Advice to a Millennial about nest egg "Critical Mass"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
Norgeiron
Posts: 19
Joined: Sun Aug 16, 2020 2:53 am

Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

I, a recently retired Boomer teacher, recall advising a millennial science teacher colleague that he would need a nest egg of at least $1,000,000 to retire comfortably. He looked at me incredulously, and said something like, "OMG, how could I possibly ever attain that amount of money?" I explained it to him using nuclear terminology: if he kept maxing out his IRA contribution year after year, eventually his nest egg would attain "critical mass" at about $800K, and from then on it would explode upward by far more than his yearly salary. It worked for me, and I retired with $1,875 million last year and my wife accumulated even more, for a household net worth in excess of $5 million. Along the way we put two kids through Ivy League universities and paid full pop on the tuition while also retiring our mortgage in a HCOL area. However, it took TIME for compounding to work its magic. I put 40+ years into the job, and the last decade of that was high critical mass. Yet I enjoyed it thoroughly and never felt a desire to retire early, a goal that so many people on this board profess to be working towards. Live below your means, max out, and enjoy life NOW rather than deluding yourself that enjoyment of life must be deferred until you retire.
duffer
Posts: 314
Joined: Tue Sep 09, 2014 8:18 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by duffer »

Norgeiron wrote: Mon Aug 17, 2020 9:09 pm I, a recently retired Boomer teacher, recall advising a millennial science teacher colleague that he would need a nest egg of at least $1,000,000 to retire comfortably. He looked at me incredulously, and said something like, "OMG, how could I possibly ever attain that amount of money?" I explained it to him using nuclear terminology: if he kept maxing out his IRA contribution year after year, eventually his nest egg would attain "critical mass" at about $800K, and from then on it would explode upward by far more than his yearly salary. It worked for me, and I retired with $1,875 million last year and my wife accumulated even more, for a household net worth in excess of $5 million. Along the way we put two kids through Ivy League universities and paid full pop on the tuition while also retiring our mortgage in a HCOL area. However, it took TIME for compounding to work its magic. I put 40+ years into the job, and the last decade of that was high critical mass. Yet I enjoyed it thoroughly and never felt a desire to retire early, a goal that so many people on this board profess to be working towards. Live below your means, max out, and enjoy life NOW rather than deluding yourself that enjoyment of life must be deferred until you retire.
Very fine post, and good advice all around.
Impatience
Posts: 177
Joined: Thu Jul 23, 2020 3:15 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Impatience »

Live below your means, max out, and enjoy life NOW rather than deluding yourself that enjoyment of life must be deferred until you retire.
Easy enough to say. Maxing everything for many people would mean giving up quite a lot of everyday pleasures, if not essentials. I’m sure it looks simpler from the finish line.
oken
Posts: 150
Joined: Thu Oct 10, 2019 7:00 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by oken »

Impatience wrote: Mon Aug 17, 2020 9:28 pm
Live below your means, max out, and enjoy life NOW rather than deluding yourself that enjoyment of life must be deferred until you retire.
Easy enough to say. Maxing everything for many people would mean giving up quite a lot of everyday pleasures, if not essentials. I’m sure it looks simpler from the finish line.
May be interesting for a boomer and millennial to come up with separate lists for what are essentials and/or everyday pleasures and compare the two...
liynus
Posts: 27
Joined: Fri May 04, 2018 12:27 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by liynus »

Agree LBYM try and reach critical mass. That much is true.

The issue now, there is hardly a job with guarantee 40 yrs anymore.

Slow and steady works, if steady continues.

When tech threatens to automate your job, can you retrain fast enough to adapter? Maybe you could before, but can you do it in your 20s/30s/40s? It gets harder, and after a while impossible, with each passing decade. The machines however never tire.

The days of companies and govnt giving you a golden watch seems long gone. It’s always lean and mean because the stock holders or the competitors or voters demand it. We’ve seen promises broken to our parents. Why would we expect different?

Like the days of black and white tv it’s a different era.

Now you look at your iPhone everyday and prove your worth every year or risk being fired/replaced.

No wonder there is a large FIRE movement. Once you hit critical mass the uncertainty of not having a guarantee abates. Then and only then can you really take it slow.

Some rules are the same but others are completely different.

This is the world we live in. Winner take all for what it’s worth, for now.
000
Posts: 2813
Joined: Thu Jul 23, 2020 12:04 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 000 »

Not sure the "magic" will continue to work for young people today...
User avatar
Watty
Posts: 20705
Joined: Wed Oct 10, 2007 3:55 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Watty »

The critical mass analogy seems a bit confusing to me when what you are talking about is the power of compounding and there is a lot that has been written on that.
User avatar
market timer
Posts: 6353
Joined: Tue Aug 21, 2007 1:42 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by market timer »

000 wrote: Mon Aug 17, 2020 10:27 pm Not sure the "magic" will continue to work for young people today...
Agree, personal experience seems to rely on 40 years in which long term interest rates fell from 12.5% to 1.4%, pushing up the valuation of all assets. Next 40 years won't be anything like this. LBYM is still good advice, of course. Just don't expect a nuclear reaction upon reaching $800K critical mass.

Image
User avatar
9-5 Suited
Posts: 602
Joined: Thu Jun 23, 2016 12:14 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 9-5 Suited »

market timer wrote: Mon Aug 17, 2020 10:53 pm
000 wrote: Mon Aug 17, 2020 10:27 pm Not sure the "magic" will continue to work for young people today...
Agree, personal experience seems to rely on 40 years in which long term interest rates fell from 12.5% to 1.4%, pushing up the valuation of all assets. Next 40 years won't be anything like this. LBYM is still good advice, of course. Just don't expect a nuclear reaction upon reaching $800K critical mass.

Image
There very well could be a nuclear reaction, but I’m not sure we’ll enjoy it :D
Topic Author
Norgeiron
Posts: 19
Joined: Sun Aug 16, 2020 2:53 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

It still is possible to spend one's career in a secure job, as I did teaching middle school. The salary wasn't that high compared to less secure jobs, but I dutifully followed the philosophy of this forum and lived below my means while also salting away the max I could in my IRA. This is still possible today---the door has not slammed shut on this option for any generation. Give it a try.
LittleMaggieMae
Posts: 373
Joined: Mon Aug 12, 2019 9:06 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by LittleMaggieMae »

What exactly does "maxing out one's IRA contributions" each year mean?? Right now the maximum you can put into an employer's plan traditional "IRA" is $19,500. And then you could put another $6,000 into a Roth IRA. That's $25,500.

The median income in my area is just under 60,000 per household. 25K is about 40% of gross household income. How does that work if that 60K household is a Double income household? Do both spouses put 25K per year towards retirement?
That looks kind of absurd to me.

I feel it's easier to advise the "just starting out" workers to have a goal of saving 15% of their gross income - and to start out with:
Step 1 starting with contributing enough to get their employers match OR b.) putting 3% into a traditional IRA or ROTH
Step 2 every year bump up the contribution by 1 or 2%
Optional - if you get a big raise in income (say more than 5%) bump up the contribution by 2% and continue with step 2.

If you start out at 25yo with a 3% contribution rate - by the time you are 30 you should be 8% at a minimum.
By 35 you should be at 13%

I also tend to advise having a "spending plan" and point out that vacations, holiday gifts, a new battery or new tires for one's car are "not emergencies" and should be planned for. It's helpful to save something out of each paycheck for these expenses (aka a sinking fund).

I leave it at that.
livesoft
Posts: 73351
Joined: Thu Mar 01, 2007 8:00 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by livesoft »

A very fine post, but ...
Norgeiron wrote: Mon Aug 17, 2020 9:09 pm.... I put 40+ years into the job, and ...
... that's the problem right there.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
willthrill81
Posts: 20960
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by willthrill81 »

Watty wrote: Mon Aug 17, 2020 10:33 pm The critical mass analogy seems a bit confusing to me when what you are talking about is the power of compounding and there is a lot that has been written on that.
I think that the idea is that to do your best when you're young and have time on your side to accumulate enough to give compounding time to do its job. Far too many don't start saving for retirement in earnest until they're in their 40s or even 50s, and compounding can't help you nearly as much.

Assuming 7.2% real returns, your money doubles in value every 10 years. That means that $100 invested when you're 20 is like $400 invested when you're 40, $800 when you're 50, and $1,600 when you're 60.

Twenty somethings with a solid income can potentially accumulate enough so that by the time they are 40, they don't have to save anything else if they don't want to or are unable to for whatever reason (i.e. they have 'critical mass').
“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
User avatar
anon_investor
Posts: 3527
Joined: Mon Jun 03, 2019 1:43 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by anon_investor »

Norgeiron wrote: Tue Aug 18, 2020 2:54 pm It still is possible to spend one's career in a secure job, as I did teaching middle school. The salary wasn't that high compared to less secure jobs, but I dutifully followed the philosophy of this forum and lived below my means while also salting away the max I could in my IRA. This is still possible today---the door has not slammed shut on this option for any generation. Give it a try.
So it was only IRA money? No taxable or 403b/457?
User avatar
willthrill81
Posts: 20960
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by willthrill81 »

livesoft wrote: Tue Aug 18, 2020 3:19 pm
Kookaburra wrote: Mon Aug 17, 2020 11:34 pm
000 wrote: Mon Aug 17, 2020 10:27 pm Not sure the "magic" will continue to work for young people today...
Bingo. Another out-of-touch boomer who doesn’t appreciate the luck that accompanied their efforts.
I would not worry too much about this boomer because his children will benefit from the efforts of their parents.
We can hope so. I've seen large inheritances divide families like seemingly nothing else could.
“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
User avatar
AerialWombat
Posts: 1785
Joined: Tue May 29, 2018 1:07 pm
Location: Cash Canyon / Cashville

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by AerialWombat »

livesoft wrote: Tue Aug 18, 2020 3:17 pm A very fine post, but ...
Norgeiron wrote: Mon Aug 17, 2020 9:09 pm.... I put 40+ years into the job, and ...
... that's the problem right there.
I’m from the tail end of Gen X, but slightly too old to be called a “Millennial”. I was informed 30 years ago that the 40-years-at-one-company was long gone. I distinctly recall it being mentioned in mass media in the late 80’s.

This is not new information.
Normchad
Posts: 1318
Joined: Thu Mar 03, 2011 7:20 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

Overall, it's great advice. And the takeaway should be, consistent savings, over a long time, can lead to a surprising big nested, in this case $5M. A lot of people are capable of amassing a lot more than they think. And since it was given to a young colleague in the same line of work, in the same area, it is completely appropriate.

(Confirmation Bias at play here: This is the same advice I give to my own children)

LBYM means you are sacrificing something; even if you don't perceive it as a sacrifice. It means you are consuming less now, with the goal of consuming more later.

The power of compounding is undeniable, but woefully underestimated by virtually everybody save those with a heavy math background.

the 2 most important things are (a) how much you save, and (b) how many years it compounds. These 2 things dwarf everything else.

But they don't get discussed nearly as much as AA, SWR, and tilts for some reason. These other things are important to a degree, but utterly meaningless if you're not saving much, or not saving for long.
Last edited by Normchad on Tue Aug 18, 2020 4:05 pm, edited 1 time in total.
livesoft
Posts: 73351
Joined: Thu Mar 01, 2007 8:00 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by livesoft »

Thanks!
Last edited by livesoft on Tue Aug 18, 2020 4:15 pm, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
Normchad
Posts: 1318
Joined: Thu Mar 03, 2011 7:20 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

livesoft wrote: Tue Aug 18, 2020 3:58 pm
Normchad wrote: Tue Aug 18, 2020 3:54 pm Overall, it's great advice. And the takeaway should be, if a married teacher couple can amass...
Your statement suggests the OP's spouse was a teacher, but that was not stated and indeed, I think it was implied that she was not a teacher.
Thanks for pointing that out. I reread the OP, and you're right. A bad assumption (or old age confusion) on my part. I will edit my post.
Broken Man 1999
Posts: 5051
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Broken Man 1999 »

There is some truth so far as long periods of time at the same employer.

But a lot of the next generation have been willing to move when a better opportunity was available. That was something some boomers would have found to be uncomfortable.

A DD is 43, and is on her fourth job out of college. Each move increased her pay, and her job reponsibilities.

She has gone from being the financial person on account teams, to now being an account manager at her current company. Much higher exposure, and much higher rewards.

She has no pension, but she has always stuffed her 401k plans at each job. She will do just fine.

DW and I worked mainly at a MegaCorp that offered a pension plan and a 401k plan with a match.

Today MegaCorp only offers a 401k plan. We were certainly in the golden age of employment, for sure. We also have retiree insurance, that has also been eliminated by MegaCorp.

So, absolutely, things are much different from what DW and I experienced.

The idea of a 30-40 year run is pretty much over, except for those employed in government or quasi-government positions. And, many government jobs are heading to 401k accounts, and phasing out pensions. For those with enough pension benefits sometimes have a hybrid set up of pensions and 401k plans.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Jags4186
Posts: 5129
Joined: Wed Jun 18, 2014 7:12 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

Kookaburra wrote: Mon Aug 17, 2020 11:34 pm
000 wrote: Mon Aug 17, 2020 10:27 pm Not sure the "magic" will continue to work for young people today...
Bingo. Another out-of-touch boomer who doesn’t appreciate the luck that accompanied their efforts.
Certainly, it is easy to have a lot of money if you are a disciplined saver who walked into a 40 year period where the SP500 returned 11.5%, long term treasuries returned 11.24%, and intermediate term treasuries returned 7.42%.

That said, we can’t control returns but we can control our actions. You must be a disciplined saver in order to have any shot of succeeding. Although, it is unlikely that a couple of school teachers starting out today will be able to accumulate 5 million 2020 dollars based on today’s market valuations.

When it comes to the 40 years at one company, that ship has sailed. The only reason people worked at the same company for 40 years was because companies offered pensions. Once that anchor is gone, the incentive to stay is gone.
lostdog
Posts: 3177
Joined: Thu Feb 04, 2016 2:15 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by lostdog »

He's right. Once you hit above 500k, compounding takes over.

Disappointed to see some defeatist comments.
User avatar
JoMoney
Posts: 9777
Joined: Tue Jul 23, 2013 5:31 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by JoMoney »

Norgeiron wrote: Mon Aug 17, 2020 9:09 pm... I retired with $1,875 million last year and my wife accumulated even more ...
:shock: :shock: :shock: :confused :moneybag :moneybag :moneybag
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Normchad
Posts: 1318
Joined: Thu Mar 03, 2011 7:20 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

Broken Man 1999 wrote: Tue Aug 18, 2020 4:07 pm There is some truth so far as long periods of time at the same employer.

But a lot of the next generation have been willing to move when a better opportunity was available. That was something some boomers would have found to be uncomfortable.

A DD is 43, and is on her fourth job out of college. Each move increased her pay, and her job reponsibilities.

She has gone from being the financial person on account teams, to now being an account manager at her current company. Much higher exposure, and much higher rewards.

She has no pension, but she has always stuffed her 401k plans at each job. She will do just fine.

DW and I worked mainly at a MegaCorp that offered a pension plan and a 401k plan with a match.

Today MegaCorp only offers a 401k plan. We were certainly in the golden age of employment, for sure. We also have retiree insurance, that has also been eliminated by MegaCorp.

So, absolutely, things are much different from what DW and I experienced.

The idea of a 30-40 year run is pretty much over, except for those employed in government or quasi-government positions. And, many government jobs are heading to 401k accounts, and phasing out pensions. For those with enough pension benefits sometimes have a hybrid set up of pensions and 401k plans.

Broken Man 1999
I actually think this is a good thing. Now people aren’t tied down to a job by a pension. The portability of. 401K plans, I think, is a great enabler. And nothing in here requires a 40 year run at 1 company.

It’s great that people can now easily move around for better opportunities, and not have to start over in some pension accumulation clock.
barnaclebob
Posts: 4215
Joined: Thu Aug 09, 2012 10:54 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by barnaclebob »

Norgeiron wrote: Tue Aug 18, 2020 2:54 pm It still is possible to spend one's career in a secure job, as I did teaching middle school. The salary wasn't that high compared to less secure jobs, but I dutifully followed the philosophy of this forum and lived below my means while also salting away the max I could in my IRA. This is still possible today---the door has not slammed shut on this option for any generation. Give it a try.
What was your starting salary and what year?
Normchad
Posts: 1318
Joined: Thu Mar 03, 2011 7:20 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

barnaclebob wrote: Tue Aug 18, 2020 4:42 pm
Norgeiron wrote: Tue Aug 18, 2020 2:54 pm It still is possible to spend one's career in a secure job, as I did teaching middle school. The salary wasn't that high compared to less secure jobs, but I dutifully followed the philosophy of this forum and lived below my means while also salting away the max I could in my IRA. This is still possible today---the door has not slammed shut on this option for any generation. Give it a try.
What was your starting salary and what year?
I’m not the OP, but ArcticPineapple provides some relevant math and numbers to use here: viewtopic.php?p=5440505#p5440505

Again, you don’t have to save extreme amounts of money if you’ve got a lot of time on your side.....
User avatar
LadyGeek
Site Admin
Posts: 66434
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by LadyGeek »

Several posts related to ageism (boomer vs. millennial) have been removed. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
LadyGeek
Site Admin
Posts: 66434
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by LadyGeek »

The wiki has some background info that is relevant to the OP's point: Importance of saving early
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
Croissant
Posts: 60
Joined: Fri Apr 17, 2020 8:42 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Croissant »

Image VTI.
assuming portfolio gets more conservative, red = bad times to retire, green = good times to retire (except for march 2020). overall sound advice, but to credit your nice nest egg solely to habits of maxing out savings and simple compound interest would be misleading. unless you retired in march 2020, you're retiring after literally the most spectacular decade to date of US equity gains. I don't expect the return in the next 40 years to be so kind to investors. but save early and save much anyways; without doing that millennials don't have a shot regardless of what the market will look like.
visionfund dumpster fire = grade AAA entertainment
Stick5vw
Posts: 153
Joined: Sun Dec 18, 2016 6:46 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Stick5vw »

Congrats on saving such a large amount and staying the course for 40 years! No doubt some wise investment decisions were made along the way.

However as an “older” millennial I would love to know, at the outset of your career 40 years ago (ie when you could save heavily such that the compounding / snowball effect could begin) - what was the cost of health insurance? Education for you (ie did you have student loans) and your kids, or housing costs? How did these costs evolve over the years for you? Do you have a pension?

Apologies if any this has been mentioned someplace.

Given the massive inflation for healthcare, housing, and education (among others) I would argue it would be VERY difficult today to raise a family and accumulate several million dollars on your average teachers salary. (Hopefully there will be other mega bull runs like you’ve seen from 2009 onwards to help ...)

This is not meant to be a dig on boomers vs millennials etc.
But as others have noted *a lot* has changed to say the least in 40 years. It would be interesting to dissect the cost of living vs investment returns vs salary growth during this time period.
iamlucky13
Posts: 2085
Joined: Sat Mar 04, 2017 5:28 pm
Location: Western Washington

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by iamlucky13 »

Impatience wrote: Mon Aug 17, 2020 9:28 pm
Live below your means, max out, and enjoy life NOW rather than deluding yourself that enjoyment of life must be deferred until you retire.
Easy enough to say. Maxing everything for many people would mean giving up quite a lot of everyday pleasures, if not essentials. I’m sure it looks simpler from the finish line.
It's also simpler to say from some finish lines than others. If these 2018 figures (inflation adjusted) for rolling return periods are accurate, then it sounds like impatience's career spanned a particularly advantageous time for long term returns (source:
https://fourpillarfreedom.com/wp-conten ... 1928_3.jpg

I like the description of an investing "critical mass" that can be reached through gradual accumulation, but when I read the last part, I think of the "need 3, pick 2 rule."

In this case, instead of the common "Better, faster, cheaper" paradox, it is "control costs, save for the future, pursue wants." Pick two.

I do well at living below my means, and that enables a good savings rate - not maxing out my tax-advantaged opportunities, but still enough that even in case of a very bad sequence of long term returns, I should be able to comfortably retire within 40 years of work. But accomplishing that means being careful about how I enjoy life now. I likely still have 20-25 years of accumulation still to go, and that leaves open a lot of uncertainty, especially considering there have been historical 20 year periods where inflation-adjust equity returns have been less than 2%. Compounding happens far slower in the 2% examples than in the 12% examples (eg - $1 million vs. $3 million).

One of the frustrating parts is the realization as I play with my spreadsheets that depending how the market actually performs over my lifetime, I could end up anywhere from coming very close to exhausting my savings in my lifetime despite saving studiously to leaving a startlingly large inheritance behind.
donaldfair71
Posts: 634
Joined: Wed Mar 06, 2013 4:15 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by donaldfair71 »

lostdog wrote: Tue Aug 18, 2020 4:17 pm He's right. Once you hit above 500k, compounding takes over.

Disappointed to see some defeatist comments.
See a lot of that here these days.

Kudos, OP, and thank you for sharing.
donaldfair71
Posts: 634
Joined: Wed Mar 06, 2013 4:15 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by donaldfair71 »

In scanning comments I feel like a lot of people are hung up on the 40 year thing, that it’s a thing of the past. Did I miss where the OP states that he/she had only one employer? Or only worked in one industry over 40 years?

If not, there are a lot of assumptions about some perceived benefit that hasn’t even been confirmed. Even confirmed, 40 years of working is 40 years of working. Good for him/her.
Topic Author
Norgeiron
Posts: 19
Joined: Sun Aug 16, 2020 2:53 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

OK, as the OP, I feel that I should answer some of the questions my initial post generated.

"When did I start teaching?"
I started teaching in the 1974-1975 school year with a salary of---here I am quoting my contract, which I still have---"$9,300 and no/100 dollars." *
$9,300 Base salary (BA + 36 credits, Step 2
-465 Less 5% contribution to TIAA-CREF
$8,835 cash salary 1974-1975

The last decade or so of teaching, when I was sitting at the top of the salary scale, I made about $105K , which was the period when what I term "critical mass" was really working for me.

"Addressing speculation about whether or not my wife was a teacher, too."
My wife was not a teacher. She worked at a university research center and consistently made less than I did throughout her career. However, she wound up having nest egg bigger than mine by about $150K because I got nervous in 2008 and moved money from stocks to money market within TIAA-CREF. I thought I was so smart and urged her to do the same, but because of inertia, she did nothing, and so she caught the inevitable rebound and passed me. (There is a lesson to ponder there, folks....)

"What exactly does 'maxing out one's IRA contributions' each year mean??"
I had the option to put aside a percentage of my salary tax free in my IRA or SRA or GRA and the school urged us teachers to do so. I tried to put in the maximum amount every year. In the last decade that was about $25K a year. She was doing the same. The school also kicked in 10% for me. Not sure about her employer, but probably.

"Did you use 403b/457 accounts?"
Truthfully, I'm not sure what 403b/457 accounts are, but we didn't put any money in taxable accounts. Didn't qualify for ROTH IRA.

"When it comes to the 40 years at one company, that ship has sailed."
Not necessarily. If you go into secure work like teaching or government bureaucracy jobs, you won't earn a princely salary but you will get the security of working a long career if you so choose. Consider that teachers aren't being fired in this time of Covid-19, but a hell of a lot of higher salary people have been let go by their employers.

Final thoughts: what I term the "critical mass" effect does kick in when you have a substantial nest egg and in good years the market might go up ten percent. Yes, you can get hammered like I did in 2008-2009, but aside from the mistake I referenced above in paragraph three, I stayed the course and it recovered. I was down $250K in March of this year---and you people were down, too, I might add--- and now that has recovered, at least temporarily. Who would have guessed that? The obvious conclusion is to stay invested through good years and bad, max out those contributions, and hang in there long enough to reap the benefits of "critical mass."
Mr.BB
Posts: 1400
Joined: Sun May 08, 2016 10:10 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Mr.BB »

No one knows if or how the future will be different. However, the basic math does not change. The earlier you start saving the greater amount you will have in the future.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."
redmaw
Posts: 118
Joined: Mon Apr 22, 2019 7:20 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by redmaw »

I like the critical mass analogy, but I'm not sure I would tie it to a specific value. There isn't anything special about 800k, but as a multiple of earnings I think it makes sense. If you assume your returns will be roughly 10% a year (I'm not interested in pessimistic soothsaying, that's a nominal average return) once you hit savings of 10x your salary, your investment earnings will start exceeding what you make at your job. To me that is critical mass. Though you could also say at 10x your contributions, the earning will start to exceed your contributions, which is a much easier bar to clear (should happen at roughly 10 years regardless of what you contribute).
oken wrote: Mon Aug 17, 2020 9:49 pm May be interesting for a boomer and millennial to come up with separate lists for what are essentials and/or everyday pleasures and compare the two...
I think you find much more variation within each group than between the groups.
Stick5vw wrote: Tue Aug 18, 2020 10:07 pm
Given the massive inflation for healthcare, housing, and education (among others) I would argue it would be VERY difficult today to raise a family and accumulate several million dollars on your average teachers salary. (Hopefully there will be other mega bull runs like you’ve seen from 2009 onwards to help ...)
Disagree. I know teaching salaries and benefits vary a lot by state, but around here teachers are well paid for their education and experience. Starting salary for a teacher in my school district is about 10% higher than the median household income of the same district. That's to start and for a single earner. A pair of teachers that have say 15 years experience are likely in the top 5-10% of household incomes here (largely a guess, but not unlikely, look at OPs ending salary of over 100k). Please stop assuming teachers are low income. On top of that teachers only recently started contributing to their own healthcare, but the amount for the benefits they are getting are still laughably low, so discussing healthcare inflation with teachers as an example may not be the best comparison. Don't get me started on the pensions or summer vacations.
User avatar
Sandtrap
Posts: 11763
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Sandtrap »

Simpler Version 2.0

Save up to buy and accumulate “Chickens”.
If you have enough you can eat eggs for life.
If you don’t have enough you have to start eating the egg laying Chickens. No good.

Version 3.0
Substitute “Fruit Orchard” for Chickens
Selling trees vs eating chickens.

j🌺
Wiki Bogleheads Wiki: Everything You Need to Know
Topic Author
Norgeiron
Posts: 19
Joined: Sun Aug 16, 2020 2:53 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

@redmaw
I don't know how to make this grey, so I will put quotation marks around what you wrote.
redmaw wrote: Wed Aug 19, 2020 8:26 am "I like the critical mass analogy, but I'm not sure I would tie it to a specific value. There isn't anything special about 800k, but as a multiple of earnings I think it makes sense. If you assume your returns will be roughly 10% a year (I'm not interested in pessimistic soothsaying, that's a nominal average return) once you hit savings of 10x your salary, your investment earnings will start exceeding what you make at your job. To me that is critical mass. Though you could also say at 10x your contributions, the earning will start to exceed your contributions, which is a much easier bar to clear (should happen at roughly 10 years regardless of what you contribute)."
[ quote fixed by admin LadyGeek]

You are correct, sir. I think I advised my younger colleague that "critical mass" occurred around $800K because that number was roughly in the neighborhood of 10X his teaching salary at the time. I was in a tunnel vision of teachers' salaries and basing the number on what teachers make. You enabled me to realize that the amount needed to attain "critical mass" is contingent on one's profession and one's salary. A high earner pulling in twice what I made, say $200K, would need a proportionately larger nest egg to achieve critical mass relative to his or her salary. That's what's valuable about Boggleheads---we learn from each other. I hope my advice has been valuable to others as your insight was to me. Thanks, dude.
User avatar
Portfolio7
Posts: 888
Joined: Tue Aug 02, 2016 3:53 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Portfolio7 »

willthrill81 wrote: Tue Aug 18, 2020 3:20 pm
Watty wrote: Mon Aug 17, 2020 10:33 pm The critical mass analogy seems a bit confusing to me when what you are talking about is the power of compounding and there is a lot that has been written on that.
I think that the idea is that to do your best when you're young and have time on your side to accumulate enough to give compounding time to do its job. Far too many don't start saving for retirement in earnest until they're in their 40s or even 50s, and compounding can't help you nearly as much.

Assuming 7.2% real returns, your money doubles in value every 10 years. That means that $100 invested when you're 20 is like $400 invested when you're 40, $800 when you're 50, and $1,600 when you're 60.

Twenty somethings with a solid income can potentially accumulate enough so that by the time they are 40, they don't have to save anything else if they don't want to or are unable to for whatever reason (i.e. they have 'critical mass').
Hit the nail on the head, imo. In 2019, for the first time ever, our household made more money in investment returns than our gross income for the year. At this point we really don't have to save, we can let it ride for 15 years and should be able to retire on whatever it yields. We have other goals and will likely work another decade, but we don't really have to worry much about funding our retirement.

That's critical mass.
"An investment in knowledge pays the best interest" - Benjamin Franklin
davidsorensen32
Posts: 454
Joined: Wed Jul 24, 2013 9:57 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by davidsorensen32 »

Today's millennial couple can easily save $74,100 per annum if the couple just maxes out the various savings opportunities

* 2 x 401(k) = $39,000
* 2 x 401(k) matches = $10,000 (assuming paltry 5% match)
* 2 x Backdoor ROTH = $12,000
* HSA = $7,100
* 529 = $6,000 (@$500 per month)

Total = ~$74,100

[Gravy : 2 * ESPPs = $25,000 *2 = $50,000 ]

Total including ESPPs = $124,000 per annum

Assuming 0% growth and saving for 20 years, "critical mass" will be $1.5M. Assume 5-7% growth and you're talking real money $3-$5M. Including any gravy like ESPP or pensions you'll be at $5M - $7M.

Doesn't take rocket science. simply maths.
TheLaughingCow
Posts: 153
Joined: Tue Jul 01, 2014 9:41 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by TheLaughingCow »

davidsorensen32 wrote: Wed Aug 19, 2020 10:25 pm Today's millennial couple can easily save $74,100 per annum if the couple just maxes out the various savings opportunities

* 2 x 401(k) = $39,000
* 2 x 401(k) matches = $10,000 (assuming paltry 5% match)
* 2 x Backdoor ROTH = $12,000
* HSA = $7,100
* 529 = $6,000 (@$500 per month)

Total = ~$74,100

[Gravy : 2 * ESPPs = $25,000 *2 = $50,000 ]

Total including ESPPs = $124,000 per annum

Assuming 0% growth and saving for 20 years, "critical mass" will be $1.5M. Assume 5-7% growth and you're talking real money $3-$5M. Including any gravy like ESPP or pensions you'll be at $5M - $7M.

Doesn't take rocket science. simply maths.
This post seems out of touch to me.

While it's not impossible for a couple to save that much money it is improbable. That amount of savings is more than the median gross household income in America. Even at a high 33% savings rate that couple would have to be making $225 thousand which places them somewhere between upper middle class and upper class depending on their locale.
Last edited by TheLaughingCow on Wed Aug 19, 2020 11:01 pm, edited 1 time in total.
000
Posts: 2813
Joined: Thu Jul 23, 2020 12:04 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 000 »

davidsorensen32 wrote: Wed Aug 19, 2020 10:25 pm Today's millennial couple can easily save $74,100 per annum if the couple just maxes out the various savings opportunities

[...]

Doesn't take rocket science. simply maths.
You missed the "get a high paying job" part :oops:
typical.investor
Posts: 2296
Joined: Mon Jun 11, 2018 3:17 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by typical.investor »

As a GenXer, I am glad my portfolio reached a critical mass where saving isn’t as important.

However, it think the point is moot for millennials who have the opportunity in cryptos which are too conceptually difficult for dinosaurs like me to understand.

:idea:
:moneybag :arrow: :moneybag :moneybag :moneybag :moneybag :moneybag :moneybag :moneybag :greedy
And who even cares what your retirement looks like when you got to grow up with emojis. Talk about privledged. :wink:

And smartphones? My childhood was dire poverty in comparison I think in terms of quality of life :twisted:
retire2022
Posts: 1548
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by retire2022 »

Op

here is my work history https://imgur.com/a/Gi5VKcO

started at 18k in NYC civil service job 1987 stock market crash first $2000 IRA, started my 1990 457 year 13 portfolio was 400K (2000).

Basically put in 500K and current portfolio is worth 1.890 million, 32 years of investing.

I am currently 60 years old, 34 years working civil service one step from retirement, two time home owner, will have pension 66K and social security at 70 38K.
Fryxell
Posts: 134
Joined: Sat Mar 02, 2013 10:08 pm
Location: Dallas

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Fryxell »

000 wrote: Wed Aug 19, 2020 11:01 pm You missed the "get a high paying job" part :oops:
Yeah, that’s one thing I find irritating about this site. It’s full of so many extremely high-income (top 1%) and/or wealthy people that are oblivious as to how far on the right tail of the income distribution they are. They assume everyone can just max out all those combined accounts (401k, IRA, HSA), and then further assume everyone is married and thus multiply the thresholds by two. Those combined thresholds are so high for a couple that it would be mathematically impossible for most households to ace that much. And most of those who could do it would have to live spartan lifestyles to put their entire disposable incomes into investments in order to accomplish this.

What is it with the implicit assumption that everyone has a household income over $300k and can save that much?

And then, if your income is that high, why the focus on tax advantaged accounts? Why not just invest $1 million/year in a taxable account?
eco_eco
Posts: 14
Joined: Fri Jul 31, 2020 7:05 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by eco_eco »

Thanks you to the OP for investing the time to share a different way of approaching money with his colleague.

I’m gen X (born mid 70s) and I remember very well at my first real job where the financial controller took me aside and said ‘welcome, now with your first pay check join the superannuation scheme. You’ll never notice the money your saving and you’ll thank me in 30 years time’.

I definitely was not thinking about retirement and superannuation or saving in general, since it was hard to make ends meet and I had a large student loan. But I joined the scheme and started putting money away. That then built a habit which means life is grand now in my 40s. Just that little bit of encouragement made all the difference.

Also, I very much agree that it’s a great day when you realise your investments make more than you do 😀.
Sasquatch1
Posts: 38
Joined: Tue Feb 18, 2020 9:19 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Sasquatch1 »

Stick5vw wrote: Tue Aug 18, 2020 10:07 pm Congrats on saving such a large amount and staying the course for 40 years! No doubt some wise investment decisions were made along the way.

However as an “older” millennial I would love to know, at the outset of your career 40 years ago (ie when you could save heavily such that the compounding / snowball effect could begin) - what was the cost of health insurance? Education for you (ie did you have student loans) and your kids, or housing costs? How did these costs evolve over the years for you? Do you have a pension?

Apologies if any this has been mentioned someplace.

Given the massive inflation for healthcare, housing, and education (among others) I would argue it would be VERY difficult today to raise a family and accumulate several million dollars on your average teachers salary. (Hopefully there will be other mega bull runs like you’ve seen from 2009 onwards to help ...)

This is not meant to be a dig on boomers vs millennials etc.
But as others have noted *a lot* has changed to say the least in 40 years. It would be interesting to dissect the cost of living vs investment returns vs salary growth during this time period.


I don’t agree with this at all. I am 33, an older millennial myself. Talk to any of the older generations, they were much poorer than we are today when it comes to what could be afforded then, my parents and their parents could NEVER afford the things people have now days.

As my grandpaw always said “the good old days are NOW, yea when I was a kid bread was a nickel . However nobody had a nickel or a way to borrow one”

The issue is, look around at our generation. They have severe cases of the wants!!! This getting themselves in massive (bad debts). People use to raise families with one old raggedy used car and a 1k sq ft house. Now days???? Not a shot, soon as one kid comes they need 2k plus sq ft houses, massive SUVs, and all kinds of flashy crap that does nothing but make them lifetime poor!!

If today’s generations lived like the previous generations, yet making what today’s generations get paid, they’d be very wealthy in not time!
5280Tim
Posts: 49
Joined: Wed Jul 26, 2017 9:33 pm

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 5280Tim »

Sasquatch1 wrote: Thu Aug 20, 2020 2:59 am
Stick5vw wrote: Tue Aug 18, 2020 10:07 pm Congrats on saving such a large amount and staying the course for 40 years! No doubt some wise investment decisions were made along the way.

However as an “older” millennial I would love to know, at the outset of your career 40 years ago (ie when you could save heavily such that the compounding / snowball effect could begin) - what was the cost of health insurance? Education for you (ie did you have student loans) and your kids, or housing costs? How did these costs evolve over the years for you? Do you have a pension?

Apologies if any this has been mentioned someplace.

Given the massive inflation for healthcare, housing, and education (among others) I would argue it would be VERY difficult today to raise a family and accumulate several million dollars on your average teachers salary. (Hopefully there will be other mega bull runs like you’ve seen from 2009 onwards to help ...)

This is not meant to be a dig on boomers vs millennials etc.
But as others have noted *a lot* has changed to say the least in 40 years. It would be interesting to dissect the cost of living vs investment returns vs salary growth during this time period.


I don’t agree with this at all. I am 33, an older millennial myself. Talk to any of the older generations, they were much poorer than we are today when it comes to what could be afforded then, my parents and their parents could NEVER afford the things people have now days.

As my grandpaw always said “the good old days are NOW, yea when I was a kid bread was a nickel . However nobody had a nickel or a way to borrow one”

The issue is, look around at our generation. They have severe cases of the wants!!! This getting themselves in massive (bad debts). People use to raise families with one old raggedy used car and a 1k sq ft house. Now days???? Not a shot, soon as one kid comes they need 2k plus sq ft houses, massive SUVs, and all kinds of flashy crap that does nothing but make them lifetime poor!!

If today’s generations lived like the previous generations, yet making what today’s generations get paid, they’d be very wealthy in not time!
Sasquatch spitting truth. I’m 38 and often just dumbfounded by what my peers consider necessary. Every car must be German and every vacation exotic. I feel like a significant portion of folks my age live a very hedonistic life while never learning to delay gratification at all.
Dottie57
Posts: 9199
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Dottie57 »

000 wrote: Mon Aug 17, 2020 10:27 pm Not sure the "magic" will continue to work for young people today...
It may not be magic, but you will have more at retirement if you save/invest steadily than if you don’t.
User avatar
Brianmcg321
Posts: 989
Joined: Mon Jul 15, 2019 8:23 am

Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Brianmcg321 »

I like your analogy op.

I have recently reached critical mass at 47. My wife and I keep playing with investing calculators, and realized if we never invested another dollar we will exceed our retirement goal, and ten years early too.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
Locked