and very cheaply. A friend's daughter earns 24k a year, yet she is an adroit globe hopper. She just got back from China.

Airbnb, airsaver, and cruise savers fares mean you can live relatively high on the hog on the cheap.

My point is, I think you can save responsible and heavily and still live a life of adventure and fairly lavishly if you simply have flexibility. I have not done it in some time, but American Airlines use to publish its netsavers tickets once a week. Essentially you could find out about cheap destination about 3 days to a week in advance. I once did Chicago to New Orleans for $29 (one way). I did Chicago to Ft Lauderdale and Miami maybe 25 times for $69 round trip. A friend of mine just did Charlotte to Nashville, round trip with all fees for $139(had to change planes).

The other side of the coin is I am 50 something, dreaming of retirement, but no time at present I have over 2 million miles with American, 1 million with United and 500K with Delta, and over 3 million Hilton Honor points, 1 million Marriott and yet I have not had a real vacation in maybe 15 years...I have lifetime Platinum status on American and lifetime Hilton Diamond status yet I have no time to enjoy it. As I said family obligations and work are the inhibitors. Once you get up that career ladder it is oft difficult to grab a real vacation.

So I'll give you the same advice I gave my boy, live your life large while young. Go on adventures, but also take care of the fuure. If you have travel flexibility you can travel ungoshly cheap. There is no reason you cannot have a life filled with adventure and responsible savings for the future. My boy is 22, has a lower six figure net worth and has been around the block a few times. That means he funds his Roth IRA, his Roth 401K, funds his HSA to the max and still puts away even more in taxable accounts, yet he lives like a king. You can have both.

Live Large...

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Re: Why save so much for when you're old?

Postby mptfan » Sat May 06, 2017 10:22 pm

imareal1 wrote:I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.

You can touch them without penalty when you are 59.5.
I eat risk for breakfast. :)

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Re: Why save so much for when you're old?

Postby zaboomafoozarg » Sat May 06, 2017 11:13 pm

I ask myself this question a lot. Part of it is not knowing if I'll be mentally able to work to full retirement age, which is a small but real concern.

But I recently did some calculations and found out that if I work until 55, keep my spending the same and die at 90, I'll most likely end up with $20M sitting around. Assuming 3% inflation that would only be about $4M, but still.

Makes me think that I can possibly afford to visit New Zealand after all.

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Re: Why save so much for when you're old?

Postby BogleFanGal » Sun May 07, 2017 11:56 am

The thing I never realized in my '20s is how differently I would end up feeling just a decade or two later about that career, that job - the politics of corporate life wearing me down. About just wanting to take a long break or explore something else. My '20s self couldn't identify with burnout and would feel sorry for someone who felt that way.

To me, the "why save" argument was never about retirement - which seemed like a remote possibility in my '20s. It was more about having enough saved so that I'd never feel trapped.

Savings = better options. Savings = the sweet freedom to get out or take a break when you feel like you've hit the wall, can't deal with your psychotic boss any longer or just want to do something different. Savings = a good night's sleep when you're laid off at the same time a massive gobal recession hits and NO ONE is hiring for anything - where 40 year olds with master's degrees are begging for minimum wage jobs.

Having said that, I certainly didn't save every penny - I did some great stuff in my '20s and '30s, but trust me, life can get very scary when there's no cushion for the bumps along the way. And there WILL be bumps.

I never thought of saving as a "retirement" goal - I just saved as much as I reasonably could and didn't worry back then about the buckets. That's not ideal from an investing point of view, but psychologically, it motivated me to save more vs picturing some distant 60-70 year old version of me I couldn't even identify with yet.

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Re: Why save so much for when you're old?

Postby celia » Sun May 07, 2017 2:09 pm

Oblivious wrote:As an actuary if you can make it through the exams, your income is going to increase very quickly in the beginning. Never forget the miracle of compounding. Don't leave money on the table. Enjoy the first couple of years and the pay. As your pay increases by 20%, 30%, 40%+, use those increases to max out your 401k, hsa, etc.

When you are just starting out, your income, thus your tax rate, is assumed to be the lowest of your career. So max out your Roth choices first and let the compounding happen there (as much as possible). You will thank me in 30 years. I will still be here (although I might not be able to see my computer through my tri-focals unless I get a 50-inch screen. Ouch--the price!).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Why save so much for when you're old?

Postby gator15 » Sun May 07, 2017 4:04 pm

Saving gives you flexibility. Thats why I save. At age 28, I was able to quit a job, finish my masters degree and travel a bit as a result of the money I saved from age 22-28. I also lived pretty lavishly during that time . I just didn't spend everything I made. Today I'm not really driven by early retirement. I continue to save because I enjoy the flexibility it gives me. I can change careers if I want and not worry about the financial repercussions. I can buy a really nice car, travel etc because of the money I saved.if my employer decides they no longer need my services I'm going to be alright. Won't lose any sleep. Saving over the last 15 yrs gave me that flexibility.

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Re: Why save so much for when you're old?

Postby The Wizard » Sun May 07, 2017 5:08 pm

celia wrote:
Oblivious wrote:As an actuary if you can make it through the exams, your income is going to increase very quickly in the beginning. Never forget the miracle of compounding. Don't leave money on the table. Enjoy the first couple of years and the pay. As your pay increases by 20%, 30%, 40%+, use those increases to max out your 401k, hsa, etc.

When you are just starting out, your income, thus your tax rate, is assumed to be the lowest of your career. So max out your Roth choices first and let the compounding happen there (as much as possible). You will thank me in 30 years. I will still be here (although I might not be able to see my computer through my tri-focals unless I get a 50-inch screen. Ouch--the price!).

That sounds good in retrospect, the Roth in the early years, but new grads often have high expenses: edu loans, saving for a principal residence, etc. So it's not clear that foregoing the tax shelter gives more net income...
Attempted new signature...

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Re: Why save so much for when you're old?

Postby Dottie57 » Sun May 07, 2017 6:48 pm

The Wizard wrote:
celia wrote:
Oblivious wrote:As an actuary if you can make it through the exams, your income is going to increase very quickly in the beginning. Never forget the miracle of compounding. Don't leave money on the table. Enjoy the first couple of years and the pay. As your pay increases by 20%, 30%, 40%+, use those increases to max out your 401k, hsa, etc.

When you are just starting out, your income, thus your tax rate, is assumed to be the lowest of your career. So max out your Roth choices first and let the compounding happen there (as much as possible). You will thank me in 30 years. I will still be here (although I might not be able to see my computer through my tri-focals unless I get a 50-inch screen. Ouch--the price!).

That sounds good in retrospect, the Roth in the early years, but new grads often have high expenses: edu loans, saving for a principal residence, etc. So it's not clear that foregoing the tax shelter gives more net income...



The payroll deduction of 401k contributions is what sold me. Way back in the day when I started 401k contributions, I was making $30k and had just bought my home. Money was tight.

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Re: Why save so much for when you're old?

Postby Johnnie » Sun May 07, 2017 7:11 pm

willthrill81 wrote: My big question is why you think that living adventurously means spending all (or virtually all) of your income. Contrary to popular wisdom, spending money does not necessarily make you happy. You can live a fun lifestyle without necessarily spending 100% of your income.


That's what had me scratching my head. Specifically, "...to live adventurously (AKA lavishly)."

I dunno - "lavishly" doesn't sound very adventurous. I too wanted adventure when I was young, but never gave much thought to "lavish." Now that retirement looms ever closer I think I might enjoy some luxury going forward. That opportunity and the peace of mind of having enough with a nice margin makes me glad to have always been a saver.

ETA: If you have kids everything changes, in this as in all else. It's a lot harder to save, period. That may be another reason to sock some away very early if you can.
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Re: Why save so much for when you're old?

Postby willthrill81 » Sun May 07, 2017 7:58 pm

Johnnie wrote:
willthrill81 wrote: My big question is why you think that living adventurously means spending all (or virtually all) of your income. Contrary to popular wisdom, spending money does not necessarily make you happy. You can live a fun lifestyle without necessarily spending 100% of your income.


That's what had me scratching my head. Specifically, "...to live adventurously (AKA lavishly)."

I dunno - "lavishly" doesn't sound very adventurous. I too wanted adventure when I was young, but never gave much thought to "lavish."


For me, living 'adventurously' would be taking a couple of weeks to go on hiking/camping trip in the mountains, something I hope to do when my kids are a bit older. And that wouldn't cost much at all!
“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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Re: Why save so much for when you're old?

Postby nyclon » Sun May 07, 2017 8:20 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


What's the probability of your expectations of making good money happening? Not happening? What's the risk of you losing your job? Bots taking over your role?

It's more about saving at all vs even saving for retirement. But having said that, you save to mitigate risk. The risks of course are unknown.

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Re: Why save so much for when you're old?

Postby warowits » Sun May 07, 2017 8:28 pm

MnD wrote: EZ-Pee-Zee other than the fact that virtually no-one can afford to retire ever following the 2% Berstein Rule.


I honestly think that it is irresponsible to advocate a 2% withdrawal rate to people just starting to plan for retirement. It does more harm than good. You think 'well we have been very conservative in our assumptions and now this person will be scared into saving more than enough', and they are thinking 'well if I really need that much I may as well not try'.

Same with people who say they expect a 3% real return for stocks over the next 30 years. If those were reasonable predictions about the future I don't know that I would bother saving myself.
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

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Re: Why save so much for when you're old?

Postby zaboomafoozarg » Sun May 07, 2017 9:12 pm

MnD wrote:Given that few have pensions, just save $3 million for a perfectly safe retirement that might not suck on gross income of $5000 a month plus your Social Security check. EZ-Pee-Zee other than the fact that virtually no-one can afford to retire ever following the 2% Berstein Rule.


Nobody I know in real life has enough for a Bogleheads-sanctioned retirement. We're talking couples retiring with a paid-off house, $100-200k IRA and Social Security - that's it.

BH.org would claim that it is a mathematical impossibility to retire with that amount of money. Yet somehow they all do it. It's not early and not extravagant, but they do it.

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Re: Why save so much for when you're old?

Postby FiveK » Sun May 07, 2017 9:14 pm

imareal1 wrote:...putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65....
It has been noted this statement is incorrect. E.g., see How to withdraw funds from your IRA and 401k without penalty before age 59.5 for detailed alternatives.

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Re: Why save so much for when you're old?

Postby zaboomafoozarg » Sun May 07, 2017 9:36 pm

warowits wrote:I honestly think that it is irresponsible to advocate a 2% withdrawal rate to people just starting to plan for retirement. It does more harm than good. You think 'well we have been very conservative in our assumptions and now this person will be scared into saving more than enough', and they are thinking 'well if I really need that much I may as well not try'.

Same with people who say they expect a 3% real return for stocks over the next 30 years. If those were reasonable predictions about the future I don't know that I would bother saving myself.


I tend to agree. Pessimism works for some people (myself included), who can be persuaded to live on 1/3 income by the fear that future returns will be horrible. Who knows, it might happen, lots of people are predicting it and the current numbers don't look promising.

But most people seem to react to such pessimism with a "then why bother?" attitude.

So outwardly I'm pretty optimistic when talking to other people. But inwardly and on the internet, I'm nearly as pessimistic as they come.

I hope my fake optimism is right.

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Re: Why save so much for when you're old?

Postby TomatoTomahto » Sun May 07, 2017 9:50 pm

I don't have any advice for OP, but I just have to say that the earnest way that posters have tried to explain longevity and compounding to an actuary reminds me why I love this site.

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Re: Why save so much for when you're old?

Postby TD2626 » Sun May 07, 2017 9:54 pm

Substantial savings is important early on. Your investments can compound over decades and grow to become far more than what you put in. By saving now, you can enjoy a much better old age. The importance of being frugal can not be overstated - adopt a low-expense lifestyle when young, and it will pay off.

Investing is important. It is possible that - if you save a lot and start young - your lifetime investment returns will outstrip your lifetime salary earnings. You can't invest, though, if you don't save!

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Re: Why save so much for when you're old?

Postby sschullo » Sun May 07, 2017 10:06 pm

imareal1 wrote:Hi, I'm 24 yrs old and almost one year into my actuarial career (first real job). I expect to make good money in the future and have started investing since I was hired. My question is why is saving a lot for retirement so important? I get that we need money for when we're retired and no longer have an income from working, but it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally. This is where I'm kind of missing the logic of saving for retirement. My perspective of an ideal life is to live adventurously (AKA lavishly) while we're young and have energy to enjoy life and chill out when we're old and have less expenses. This clearly goes against general investing for retirement advice...

I'm basically asking for a justification of why I'm putting away significant money into my 401Ks and IRAs that I can't even touch until I'm 65 and old and don't have the energy to do the stuff I would do now in my 20s.


I actually have more energy now at 69 than I did when I was a 20-year-old awkward, self-effacing with very low self-esteem, no talents, little education, no future and about as much life wisdom as a carrot. Now I have not just a ton of money to live on, but many talents that I have developed over five decades of living and working, and am enjoying life a 100% more than when I was newly discharged from the Marines. Even though I had a devastating loss of my spouse of 40 years 1.5 years ago, I would never trade my life now to go back to my 20s, youth would be my "hell". I despised just about every minute of my young adult life before I met my spouse at 27, then things began to change for the better, and its still getting better. Can't wait till I hit 80, if I am lucky to reach that age.
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Re: Why save so much for when you're old?

Postby willthrill81 » Sun May 07, 2017 10:21 pm

zaboomafoozarg wrote:
warowits wrote:I honestly think that it is irresponsible to advocate a 2% withdrawal rate to people just starting to plan for retirement. It does more harm than good. You think 'well we have been very conservative in our assumptions and now this person will be scared into saving more than enough', and they are thinking 'well if I really need that much I may as well not try'.

Same with people who say they expect a 3% real return for stocks over the next 30 years. If those were reasonable predictions about the future I don't know that I would bother saving myself.


I tend to agree. Pessimism works for some people (myself included), who can be persuaded to live on 1/3 income by the fear that future returns will be horrible. Who knows, it might happen, lots of people are predicting it and the current numbers don't look promising.

But most people seem to react to such pessimism with a "then why bother?" attitude.

So outwardly I'm pretty optimistic when talking to other people. But inwardly and on the internet, I'm nearly as pessimistic as they come.

I hope my fake optimism is right.


+1

A layperson might not readily see it, but a 2% withdrawal rate necessitates a retirement portfolio twice as large as if a 4% WR was used, substantially lengthening the time it takes to retire and/or the needed contributions to make the goal. Frankly, I personally believe it to be irresponsible to even suggest such a thing. Not even the overly and always pessimistic Dr. Wade Pfau would advocate such a low WR. A 3% WR could be achieved by just amortizing the portfolio over 33.3 years with TIPS, and you'd probably go longer than that since you'd be likely to have some real growth along the way with TIPS.
“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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Re: Why save so much for when you're old?

Postby peterinjapan » Sun May 07, 2017 10:33 pm

Loving all these answers. This is what Bogleheads is so great at.

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Re: Why save so much for when you're old?

Postby Watty » Sun May 07, 2017 10:52 pm

Two things that worked for me when I was younger;

1) For a while I had about 2% of each paycheck automatically deposited into a separate account that was my travel money. That allowed me to feel comfortable with spending it on things like travel/.

2) I committed to myself to save half of any future pay raises. This allowed me to increase my savings painlessly since every time I got a raise I still had more cash to spend so I never missed the extra money that went into savings.

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Re: Why save so much for when you're old?

Postby HomerJ » Mon May 08, 2017 8:52 am

imareal1 wrote:it seems like the amount needed usually requires a lifelong sacrifice of saving relentlessly and living frugally.


Start at 10% or 5%, or even 0% savings if you want. Then save half your raises going forward.

Every time you get a promotion or a raise, you'll get to increase your spending, AND at the same time you'll increase your savings.

After 20 years, you'll be saving a ton, and it will be completely painless.


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