## What’s the magic savings rate???

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
smitcat
Posts: 1979
Joined: Mon Nov 07, 2016 10:51 am

### Re: What’s the magic savings rate???

ThriftyPhD wrote:
Mon Apr 02, 2018 1:36 pm
crockpotinvesting wrote:
Fri Mar 30, 2018 11:22 am
I’m trying to figure out the right retirement savings rate. Sometimes I feel like I’m not investing enough for the future and other times I feel like I’m missing out on things because I’m not spending enough presently.
Of course, the answer is that there is no magic savings rate. Everyone is different. Different personality, age, income, career trajectory, etc. What works for one will not work for the other.

What you are balancing is how much you spend now, when you want to retire, and how much you want available to spend when you retire. The more you save now, the earlier you can retire, AND/OR the more you have available to spend when you retire. If you save less now, you need to either delay retirement or cut spending in retirement.

Have you seen the "Good-Fast-Cheap: Pick Two" example?

The idea is that you can't have all three, so you need to pick at most two.

Same thing here for savings. Replace Good-Fast-Cheap with Spend_Now-Retire_Early-Spend_Later. The difference is, you're not picking two, you're balancing all three.

How do you do this? Model a given savings rate, assume a conservative but realistic real (inflation adjusted) return, and see how much you will have at different years 10, 15, 20, 25, 30 years from now. Choose a spending rate in retirement (conservatively 3.5-4% depending how long you want it to last). Model it again with slightly different but realistic returns. Notice how saving more now will let you retire earlier, or have more in retirement to spend, or both.

So now, balance spending now vs later. If spending 90% of your salary now (including taxes) means you're saving 10% which would let you live off of 50% of your salary (inflation adjusted) in 45 years, that might not be realistic. In 45 years, you're going to be used to that higher standard of living and won't be happy with 50% of your current salary. In addition, it is optimistic to think that you will have the option to work for 45 years.

On the other end of the scale, if you try to retire in 10 years at 100% of current salary, your current standard of living might be so low that you won't be able to maintain that saving rate.

A few things to keep in mind. While we all hope that we will be fully employed and have a growing salary until the day we decide to retire, the reality is that you are likely to have gaps in employment. This would suggest saving a bit more than the above analysis would indicate, both to cover you in the gap years and to compensate for not saving during that time.

Also consider that the more you spend now, the more that you will become used to spending. This is a double hit. It reduces the amount you have to save, and also increases the amount you need to have before you can retire. This is why the MrMoneyMustache philosophy emphasizes saving a high percent. You get the double benefit of saving more and also needing less to maintain your current standard of living, therefore needing less saved before you're financially independent.

The downside to saving too much is that it can impact your current quality of life, causing you to give up on saving because it's too hard. You need to strike that balance of what you need to do to reach your goals, and what is comfortable now.

So much of this needs to be balanced for you, that it's really up to you to run the numbers and see what you're comfortable with.
Great post - thank you

XtremeSki2001
Posts: 1615
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### Re: What’s the magic savings rate???

Element wrote:
Mon Apr 02, 2018 8:37 pm
This is a nice calculator to look at your situation:

http://networthify.com/calculator/early ... awalRate=4
I liked this - love the simplicity. However, it assumed my expenses were everything I’m not saving. I save @ 22% of gross, but a large chunk of my expenses got to home maintenance or upgrades that I won’t need to do down the road.
A box of rain will ease the pain and love will see you through

Actin
Posts: 14
Joined: Wed May 16, 2018 8:40 pm

### Re: What’s the magic savings rate???

You should aim to invest 90% of what is left after all your bills are paid.

Obviously take what you need to enjoy, but the goal is to build a family empire, not just retire in Florida with a camper

Think bigger than your own old age

Dottie57
Posts: 4635
Joined: Thu May 19, 2016 5:43 pm

### Re: What’s the magic savings rate???

Shikoku wrote:
Sat Mar 31, 2018 8:29 pm
goingup wrote:
Fri Mar 30, 2018 11:56 am
I read this here years ago and think it is probably true:

*Save 10% and you'll do fine
*Save 20% and you'll thrive
*Save 30% and you'll be wealthy
This one hits home close. My employer's unwritten policy is to contribute sufficient amount to the tax deferred account of employees so that they can retire without any extra saving. The employer has been consistently contributing 16% of base salary irrespective of employee contributions. If someone is not looking for early FI, my employer's number would probably be good enough.
Outstanding employer.

Garco
Posts: 704
Joined: Wed Jan 23, 2013 2:04 am

### Re: What’s the magic savings rate???

It's hard to predict what your earnings will be over your working life. I know someone whose earnings at age 22 (just graduated from college) were ~\$40K, then after about 7 years grew to \$80K, then about 5 years later grew to \$1 million per year. What should his annual savings rate have been?

Then I know my own case. I'm now retired and age 70. A long time ago I began my career making \$11,500 at age 27. I was saving 15% of my gross salary in a 401k. Over a career of 40 years, there was a lot of inflation. But my ending salary was ~\$200K. Not great. But guess what? That retirement fund grew like gangbusters because of the 15% rate of contributions, even though I went through several market crises and recessions. On top of that I funded two kids through college with no debt. I had a good home with a paid-off mortgage. I retired with > \$2 million. That's plenty for me to maintain my standard of living, given that I also have good fringe benefits (i.e., comprehensive health care, as well as Medicare and Social Security). I learned to be frugal but that doesn't mean I didn't travel the world, take annual vacations, and live a good and healthy middle class life-style.

To get where I am didn't require me to play games or take high risk in investing. I just persisted in that 15% contribution rate for 40 years and never took money out of the plan until required to do so by federal law. I could have saved more, but honestly I didn't need to.

DC3509
Posts: 280
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### Re: What’s the magic savings rate???

heyyou wrote:
Fri Mar 30, 2018 4:52 pm
Sometimes I feel like I’m not investing enough for the future and other times I feel like I’m missing out on things because I’m not spending enough presently.
Both of those thoughts may never stop occurring, but you can get used to them.

There will always be coworkers with nicer cars, bigger houses, more expensive vacations, or a big boat. Some of them will retire in their sixties with a mortgage payment due to having steadily refinanced their home. They will all stay at work when you retire early. Some will say you got lucky in the stock market, without mentioning that all you did was max out every available retirement account plus some extra savings for 30 years or less.

The good news is after living within your means while working, for retirement you will need to have saved and invested to 25-30 times your annual spending. That number will also be less for you than for your coworkers who only saved enough for the matching contribution to their retirement accounts.

Note that you were about as happy in school as you are now, but you were living on much less income.
Why do people always feel the need to compare themselves to the hypothetical co-worker who blows money on silly things while you save, save, save and end up with more money at the end of the day? Aren't there also other co-workers who perhaps blow money on silly things AND still have more money than you in retirement? I know that bursts the bubble of a lot of people here, but I think it happens a lot, especially in high income fields. Believe it or not, some people are spending and saving more than you.

Engineer250
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### Re: What’s the magic savings rate???

Garco wrote:
Sat Jun 23, 2018 10:03 pm
But my ending salary was ~\$200K. Not great.
I hope you're not implying your \$200k salary was "not great". These boards can really skew one's perception of the world.
Where the tides of fortune take us, no man can know.

AerialWombat
Posts: 195
Joined: Tue May 29, 2018 1:07 pm

### Re: What’s the magic savings rate???

Actin wrote:
Sat Jun 23, 2018 7:40 pm
Obviously take what you need to enjoy, but the goal is to build a family empire, not just retire in Florida with a camper.
Speak for yourself! Remote cabin in the woods for me, but not everybody has heirs to worry about.

averagedude
Posts: 211
Joined: Sun May 13, 2018 3:41 pm

### Re: What’s the magic savings rate???

Everyone should save 10% minimum. After that you should find out what your goals are in life and then figure out how much above 10% you need to accomplish your goals.

No one plans to fail, they fail to plan.

Garco
Posts: 704
Joined: Wed Jan 23, 2013 2:04 am

### Re: What’s the magic savings rate???

Engineer250 wrote:
Sat Jun 23, 2018 11:09 pm
Garco wrote:
Sat Jun 23, 2018 10:03 pm
But my ending salary was ~\$200K. Not great.
I hope you're not implying your \$200k salary was "not great". These boards can really skew one's perception of the world.
It was a "very good" salary at the end of a 44-year career that started at \$11,500 (\$13K with summer pay -- about \$83K in 2014 dollars). The most important aspect is that I put 15% every year into tax deferred retirement plans. Based on that accumulation, in combination with SS, we experienced no reduction in effective income or standard of living in retirement.

CarpeDiem22
Posts: 129
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### Re: What’s the magic savings rate???

Borrowing from MMM philosophy, I think savings % should not be the basic benchmark to stick to. Instead, one should look at absolute total dollar amount of expenses every month, month after month, to see if the value derived from the dollars spent was worth it. This way, expenses do not go up when income increases. Savings % is a derivative of these expenses, and expenses can be adjusted if one is not satisfied with the savings %.

Garco
Posts: 704
Joined: Wed Jan 23, 2013 2:04 am

### Re: What’s the magic savings rate???

I think that as a practical matter yes you should control your spending, especially on material things that you don't need. But also as a practical matter using a rule of thumb for payroll contributions to a 401k plan is simple to implement as well as essential to long-term planning. The standard recommendation that one should always save 10-15% tax-deferred off the top of one's paycheck is a very good goal, especially when combined with Social Security contributions. Then there are other things to save for based directly on salary: 529 plans for college education of one's children. If you do these things -- 401k/403b + 529 plans, and perhaps health savings plans -- and you do them automatically, off the top of your paycheck -- you are likely to be in decent shape financially in the future.

watchnerd
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### Re: What’s the magic savings rate???

Crisium wrote:
Fri Mar 30, 2018 11:34 am
http://www.mrmoneymustache.com/2012/01/ ... etirement/

Makes some assumptions, but inspiring if you need saving motivation.

Note it's based on net and not gross income.
Net income?

By that measure, we're saving 65%.......

That seems non-standard.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Dottie57
Posts: 4635
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### Re: What’s the magic savings rate???

Shikoku wrote:
Sat Mar 31, 2018 8:29 pm
goingup wrote:
Fri Mar 30, 2018 11:56 am
I read this here years ago and think it is probably true:

*Save 10% and you'll do fine
*Save 20% and you'll thrive
*Save 30% and you'll be wealthy
This one hits home close. My employer's unwritten policy is to contribute sufficient amount to the tax deferred account of employees so that they can retire without any extra saving. The employer has been consistently contributing 16% of base salary irrespective of employee contributions. If someone is not looking for early FI, my employer's number would probably be good enough.
That is one heck of an employer!

AlphaLess
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Contact:

### Re: What’s the magic savings rate???

whomever wrote:
Fri Mar 30, 2018 1:39 pm
That's over \$208/month. That's a ridiculously high amount to assume a family is spending on "cable TV and a few lattes."
I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
You should thank those friends every time, because they are the reason why the stock market is roaring.
"You can get more with a kind word and a gun than with just a kind word." George Washington

watchnerd
Posts: 1432
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Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

AlphaLess wrote:
Sat Sep 15, 2018 11:13 pm
whomever wrote:
Fri Mar 30, 2018 1:39 pm
That's over \$208/month. That's a ridiculously high amount to assume a family is spending on "cable TV and a few lattes."
I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
You should thank those friends every time, because they are the reason why the stock market is roaring.
It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Green Street
Posts: 41
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### Re: What’s the magic savings rate???

50% at the minimum.
Searching Through The FiRE

foodhype
Posts: 127
Joined: Thu May 25, 2017 10:38 pm

### Re: What’s the magic savings rate???

I'm in a similar boat: age 26, \$170k+ income, \$100k in retirement savings.

My approach is: just save everything you don't need. I don't go out of my way to live frugally but still save 50% of my income.

willthrill81
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Location: USA

### Re: What’s the magic savings rate???

Green Street wrote:
Sun Sep 16, 2018 12:39 am
50% at the minimum.
While there is no 'magic' savings rate, 50% is certainly a very round number. Assuming 5% real growth and 4% withdrawals, it leads to financial independence in about 17 years.
“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: What’s the magic savings rate???

Sort of depends on what you are saving for and when you want to get there.

Look at the charts in the linked article. Ignore the fluff. http://www.mrmoneymustache.com/2012/01/ ... etirement/
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

Dottie57
Posts: 4635
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### Re: What’s the magic savings rate???

foodhype wrote:
Sun Sep 16, 2018 3:10 am
I'm in a similar boat: age 26, \$170k+ income, \$100k in retirement savings.

My approach is: just save everything you don't need. I don't go out of my way to live frugally but still save 50% of my income.
Great approach. Don’t bump up lifestyle too much. It really is a balance between today and the future.

AlphaLess
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### Re: What’s the magic savings rate???

watchnerd wrote:
Sat Sep 15, 2018 11:25 pm
AlphaLess wrote:
Sat Sep 15, 2018 11:13 pm
whomever wrote:
Fri Mar 30, 2018 1:39 pm
That's over \$208/month. That's a ridiculously high amount to assume a family is spending on "cable TV and a few lattes."
I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
You should thank those friends every time, because they are the reason why the stock market is roaring.
It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
"You can get more with a kind word and a gun than with just a kind word." George Washington

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

AlphaLess wrote:
Sun Sep 16, 2018 12:11 pm
watchnerd wrote:
Sat Sep 15, 2018 11:25 pm
AlphaLess wrote:
Sat Sep 15, 2018 11:13 pm
whomever wrote:
Fri Mar 30, 2018 1:39 pm
That's over \$208/month. That's a ridiculously high amount to assume a family is spending on "cable TV and a few lattes."
I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
You should thank those friends every time, because they are the reason why the stock market is roaring.
It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
So basically you're saying that Bogleheads can get the investment returns they do because others stimulate the economy?

Sure, but that has nothing to do with being a Boglehead...that's how capitalism works (investing savings / retained earnings) and it's been true for centuries, far pre-dating the idea of low cost index funds or widespread stock investing for the middle class.

This goes back to the rise of the burghers and bourgeoise in the 1600-1700s, when the trading classes started gaining money, independence and power relative to the old agrarian-economy ties of the landed gentry.

Somebody had to consume all the consumable spices, rum, tobacco that was newly being imported into Europe, and it wasn't all from the nobility or the thrifty merchants -- the 'consuming classes' did their part.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

AlphaLess
Posts: 801
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### Re: What’s the magic savings rate???

watchnerd wrote:
Sun Sep 16, 2018 12:19 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:11 pm
watchnerd wrote:
Sat Sep 15, 2018 11:25 pm
AlphaLess wrote:
Sat Sep 15, 2018 11:13 pm
whomever wrote:
Fri Mar 30, 2018 1:39 pm

I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
You should thank those friends every time, because they are the reason why the stock market is roaring.
It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
So basically you're saying that Bogleheads can get the investment returns they do because others stimulate the economy?

Sure, but that has nothing to do with being a Boglehead...that's how capitalism works (investing savings / retained earnings) and it's been true for centuries, far pre-dating the idea of low cost index funds or widespread stock investing for the middle class.

This goes back to the rise of the burghers and bourgeoise in the 1600-1700s, when the trading classes started gaining money, independence and power relative to the old agrarian-economy ties of the landed gentry.

Somebody had to consume all the consumable spices, rum, tobacco that was newly being imported into Europe, and it wasn't all from the nobility or the thrifty merchants -- the 'consuming classes' did their part.
Let's not complicate the discussion by introducing unnecessary diversions.

If EVERYONE saved 20-30% of their pre-tax income, bogleheadness would not pay off.

Put another way:
- for each household, calculate spending (that includes EVERYTHING) over pre-tax income,
- infer savings rates by doing 1 - x,
- obtain a distribution.

That distribution is probably VERY heavy at around zero (with significant number of households probably clocking negative, and another significant chunk clocking under 5%).
Furthermore, wealth creation and accumulation is occurring at around 10%, and significant wealth creation is correlated with that number.

Now, I say again: every time your reckless friends do a 2x- day Starbucks run, say thank you to them.
"You can get more with a kind word and a gun than with just a kind word." George Washington

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

AlphaLess wrote:
Sun Sep 16, 2018 12:27 pm
watchnerd wrote:
Sun Sep 16, 2018 12:19 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:11 pm
watchnerd wrote:
Sat Sep 15, 2018 11:25 pm
AlphaLess wrote:
Sat Sep 15, 2018 11:13 pm

You should thank those friends every time, because they are the reason why the stock market is roaring.
It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
So basically you're saying that Bogleheads can get the investment returns they do because others stimulate the economy?

Sure, but that has nothing to do with being a Boglehead...that's how capitalism works (investing savings / retained earnings) and it's been true for centuries, far pre-dating the idea of low cost index funds or widespread stock investing for the middle class.

This goes back to the rise of the burghers and bourgeoise in the 1600-1700s, when the trading classes started gaining money, independence and power relative to the old agrarian-economy ties of the landed gentry.

Somebody had to consume all the consumable spices, rum, tobacco that was newly being imported into Europe, and it wasn't all from the nobility or the thrifty merchants -- the 'consuming classes' did their part.
Let's not complicate the discussion by introducing unnecessary diversions.

If EVERYONE saved 20-30% of their pre-tax income, bogleheadness would not pay off.

Put another way:
- for each household, calculate spending (that includes EVERYTHING) over pre-tax income,
- infer savings rates by doing 1 - x,
- obtain a distribution.

That distribution is probably VERY heavy at around zero (with significant number of households probably clocking negative, and another significant chunk clocking under 5%).
Furthermore, wealth creation and accumulation is occurring at around 10%, and significant wealth creation is correlated with that number.

Now, I say again: every time your reckless friends do a 2x- day Starbucks run, say thank you to them.
China has national savings rate in the 30% range.

India has household savings rates in the >20% range.

Germany has household savings rates 2x that of the USA.

All of these economies have grown quite well without the same consumer-centric stimulus as the USA.

There is more than one way to stimulate an economy.

As for 2x a day Starbucks runs being "reckless" -- it's not reckless if you can easily afford it.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Mr.BB
Posts: 621
Joined: Sun May 08, 2016 10:10 am

### Re: What’s the magic savings rate???

I believe Wade Phau says 16.6% (let's round it up to 17%). The math says the sooner you start, the less you need to save as you get older. The actual total is also based on your expenses. However at your age who knows what the next 30 years will bring. Bottom line...more is better.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

AlphaLess
Posts: 801
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Contact:

### Re: What’s the magic savings rate???

watchnerd wrote:
Sun Sep 16, 2018 12:36 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:27 pm
watchnerd wrote:
Sun Sep 16, 2018 12:19 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:11 pm
watchnerd wrote:
Sat Sep 15, 2018 11:25 pm

It's all relative.

It those expenses add up to <5% of their income, I wouldn't get all preachy about it.

Everything in moderation...including deferred enjoyment.

We are entitled to have some fun along the way before we shuffle off this mortal coil, or get too frail to enjoy what life offers.
But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
So basically you're saying that Bogleheads can get the investment returns they do because others stimulate the economy?

Sure, but that has nothing to do with being a Boglehead...that's how capitalism works (investing savings / retained earnings) and it's been true for centuries, far pre-dating the idea of low cost index funds or widespread stock investing for the middle class.

This goes back to the rise of the burghers and bourgeoise in the 1600-1700s, when the trading classes started gaining money, independence and power relative to the old agrarian-economy ties of the landed gentry.

Somebody had to consume all the consumable spices, rum, tobacco that was newly being imported into Europe, and it wasn't all from the nobility or the thrifty merchants -- the 'consuming classes' did their part.
Let's not complicate the discussion by introducing unnecessary diversions.

If EVERYONE saved 20-30% of their pre-tax income, bogleheadness would not pay off.

Put another way:
- for each household, calculate spending (that includes EVERYTHING) over pre-tax income,
- infer savings rates by doing 1 - x,
- obtain a distribution.

That distribution is probably VERY heavy at around zero (with significant number of households probably clocking negative, and another significant chunk clocking under 5%).
Furthermore, wealth creation and accumulation is occurring at around 10%, and significant wealth creation is correlated with that number.

Now, I say again: every time your reckless friends do a 2x- day Starbucks run, say thank you to them.
China has national savings rate in the 30% range.

India has household savings rates in the >20% range.

Germany has household savings rates 2x that of the USA.

All of these economies have grown quite well without the same consumer-centric stimulus as the USA.

There is more than one way to stimulate an economy.

As for 2x a day Starbucks runs being "reckless" -- it's not reckless if you can easily afford it.
Firstly, world is quite globalized. When I say everyone, I mean everyone.
Consumerists economies of USA, Canada, UK, and a few other countries are quite large, both in per capita terms, and in pro rata consumer terms.

Sure, for China: American consumers (as well as other countries) are the suckers who are buying Chinese junk.
For Germans: the rest of Europe are the suckers who are buying German stuff.

As for those who buy Starbucks: sure, a lot of people can easily afford Starbucks. But can they easily afford EVERYTHING that they buy and SAVE 30% of their pre-tax income?

The pre-tax savings rate is the real issue, and not the peanut buying.
"You can get more with a kind word and a gun than with just a kind word." George Washington

dknightd
Posts: 934
Joined: Wed Mar 07, 2018 11:57 am

### Re: What’s the magic savings rate???

There is no magic.
It depends on how young you start, and how long you live, and how many years you want to work, and when you want to start spending, not saving.
I started at about 12%, slowly increased to about 25%. I would have been better off doing more when I was young. But I had kids.
They are our future - if nothing else they will be paying SS tax for many many years.
This last year I'm close to 30%, because I want to retire - soon.
An average of 15% is probably OK if you want to work for 35 years. Do 20% or better if you can
Just save some money every year. Rinse and repeat.

WanderingDoc
Posts: 1133
Joined: Sat Aug 05, 2017 8:21 pm

### Re: What’s the magic savings rate???

I have a lot of trouble determining/calculating my savings rate for a given unit of time.

For example, some months are lean in the sense I may cook my own food, and stay inside, etc. Another month may have an overseas vacation where a lot more money was spent. Also, varying interests year to year vary the savings rate. So, what is the savings rate here?

Another thought. Lets say this year I focused all my energy on figuring out how to lower my taxes legally. So, I ended up spending \$20K less on taxes on the same income. I also did not spent a second of time saving or budgeting. Same numerical effect, yet I was able to enjoy organic dark chocolate daily or stay in a nicer hotel since I wasn't trying to save a penny. IMO we should be worrying about other things over savings rate.

Moreover, compare a person with a \$1M income and 10% "savings rate" with a \$100K income and a 90% savings rate. I guess person A's savings rate sucks
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

whomever wrote:
Fri Mar 30, 2018 1:39 pm
That's over \$208/month. That's a ridiculously high amount to assume a family is spending on "cable TV and a few lattes."
I worked with a group once that had a habit of morning and afternoon trips to Starbucks, at maybe \$4 each trip, and a \$10 lunch out. \$18 a day times 20 working days a month is \$360 a month. And that's not including the cable, iphone, hulu, netflix, fastest internet available, etc., or whatever the other spouse spends.

Just to be clear: it's a free country; people should spend on whatever blows their skirts up. My coffee may have been Folger's instant, but I took a couple months of LWOP every year to go backpacking; I'm not questioning how anyone spends their money. But the little things can indeed add up.
For that kind "consumer discretionary" stuff, our household spends about:

Food at work (instead of packing lunch): \$10 x 20 = \$200
Random 'good coffee' at work (instead of free kitchen coffee): \$5 x 15 = \$75
Prepaid phone plans (but no landline): \$30 x 1, \$45 x 1 = \$75
Superfast home internet (but no cabletv): \$50`
Tidal: \$20
Netflix: \$15
HBO Now: \$15
World of Warcraft: \$15

Total: \$465 month = \$5580 per year

So, no, I don't find the \$208/month to be "ridiculously high" compared to our house.

I also don't find it to be ridiculously high for our income, coming in <5% of our net pay. We also have no debt, no car loans, no mortgages, and a savings rate in the 45-60% range, depending on how you calculate it (net or gross).

Am I living a "Boglhehead life" by "wasting" all that money on food at work, lattes and entertainment?

Funny, but I thought the litmus test of a Boglehead would be their average Expense Ratio, not their latte budget.
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WanderingDoc
Posts: 1133
Joined: Sat Aug 05, 2017 8:21 pm

### Re: What’s the magic savings rate???

Garco wrote:
Mon Apr 02, 2018 1:04 pm
This discussion has interpreted "savings rate" as "retirement savings rate." I think a much broader definition is needed.

You should save for:

(1) retirement [general rule of thumb: minimum of 15% per year in 401k-type tax deferred funds]

(2) a home
[at minimum for down-payment but also to use cash to reduce mortgage size]

(3) college costs for children (invest in 529 plans)

(4) unanticipated contingencies (perhaps health related -- including HSA -- or family emergencies of one kind or another).
1) Agreed.

2) See my sig.

3) Even as a physician, I believe that college is becoming more useless and a worse investment by the year.

4) Two things. Get and stay healthy (yes you can hack your health and prevent illness). Be wealthy (you won't need insurance) and pay if and when you need.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

AlphaLess wrote:
Sun Sep 16, 2018 12:45 pm
watchnerd wrote:
Sun Sep 16, 2018 12:36 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:27 pm
watchnerd wrote:
Sun Sep 16, 2018 12:19 pm
AlphaLess wrote:
Sun Sep 16, 2018 12:11 pm

But the two are completely orthogonal concepts.

What I am saying is this:
- boglehead type of people can enjoy boglehead lifestyle because the majority of the middle class lives (financially) recklessly.

Put another way:
- if everyone lived like a boglehead, I don't think bogleheadness would result in the benefits that it does today.
So basically you're saying that Bogleheads can get the investment returns they do because others stimulate the economy?

Sure, but that has nothing to do with being a Boglehead...that's how capitalism works (investing savings / retained earnings) and it's been true for centuries, far pre-dating the idea of low cost index funds or widespread stock investing for the middle class.

This goes back to the rise of the burghers and bourgeoise in the 1600-1700s, when the trading classes started gaining money, independence and power relative to the old agrarian-economy ties of the landed gentry.

Somebody had to consume all the consumable spices, rum, tobacco that was newly being imported into Europe, and it wasn't all from the nobility or the thrifty merchants -- the 'consuming classes' did their part.
Let's not complicate the discussion by introducing unnecessary diversions.

If EVERYONE saved 20-30% of their pre-tax income, bogleheadness would not pay off.

Put another way:
- for each household, calculate spending (that includes EVERYTHING) over pre-tax income,
- infer savings rates by doing 1 - x,
- obtain a distribution.

That distribution is probably VERY heavy at around zero (with significant number of households probably clocking negative, and another significant chunk clocking under 5%).
Furthermore, wealth creation and accumulation is occurring at around 10%, and significant wealth creation is correlated with that number.

Now, I say again: every time your reckless friends do a 2x- day Starbucks run, say thank you to them.
China has national savings rate in the 30% range.

India has household savings rates in the >20% range.

Germany has household savings rates 2x that of the USA.

All of these economies have grown quite well without the same consumer-centric stimulus as the USA.

There is more than one way to stimulate an economy.

As for 2x a day Starbucks runs being "reckless" -- it's not reckless if you can easily afford it.
Firstly, world is quite globalized. When I say everyone, I mean everyone.
Consumerists economies of USA, Canada, UK, and a few other countries are quite large, both in per capita terms, and in pro rata consumer terms.

Sure, for China: American consumers (as well as other countries) are the suckers who are buying Chinese junk.
For Germans: the rest of Europe are the suckers who are buying German stuff.

As for those who buy Starbucks: sure, a lot of people can easily afford Starbucks. But can they easily afford EVERYTHING that they buy and SAVE 30% of their pre-tax income?

The pre-tax savings rate is the real issue, and not the peanut buying.
I don't get the fixation on little stuff like Starbucks.

It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

AlphaLess
Posts: 801
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky
Contact:

### Re: What’s the magic savings rate???

watchnerd wrote:
Sun Sep 16, 2018 1:16 pm
It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
Finally we agree on something.
I call that progress
"You can get more with a kind word and a gun than with just a kind word." George Washington

johnbarry
Posts: 28
Joined: Sun Dec 17, 2017 9:01 pm

### Re: What’s the magic savings rate???

Will do good wrote:
Sat Mar 31, 2018 7:40 pm
blinx77 wrote:
Sat Mar 31, 2018 7:36 pm
Sorry, 30% on \$225k with no kids is weaksauce. You should be able to hit 50% even in SF/NY/DC, even more elsewhere.
+1
Agreed. Similar salary to OP, family of 3 living in HCOL with a kid (childcare runs \$2650 per month) and we save 30% of our gross income without trying hard (e.g., we almost buy everything organic from whole foods).

KyleAAA
Posts: 6756
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

### Re: What’s the magic savings rate???

20% would be an absolute minimum for me but with your income you should be able to save 35% without trying.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

We actually bucket our savings into two big buckets.

FI or otherwise not working Living Expenses. This might meet some loose definition of LMP. Other than investing it in various ways, this money is never touched (we're still accumulating).

We save an amount equal to our basic (but not frugal) living expenses each year.

34% of net earnings.

Other than investing it in various ways, this money is never touched (we're still accumulating).

Beyond this, we have a "Rainy Day" pool of money to be used for unexpected or big ticket expenses (unexpected repairs like new roof, home improvements, new car, etc.). This is above and beyond the 1 year of living expenses we keep in CDs. Most years we don't spend even close to what we put in:

23% of net earnings.

Total: 57% net earnings

Ignored in this calculation are savings that will ultimately be spent (property tax, vacation, he/she special savings accounts for special treats).
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

WanderingDoc
Posts: 1133
Joined: Sat Aug 05, 2017 8:21 pm

### Re: What’s the magic savings rate???

watchnerd wrote:
Sun Sep 16, 2018 9:30 pm
We actually bucket our savings into two big buckets.

FI or otherwise not working Living Expenses. This might meet some loose definition of LMP. Other than investing it in various ways, this money is never touched (we're still accumulating).

We save an amount equal to our basic (but not frugal) living expenses each year.

34% of net earnings.

Other than investing it in various ways, this money is never touched (we're still accumulating).

Beyond this, we have a "Rainy Day" pool of money to be used for unexpected or big ticket expenses (unexpected repairs like new roof, home improvements, new car, etc.). This is above and beyond the 1 year of living expenses we keep in CDs. Most years we don't spend even close to what we put in:

23% of net earnings.

Total: 57% net earnings

Ignored in this calculation are savings that will ultimately be spent (property tax, vacation, he/she special savings accounts for special treats).
I noticed from your signature that you have two separate asset allocations for retirement and taxable. Very fascinating. It seems that I would like to do something similar. Care to elaborate on the thought process and/or suggestions?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

WanderingDoc wrote:
Mon Sep 17, 2018 12:45 am
watchnerd wrote:
Sun Sep 16, 2018 9:30 pm
We actually bucket our savings into two big buckets.

FI or otherwise not working Living Expenses. This might meet some loose definition of LMP. Other than investing it in various ways, this money is never touched (we're still accumulating).

We save an amount equal to our basic (but not frugal) living expenses each year.

34% of net earnings.

Other than investing it in various ways, this money is never touched (we're still accumulating).

Beyond this, we have a "Rainy Day" pool of money to be used for unexpected or big ticket expenses (unexpected repairs like new roof, home improvements, new car, etc.). This is above and beyond the 1 year of living expenses we keep in CDs. Most years we don't spend even close to what we put in:

23% of net earnings.

Total: 57% net earnings

Ignored in this calculation are savings that will ultimately be spent (property tax, vacation, he/she special savings accounts for special treats).
I noticed from your signature that you have two separate asset allocations for retirement and taxable. Very fascinating. It seems that I would like to do something similar. Care to elaborate on the thought process and/or suggestions?
I really should relabel "retirement" to tax-sheltered.

The logic is pretty simple.

I can't access the tax-sheltered accounts until I'm 59.5 (I'm currently 48); so by default, it's an 11+ years timespan. Heavier in stocks. Bond portion is there just to have a cash pool to rebalance / buy stocks in bear markets.

My taxable account consists of my walk-away money, in the event I decide I want to quit working, or am forced to quit. It's a liability matching portfolio + risk portfolio. I keep 11 years of living expenses there (i.e. the time from the present before I could access my tax sheltered accounts). The bond floor (~60% bonds at present portfolio value), is set by assuming there is a 50% stock market decline half way through the 11 years (admittedly extreme) and still having enough cash to survive, ie. the bonds are normalized at 1.0 ratio, while the stocks are normalized at .5. Any excess monies can go into the risk portfolio for icing on the cake,

As for the treasury / muni split: I view the treasuries as the risk-free asset to hedge the stocks / buy in a bear, so I strive to keep an amount equal to my stock holding. The munis are there simply to round out the rest of the non-equity allocation with a bit of income (all of which is currently reinvested). If the risk portfolio grows significantly (i.e more stocks), the increase in treasuries would come from munis until a 50/50 stock/bond equilibrium is achieved. Or if I cease working, my altered tax bracket would cause me to re-evaluate the benefit of munis entirely.

None of the above includes other assets that could be brought to bear in extremis, if needed, such as house (paid off), ESPP, or stock awards.
Last edited by watchnerd on Mon Sep 17, 2018 1:34 am, edited 1 time in total.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Starfish
Posts: 352
Joined: Wed Aug 15, 2018 6:33 pm

### Re: What’s the magic savings rate???

watchnerd wrote:
Sun Sep 16, 2018 1:16 pm

I don't get the fixation on little stuff like Starbucks.

It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
First of all is personality. The same people who spend daily on Starbucks probably spend on other things too.
Big ticket items at least have a good chance to be a good investment. Maybe not cars (not usually) but student loans and big house could be excellent investments.
When I bought my house I bought a cheap one thinking it was enough. It was stupid, it is not really enough, now it is very hard for me to move and I larger one would have been a better investment.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

Starfish wrote:
Mon Sep 17, 2018 1:32 am
watchnerd wrote:
Sun Sep 16, 2018 1:16 pm

I don't get the fixation on little stuff like Starbucks.

It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
First of all is personality. The same people who spend daily on Starbucks probably spend on other things too.
Errr...has Starbucks become some kind of Veblen good or status symbol of blingy wealth and I'm not aware of it?

Is Dunkin Donuts coffee in the same boat? Or McDonald's coffee?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

WanderingDoc
Posts: 1133
Joined: Sat Aug 05, 2017 8:21 pm

### Re: What’s the magic savings rate???

watchnerd wrote:
Mon Sep 17, 2018 1:20 am
WanderingDoc wrote:
Mon Sep 17, 2018 12:45 am
watchnerd wrote:
Sun Sep 16, 2018 9:30 pm
We actually bucket our savings into two big buckets.

FI or otherwise not working Living Expenses. This might meet some loose definition of LMP. Other than investing it in various ways, this money is never touched (we're still accumulating).

We save an amount equal to our basic (but not frugal) living expenses each year.

34% of net earnings.

Other than investing it in various ways, this money is never touched (we're still accumulating).

Beyond this, we have a "Rainy Day" pool of money to be used for unexpected or big ticket expenses (unexpected repairs like new roof, home improvements, new car, etc.). This is above and beyond the 1 year of living expenses we keep in CDs. Most years we don't spend even close to what we put in:

23% of net earnings.

Total: 57% net earnings

Ignored in this calculation are savings that will ultimately be spent (property tax, vacation, he/she special savings accounts for special treats).
I noticed from your signature that you have two separate asset allocations for retirement and taxable. Very fascinating. It seems that I would like to do something similar. Care to elaborate on the thought process and/or suggestions?
I really should relabel "retirement" to tax-sheltered.

The logic is pretty simple.

I can't access the tax-sheltered accounts until I'm 59.5 (I'm currently 48); so by default, it's an 11+ years timespan. Heavier in stocks. Bond portion is there just to have a cash pool to rebalance / buy stocks in bear markets.

My taxable account consists of my walk-away money, in the event I decide I want to quit working, or am forced to quit. It's a liability matching portfolio + risk portfolio. I keep 11 years of living expenses there (i.e. the time from the present before I could access my tax sheltered accounts). The bond floor (~60% bonds at present portfolio value), is set by assuming there is a 50% stock market decline half way through the 11 years (admittedly extreme) and still having enough cash to survive, ie. the bonds are normalized at 1.0 ratio, while the stocks are normalized at .5. Any excess monies can go into the risk portfolio for icing on the cake,

As for the treasury / muni split: I view the treasuries as the risk-free asset to hedge the stocks / buy in a bear, so I strive to keep an amount equal to my stock holding. The munis are there simply to round out the rest of the non-equity allocation with a bit of income (all of which is currently reinvested). If the risk portfolio grows significantly (i.e more stocks), the increase in treasuries would come from munis until a 50/50 stock/bond equilibrium is achieved. Or if I cease working, my altered tax bracket would cause me to re-evaluate the benefit of munis entirely.

None of the above includes other assets that could be brought to bear in extremis, if needed, such as house (paid off), ESPP, or stock awards.
Very interesting. Thank you for sharing. It looks like you have given this a lot of thought. So it looks like you will retire in about 11 years? Have you thought about retiring earlier or later than that.

I have been debating whether I should include bonds in my portfolio at all. To begin with, equities only comprise roughly 20% of my net worth or less. The rest is in real estate and cash. If I were to retire today, my living expenses would be more than covered by my rental real estate income alone. Do you think there is any point at all in having bonds? I do have bonds as 10% of the TSP and also a Vanguard MMF but this seems pretty useless. I just heard that the G-fund is nice so I stick money in there, although I have no idea why.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

Starfish
Posts: 352
Joined: Wed Aug 15, 2018 6:33 pm

### Re: What’s the magic savings rate???

watchnerd wrote:
Mon Sep 17, 2018 1:38 am
Starfish wrote:
Mon Sep 17, 2018 1:32 am
watchnerd wrote:
Sun Sep 16, 2018 1:16 pm

I don't get the fixation on little stuff like Starbucks.

It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
First of all is personality. The same people who spend daily on Starbucks probably spend on other things too.
Errr...has Starbucks become some kind of Veblen good or status symbol of blingy wealth and I'm not aware of it?

Is Dunkin Donuts coffee in the same boat? Or McDonald's coffee?

Of course, any recurring unnecessary expense over a certain percentage of savings.

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

WanderingDoc wrote:
Mon Sep 17, 2018 1:47 am
watchnerd wrote:
Mon Sep 17, 2018 1:20 am
WanderingDoc wrote:
Mon Sep 17, 2018 12:45 am
watchnerd wrote:
Sun Sep 16, 2018 9:30 pm
We actually bucket our savings into two big buckets.

FI or otherwise not working Living Expenses. This might meet some loose definition of LMP. Other than investing it in various ways, this money is never touched (we're still accumulating).

We save an amount equal to our basic (but not frugal) living expenses each year.

34% of net earnings.

Other than investing it in various ways, this money is never touched (we're still accumulating).

Beyond this, we have a "Rainy Day" pool of money to be used for unexpected or big ticket expenses (unexpected repairs like new roof, home improvements, new car, etc.). This is above and beyond the 1 year of living expenses we keep in CDs. Most years we don't spend even close to what we put in:

23% of net earnings.

Total: 57% net earnings

Ignored in this calculation are savings that will ultimately be spent (property tax, vacation, he/she special savings accounts for special treats).
I noticed from your signature that you have two separate asset allocations for retirement and taxable. Very fascinating. It seems that I would like to do something similar. Care to elaborate on the thought process and/or suggestions?
I really should relabel "retirement" to tax-sheltered.

The logic is pretty simple.

I can't access the tax-sheltered accounts until I'm 59.5 (I'm currently 48); so by default, it's an 11+ years timespan. Heavier in stocks. Bond portion is there just to have a cash pool to rebalance / buy stocks in bear markets.

My taxable account consists of my walk-away money, in the event I decide I want to quit working, or am forced to quit. It's a liability matching portfolio + risk portfolio. I keep 11 years of living expenses there (i.e. the time from the present before I could access my tax sheltered accounts). The bond floor (~60% bonds at present portfolio value), is set by assuming there is a 50% stock market decline half way through the 11 years (admittedly extreme) and still having enough cash to survive, ie. the bonds are normalized at 1.0 ratio, while the stocks are normalized at .5. Any excess monies can go into the risk portfolio for icing on the cake,

As for the treasury / muni split: I view the treasuries as the risk-free asset to hedge the stocks / buy in a bear, so I strive to keep an amount equal to my stock holding. The munis are there simply to round out the rest of the non-equity allocation with a bit of income (all of which is currently reinvested). If the risk portfolio grows significantly (i.e more stocks), the increase in treasuries would come from munis until a 50/50 stock/bond equilibrium is achieved. Or if I cease working, my altered tax bracket would cause me to re-evaluate the benefit of munis entirely.

None of the above includes other assets that could be brought to bear in extremis, if needed, such as house (paid off), ESPP, or stock awards.
Very interesting. Thank you for sharing. It looks like you have given this a lot of thought. So it looks like you will retire in about 11 years? Have you thought about retiring earlier or later than that.

I have been debating whether I should include bonds in my portfolio at all. To begin with, equities only comprise roughly 20% of my net worth or less. The rest is in real estate and cash. If I were to retire today, my living expenses would be more than covered by my rental real estate income alone. Do you think there is any point at all in having bonds? I do have bonds as 10% of the TSP and also a Vanguard MMF but this seems pretty useless. I just heard that the G-fund is nice so I stick money in there, although I have no idea why.
I doubt I'll retire at 59. 55 (or sooner) is the more likely option, given my industry (software). My wife and I sometimes joke about getting a 2nd career as a mailman...get some forced healthy walking and socialization, with low blood pressure impact.

As for the usefulness of bonds:

I don't view them as great for income (rental properties, dividend paying stocks, munis can be better). But Treasuries, in particular, have had low correlations (sometimes even negative) with stocks in times of crisis. If 2008-2009 taught us a lesson it was that not all bonds are the risk free asset. My net worth is 70% liquid, so I keep bonds to hedge against stock losses and buy in the downturns.
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

watchnerd
Posts: 1432
Joined: Sat Mar 03, 2007 11:18 am
Location: Seattle, WA, USA

### Re: What’s the magic savings rate???

Starfish wrote:
Mon Sep 17, 2018 2:03 am
watchnerd wrote:
Mon Sep 17, 2018 1:38 am
Starfish wrote:
Mon Sep 17, 2018 1:32 am
watchnerd wrote:
Sun Sep 16, 2018 1:16 pm

I don't get the fixation on little stuff like Starbucks.

It's usually the big ticket items -- buying too much house, buying pricey cars, big student loans -- that really move the wealth accumulation needle the wrong direction.
First of all is personality. The same people who spend daily on Starbucks probably spend on other things too.
Errr...has Starbucks become some kind of Veblen good or status symbol of blingy wealth and I'm not aware of it?

Is Dunkin Donuts coffee in the same boat? Or McDonald's coffee?

Of course, any recurring unnecessary expense over a certain percentage of savings.
We bought a pricey De Longhi home espresso / latte / coffee machine.

It has recurring expenses in the form of water, beans, and milk.

Are those unnecessary expenses, too?
Tax Sheltered: 35% US Stock | 35% ex-US Stock | 30% TTM || Taxable: 35% US Stock | 35% ex-US Stock | 15% TTM | 15% Munis

Starfish
Posts: 352
Joined: Wed Aug 15, 2018 6:33 pm

### Re: What’s the magic savings rate???

Again, it depends on 2 things:
1. How much happiness/utility you extract per \$.
2. How much is compared with your savings.

You can in theory extract happiness daily from Starbucks if it is social outing or you do efficient work there.
But in becomes irrelevant if you do or not if you save 200k\$ per year.

That being said, I consider coffee and alcohol (even in bars, or especially) absolutely necessary expenses. You just don't need to pay 5\$ for bad coffee beverages. Now 5\$ for bad coffee with a social aspect is different.