Advice to a Millennial about nest egg "Critical Mass"

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

Post by geerhardusvos »

Normchad wrote: Tue Aug 18, 2020 4:34 pm
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.
It definitely means people’s technical skills that can become obsolete almost annually. Those who keep learning and moving are rewarded and valued.
VTSAX and chill
lostdog
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by lostdog »

Portfolio7 wrote: Wed Aug 19, 2020 2:20 pm
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.
:sharebeer

These days they call it coastFIRE.
Bogle Millennial
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Bogle Millennial »

This is my current goal, to reach this "critical mass" and have my retirement yearly earnings outpace my income. It's definitely a great goal to be shooting for as it feels like that is when the "snowball effect" on investments starts to really take over.
lostdog
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by lostdog »

eco_eco wrote: Thu Aug 20, 2020 12:43 am 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 😀.
This is exactly what happened to me. I was very young and working at an accounting firm. My boss asked if I was contributing to my 401k. I had the defeatist attitude that I see from some of the posters in this thread.

He had me meet with one of the older accountants to go over tax savings and compounding with me. I started saving into my 401k and upped it every year by my raise percentage. The accountant died 10 years later. Rest in peace. If it wasn't for him, I don't know if I would be in the position I'm in now at 44.

Turn off the news and concentrate on your job and work hard. Make good decisions.
Last edited by lostdog on Thu Aug 20, 2020 8:35 am, edited 1 time in total.
alfaspider
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by alfaspider »

typical.investor wrote: Thu Aug 20, 2020 12:16 am 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:
I think you are confusing millenials with zoomers. For most millenials, smartphones didn't exist until they were adults. Heck, I'm a millennial (somewhat older side) and I remember getting the first family computer (a 386 circa 1991 running DOS command line). I spent lots of time utterly confused by DOS command prompt. I didn't get my first cell phone of any sort (smart or not) until I went to college.

But I do agree that the "good old days" weren't. My grandfather who was born at the tail end of the Great Depression actually took me aside to tell me: "never let anybody tell you that the 50s and 60s were the good old days- today is the "good old days." He was raising his family during prime "Leave it to Beaver" years that so many seem to idealize. Setting aside the series of wars in Korea/Vietnam (with casualty counts an order of magnitude higher than Afghanistan/Iraq plus widespread drafts), social unrest, jim crow and widespread overt racism, people simply didn't have as much money back then. He was a public school assistant principal and barely made ends meet living in a 1,200 sq ft/1 bathroom house with 3 kids- only one car. He hunted and fished on the weekends not because he loved the sport, but because it was a significant cost savings for feeding the family. Yes, that was single income, but mostly because married women with children were effectively barred from the workforce. I have relatives who are teachers in the same city today who live in a 3,000sq ft house and own two cars and manage to raise children. While I'm sure their budget is tight, they wouldn't dream of hunting just to supplement their grocery fund.

None of that is to say that young workers don't face hardships. The "job hopping" phenomenon can be psychologically draining and tends to result in the rich getting richer. People who are good at playing that game climb the ladders with each hop. People who aren't end up cycling through layoffs and periods of unemployment or underemployment. People no longer have a long-term outlook with their employers because the employers have abandoned that outlook with their employees. It used to be at my Megacorp that if your job disappeared due to a change in company direction or a reorganization, they'd find something else for you to do. Now, unless you have a tip top performance review on file (and the right political allies), you are far more likely to get the boot the minute your exact job is no longer necessary.
mbasherp
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by mbasherp »

I disagree with those who are picking holes in the original post because his natural timing worked out particularly well.

Even at a “bad” time, this good advice yields positive results. The idea of critical mass or Coast FIRE has motivated me and always felt more achievable in the medium term.

In our mid 30’s, with almost 5x our salary in net worth, I know we’ve already guaranteed a secure traditional retirement. Everything from here either brings that date closer or adds insurance for bumps along the way. Whether the market is kind or cruel, we are in better shape than most.
Grt2bOutdoors
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Grt2bOutdoors »

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.
The one critical piece you omitted - you lived in a dual income household whereby your income shovel is much larger than that of a teacher household meaning you could clearly save a healthy amount while experiencing minimal disruption to your discretionary spending. Am I wrong? Of the teachers I personally know who retired millionaires they had a couple of things going for them - 1) uninterrupted employment, 2) employer paid healthcare (as in paid for with minimal outlay in the form of premiums or out of pocket), 3) a pension which acted as a guarantee backstop permitting riskier investments that a prudent person may be more hesitant to undertake - an example is a pension of 40,000 might cost $1,000,000 today or thereabouts in a single life annuity but if you buy the annuity you don’t experience the appreciation of the markets, so to accumulate $1.875 million in addition to the cost of the annuity you’d really need to accumulate $2.875 million. Not realistic for even the top 20 percent of the population.

Congratulations on your retirement.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
alfaspider
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by alfaspider »

mbasherp wrote: Thu Aug 20, 2020 8:39 am I disagree with those who are picking holes in the original post because his natural timing worked out particularly well.

Even at a “bad” time, this good advice yields positive results. The idea of critical mass or Coast FIRE has motivated me and always felt more achievable in the medium term.

In our mid 30’s, with almost 5x our salary in net worth, I know we’ve already guaranteed a secure traditional retirement. Everything from here either brings that date closer or adds insurance for bumps along the way. Whether the market is kind or cruel, we are in better shape than most.
I agree that critical mass works regardless of your income level. "Critical mass" is the point at which investment gains start to outpace your contributions. As long as the amount saved is a healthy portion of your salary (whatever it is), you'll hit it. However, one should recognize that at the lower end of the spectrum, it's a lot more difficult to save that healthy portion without serious sacrifice. I've been lucky enough to save over the course of my 10 year career without having to really give much up. I certainly can't lecture someone about saving when they would have to make serious sacrifices to do so that I don't.

That said, my biggest piece of advice is to get a head start on saving BEFORE you have kids. Childcare expenses (either direct in the form of nanny/daycare or indirect in the form of foregone work) can be absolutely crushing. On top of that, you will also feel a lot more pressure to increase your living space and buy into a place with good schools. I'd advise roommates if you are a single 20-something even if you can afford your own place, and a smaller apartment as a young married couple rather than a starter home- get those savings going before the expenses really start!
Grt2bOutdoors
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Grt2bOutdoors »

alfaspider wrote: Thu Aug 20, 2020 8:34 am
typical.investor wrote: Thu Aug 20, 2020 12:16 am 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:
I think you are confusing millenials with zoomers. For most millenials, smartphones didn't exist until they were adults. Heck, I'm a millennial (somewhat older side) and I remember getting the first family computer (a 386 circa 1991 running DOS command line). I spent lots of time utterly confused by DOS command prompt. I didn't get my first cell phone of any sort (smart or not) until I went to college.

But I do agree that the "good old days" weren't. My grandfather who was born at the tail end of the Great Depression actually took me aside to tell me: "never let anybody tell you that the 50s and 60s were the good old days- today is the "good old days." He was raising his family during prime "Leave it to Beaver" years that so many seem to idealize. Setting aside the series of wars in Korea/Vietnam (with casualty counts an order of magnitude higher than Afghanistan/Iraq plus widespread drafts), social unrest, jim crow and widespread overt racism, people simply didn't have as much money back then. He was a public school assistant principal and barely made ends meet living in a 1,200 sq ft/1 bathroom house with 3 kids- only one car. He hunted and fished on the weekends not because he loved the sport, but because it was a significant cost savings for feeding the family. Yes, that was single income, but mostly because married women with children were effectively barred from the workforce. I have relatives who are teachers in the same city today who live in a 3,000sq ft house and own two cars and manage to raise children. While I'm sure their budget is tight, they wouldn't dream of hunting just to supplement their grocery fund.

None of that is to say that young workers don't face hardships. The "job hopping" phenomenon can be psychologically draining and tends to result in the rich getting richer. People who are good at playing that game climb the ladders with each hop. People who aren't end up cycling through layoffs and periods of unemployment or underemployment. People no longer have a long-term outlook with their employers because the employers have abandoned that outlook with their employees. It used to be at my Megacorp that if your job disappeared due to a change in company direction or a reorganization, they'd find something else for you to do. Now, unless you have a tip top performance review on file (and the right political allies), you are far more likely to get the boot the minute your exact job is no longer necessary.
+1. This. Gen Xer here and to keep it pc, the advice I received from my depression era grandparents was “it’s never easy”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
smitcat
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by smitcat »

Norgeiron wrote: Wed Aug 19, 2020 1:48 pm @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.
"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."
While I agree with most of what you say a higher earner would not need a proportionately larger nest egg unless his/her expenses were proportionlatly larger. These ratios for retirement/FI/whatever are not related to gross incomes.
Jags4186
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

Croissant wrote: Tue Aug 18, 2020 9:34 pm 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.
No, the best decade for stocks was 1990-1999. While 2010-2019 resulted in a wonderful 13% return for the SP500, 1990-1999 gave investors 18% compounded annually. In fact, 1980-1999 gave investors a 17.6% return. So anyone who has worked 40 years, even with the stinker that was 2000-2009, make almost 12% annually for 40 years.

To put that into context, $1000 saved in 1980 turned into more than $80,000 today.
smitcat
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by smitcat »

Jags4186 wrote: Thu Aug 20, 2020 9:30 am
Croissant wrote: Tue Aug 18, 2020 9:34 pm 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.
No, the best decade for stocks was 1990-1999. While 2010-2019 resulted in a wonderful 13% return for the SP500, 1990-1999 gave investors 18% compounded annually. In fact, 1980-1999 gave investors a 17.6% return. So anyone who has worked 40 years, even with the stinker that was 2000-2009, make almost 12% annually for 40 years.

To put that into context, $1000 saved in 1980 turned into more than $80,000 today.
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Jags4186
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
smitcat
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by smitcat »

Jags4186 wrote: Thu Aug 20, 2020 9:41 am
smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
"$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point."
The value of the money has nothing to do with it?

"Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes."
If you could put that $1,000 into an IRA and did a good job of savings you will likely pay a fair amount of taxes on those funds.
On the other hand if some of what you had saved was outside a tax deferred account you would also have paid taxes on those funds.
whereskyle
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by whereskyle »

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.
Exactly what I'm doing. Barely middle-class solo salary in a state gov job for a current family of three. Maxing out two tIRAs and getting a 5% "match" for my 3% contribution in my work plan is possible and it's the goal (only 1 tIRA being maxed now). If we can max both, we should meet our goal in under 30 years. Will probably stay in the gig for benefits till 65 anyway though if I can make it happen.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Jags4186
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

smitcat wrote: Thu Aug 20, 2020 9:52 am
Jags4186 wrote: Thu Aug 20, 2020 9:41 am
smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
"$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point."
The value of the money has nothing to do with it?

"Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes."
If you could put that $1,000 into an IRA and did a good job of savings you will likely pay a fair amount of taxes on those funds.
On the other hand if some of what you had saved was outside a tax deferred account you would also have paid taxes on those funds.
If I have $80,000, how much money do I have?

If I buried ten $100 bills, $1000 total, and someone 50 years from now dug it up, how much money would they have?

If you get hired at a job that pays $100,000 a year do you argue with your boss that you really only make $75,000 a year after taxes and therefore they need to pay you more?
Grt2bOutdoors
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Grt2bOutdoors »

Jags4186 wrote: Thu Aug 20, 2020 9:41 am
smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
What do you think the average income was in the 1980’s? $1,000 after tax dollars was real money back then.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Jags4186
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

Grt2bOutdoors wrote: Thu Aug 20, 2020 10:18 am
Jags4186 wrote: Thu Aug 20, 2020 9:41 am
smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
What do you think the average income was in the 1980’s? $1,000 after tax dollars was real money back then.
The median income in 1980 was about $16,000. The median income in 2019 was about $64,000. So the equivalent of saving $1000 in 1980 for a median family is about the same as a median family in 2019 saving $4000. 6.25% — far less than even the most optimistic financial advisers would recommend a family needs to save.

Oh and I’ll add that the average public high school teacher in 1980 made $16,459.

https://nces.ed.gov/programs/digest/d07 ... 07_075.asp
smitcat
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by smitcat »

Jags4186 wrote: Thu Aug 20, 2020 10:16 am
smitcat wrote: Thu Aug 20, 2020 9:52 am
Jags4186 wrote: Thu Aug 20, 2020 9:41 am
smitcat wrote: Thu Aug 20, 2020 9:33 am
"To put that into context, $1000 saved in 1980 turned into more than $80,000 today."
Before adjusting for inflation and taxes of course.
Of course not.

$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point.

Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes.

I’m always surprised when folks in their 60s have very little money. It really didn’t take that much heavy lifting to become a multimillionaire if you were somewhat disciplined when young.
"$1000 turned into $80,000. Inflation has nothing to do with it. The real value of the money is besides the point."
The value of the money has nothing to do with it?

"Taxes are individual. If you put that $1000 into an IRA in 1980 and then manage your taxable income you could get all $80,000 out for $0 in taxes."
If you could put that $1,000 into an IRA and did a good job of savings you will likely pay a fair amount of taxes on those funds.
On the other hand if some of what you had saved was outside a tax deferred account you would also have paid taxes on those funds.
If I have $80,000, how much money do I have?

If I buried ten $100 bills, $1000 total, and someone 50 years from now dug it up, how much money would they have?

If you get hired at a job that pays $100,000 a year do you argue with your boss that you really only make $75,000 a year after taxes and therefore they need to pay you more?
I guess your thoughts are that the $1,000 saved that becomes $80,000 is not affected by taxes or inflation since 1980.
I have a differing view.... our needs and goals (in $$) have changed a bunch since 1980 due to inflation and taxes.
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Norgeiron
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

Hey, I think I ought to patent my "Critical Mass" analogy and even charge royalties for its use. It might even become a meme. Then I'd be making serious money, even in retirement..... :)
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

smitcat wrote: Thu Aug 20, 2020 12:15 pm I guess your thoughts are that the $1,000 saved that becomes $80,000 is not affected by taxes or inflation since 1980.
I have a differing view.... our needs and goals (in $$) have changed a bunch since 1980 due to inflation and taxes.
My thoughts are that $1,000 compounded at 11.6% annually for 40 years turn into $80,602. I’m not talking about taxes, purchasing power, or retirement planning.

I’d be very surprised if you lived your life in 1980 value dollars.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by phxjcc »

Grt2bOutdoors wrote: Thu Aug 20, 2020 8:46 am
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.
The one critical piece you omitted - you lived in a dual income household whereby your income shovel is much larger than that of a teacher household meaning you could clearly save a healthy amount while experiencing minimal disruption to your discretionary spending. Am I wrong? Of the teachers I personally know who retired millionaires they had a couple of things going for them - 1) uninterrupted employment, 2) employer paid healthcare (as in paid for with minimal outlay in the form of premiums or out of pocket), 3) a pension which acted as a guarantee backstop permitting riskier investments that a prudent person may be more hesitant to undertake - an example is a pension of 40,000 might cost $1,000,000 today or thereabouts in a single life annuity but if you buy the annuity you don’t experience the appreciation of the markets, so to accumulate $1.875 million in addition to the cost of the annuity you’d really need to accumulate $2.875 million. Not realistic for even the top 20 percent of the population.

Congratulations on your retirement.
I agree completely.

The number of government employee households on this board, and among my acquaintances, making 6 figure government pensions is shocking.

Further, I want to see housing cost outflows during the initial civil service years; ya know, the ones where you where making $16K in NYC.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by phxjcc »

5280Tim wrote: Thu Aug 20, 2020 7:18 am
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.
..and just like THAT, my faith in succeeding generations is restored.
:sharebeer
Independent George
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Independent George »

Norgeiron wrote: Wed Aug 19, 2020 4:24 am "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
There's something that really needs to be pointed out to the folks who you had it easy - namely, that the 70s were pretty damned awful. That was when the 'misery index' and 'stagflation' first entered everyday language. Yes, you're fortunate to have had a long bull run to watch your assets grow, but I have to imagine that this was anything but obvious at the time. Life is infinitely better today; we're just hard-wired to emphasize the negative.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Jags4186 »

Independent George wrote: Thu Aug 20, 2020 2:12 pm
Norgeiron wrote: Wed Aug 19, 2020 4:24 am "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
There's something that really needs to be pointed out to the folks who you had it easy - namely, that the 70s were pretty damned awful. That was when the 'misery index' and 'stagflation' first entered everyday language. Yes, you're fortunate to have had a long bull run to watch your assets grow, but I have to imagine that this was anything but obvious at the time. Life is infinitely better today; we're just hard-wired to emphasize the negative.
Of course OP didn’t know what would happen. But the reality is equities performed magnificently for the time period OP was around. Maybe equities will return 11.7% for the next 45 years (or the real equivalent). But I wouldn’t bank on it.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by jarjarM »

While I agree with the premise of saving early, take appropriate risk and etc, too bad it's unlikely to repeat the performance of 11-12% CAGR in 20 years that we saw from the late 1970s (80s and 90s were great for stock/bond performance). It's a new world now.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Third Son »

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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
"A part of all you earn is yours to keep" | | -The Richest Man in Babylon
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Independent George »

jarjarM wrote: Thu Aug 20, 2020 3:30 pm While I agree with the premise of saving early, take appropriate risk and etc, too bad it's unlikely to repeat the performance of 11-12% CAGR in 20 years that we saw from the late 1970s (80s and 90s were great for stock/bond performance). It's a new world now.
When has it ever not been a new world?
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 000 »

Independent George wrote: Thu Aug 20, 2020 4:29 pm
jarjarM wrote: Thu Aug 20, 2020 3:30 pm While I agree with the premise of saving early, take appropriate risk and etc, too bad it's unlikely to repeat the performance of 11-12% CAGR in 20 years that we saw from the late 1970s (80s and 90s were great for stock/bond performance). It's a new world now.
When has it ever not been a new world?
The vast, vast majority of human history.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Broken Man 1999 »

Third Son wrote: Thu Aug 20, 2020 3:47 pm
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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
This!

The risk of being out of the market is far greater than the risk of being in the market, IMHO.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

Third Son wrote: Thu Aug 20, 2020 3:47 pm
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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
People just suck at math. It’s incredibly hard to understand compounding or to truly understand large numbers. There is a great book out there about it, titled Innumeracy. That, coupled with our cognitive bias towards avoiding loss, it’s hard to do what we all acknowledge is the right thing. Even seasoned posters on this board have written about the troubles of it.

I think there is a famous piece by Ben Stein about his experience with it.

Quick question for everybody: how long is a million seconds? How long is a billion seconds? Very few people have an accurate, intuitive feel for these things.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Third Son »

Normchad wrote: Thu Aug 20, 2020 4:38 pm
Third Son wrote: Thu Aug 20, 2020 3:47 pm
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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
People just suck at math. It’s incredibly hard to understand compounding or to truly understand large numbers. There is a great book out there about it, titled Innumeracy. That, coupled with our cognitive bias towards avoiding loss, it’s hard to do what we all acknowledge is the right thing. Even seasoned posters on this board have written about the troubles of it.

I think there is a famous piece by Ben Stein about his experience with it.

Quick question for everybody: how long is a million seconds? How long is a billion seconds? Very few people have an accurate, intuitive feel for these things.
I know that I have lived about 1.9B seconds. Thus I am retired. :-)
"A part of all you earn is yours to keep" | | -The Richest Man in Babylon
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Grt2bOutdoors »

Normchad wrote: Thu Aug 20, 2020 4:38 pm
Third Son wrote: Thu Aug 20, 2020 3:47 pm
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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
People just suck at math. It’s incredibly hard to understand compounding or to truly understand large numbers. There is a great book out there about it, titled Innumeracy. That, coupled with our cognitive bias towards avoiding loss, it’s hard to do what we all acknowledge is the right thing. Even seasoned posters on this board have written about the troubles of it.

I think there is a famous piece by Ben Stein about his experience with it.

Quick question for everybody: how long is a million seconds? How long is a billion seconds? Very few people have an accurate, intuitive feel for these things.
The former is 11.6 days, the latter is about 31.7 years of age.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Samosa22 »

Grt2bOutdoors wrote: Thu Aug 20, 2020 8:52 pm
Normchad wrote: Thu Aug 20, 2020 4:38 pm
Third Son wrote: Thu Aug 20, 2020 3:47 pm
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.
Nice post. That's what blows my mind when I see folks wanting to cash out or go to all bonds with a 15-30 year working life remaining. The compounding risk that they are giving up by doing that is enormous. More should try to do the math before acting on such matters. Ignorance is bliss in the early investing life cycle. Just keep saving and the momentum will build in time. I am glad that recently several Bogleheads here figuratively talked some people off the ledge. Unfortunately, some had already made up their minds and jumped.
People just suck at math. It’s incredibly hard to understand compounding or to truly understand large numbers. There is a great book out there about it, titled Innumeracy. That, coupled with our cognitive bias towards avoiding loss, it’s hard to do what we all acknowledge is the right thing. Even seasoned posters on this board have written about the troubles of it.

I think there is a famous piece by Ben Stein about his experience with it.

Quick question for everybody: how long is a million seconds? How long is a billion seconds? Very few people have an accurate, intuitive feel for these things.
The former is 11.6 days, the latter is about 31.7 years of age.
Nah.... I don't believe it.
Lesson learned from 2008 financial crisis: "In the fury of the final hour, all correlations went to 1".
Hyperchicken
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Hyperchicken »

This makes no sense to be honest.There is no such thing as "critical mass" in this context. The gains are proportional to the amount of savings. Nothing "explodes upwards" any more than an exponential plot explodes upwards. Well, it sort of does, but there is no special point on it after which it starts doing so. You change the scale, and you get the same exponential plot.

I get the idea of saving much and early, but this "critical mass" talk is just not how math works.
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Norgeiron
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Norgeiron »

As I explained my analogy to my young science teacher colleague, you reach "critical mass" when the investment gains from your nest egg accumulation begin to exceed your yearly salary. From that point going forward, your salary takes a backseat relative to your nest egg's market gains. In really good years, you will feel that your net worth is exploding upward on autopilot. I can attest that after ten years or so of this process, you may begin to think of your salary as somewhat akin to chump change relative to your market gains or losses. OK, that's going too far to call it chump change, but believe me, your perspective is altered when your net worth is oscillating up or down by ten thousand dollars every single day, depending upon what the S&P 500 did that day. Caveat: this does things to your psychology. At some point, you may begin to find yourself saying to your spouse, "It really doesn't matter whether or not we spend X amount on ____________ (fill in the blank) because we are up twenty-three thousand since last week Tuesday." That's when you know you are in the advanced stage of critical mass. Since it is diametrically opposed to all the thrifty instincts you have acquired over a lifetime, it's an eerie feeling and difficult to accept. However, it is indeed your new reality. Can it go in reverse? Sure. We all took a big hit in March, but here we are in August, fully recovered if we stayed invested. So max out those tax deferred investments and let time and compound interest work their magic, and sometime in mid-career you, too, will reach critical mass.
BrklynMike
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by BrklynMike »

Great post, and great analogy, although you will find that Charlie Munger has used this analogy in the same context when discussing his "mental models" approach to thinking.
"In a world of uncertainty, one should focus more on the consequences than the probabilities." - Benjamin Graham
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Ari »

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

Post by redmaw »

While I love xkcd, thats a bit off. 2% doesn't seem like a lot, because it isn't a lot. Also 10 years is not enough time for compound interest to do much, to really see compounding you need 30+ years.
eco_eco
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by eco_eco »

redmaw wrote: Fri Aug 21, 2020 1:27 pm While I love xkcd, thats a bit off. 2% doesn't seem like a lot, because it isn't a lot. Also 10 years is not enough time for compound interest to do much, to really see compounding you need 30+ years.

And that’s it isn’t it. For most of my life people have looked at me very strangely when I’ve said I’m investing for 40+ years in the future. Colleagues and friends generally thought that was just a very unusual thing to do in my 20s and 30s.

Bogleheads aside I think it’s rare to find people who understand long time horizons and how what we have now won’t seem that relevant in future decades. Something about western civilisation wires to not look much further than our immediate needs.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Normchad »

BrklynMike wrote: Fri Aug 21, 2020 6:26 am Great post, and great analogy, although you will find that Charlie Munger has used this analogy in the same context when discussing his "mental models" approach to thinking.
I like the analogy as well. The analogy I personally use is rolling a snowball to build a snow man. It starts with just a small handful of snow. You start rolling and it starts getting bigger. And if you roll long enough, it’s so large you can’t push it any more.

You only put in a little it of the snow. You get all the rest for free.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Ragnoth »

Living below your means and investing early is still the best advice you can get. That works regardless if you are dealing with a pension plan or a 401k, and if your career is with a single company or 10 companies. Your standard of living will always depends on the relative cost of education, housing, healthcare etc. But that doesn't preclude people from building good habits and doing their best to save over time.
000
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 000 »

I will just add that 1.0000001x is an exponential function in x, but likely to be underwhelming...
evancox10
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by evancox10 »

Hyperchicken wrote: Fri Aug 21, 2020 12:14 am This makes no sense to be honest.There is no such thing as "critical mass" in this context. The gains are proportional to the amount of savings. Nothing "explodes upwards" any more than an exponential plot explodes upwards. Well, it sort of does, but there is no special point on it after which it starts doing so. You change the scale, and you get the same exponential plot.

I get the idea of saving much and early, but this "critical mass" talk is just not how math works.
Well if your savings are growing due to both gains and contributions, then the graph does start out basically linear and then gradually become more and more exponential.
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by dachshunddad »

Good post. I’ll throw my two cents in. Critical mass is when your investments generate more than you can possibly save each year. Winning the game is when they are easily more than you can earn. Nice work winning the game!
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by sschullo »

Nice Post OP.
I would say that both you and your wife are very lucky in one critical area, that you loved your job for 40 years. Very few people can teach that long and still love it. I had enough of teaching after 24 years but I could afford to retire a little earlier than most in my boomer generation because I saved and invested for all those years.
"We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality." Ben Graham
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by market timer »

redmaw wrote: Fri Aug 21, 2020 1:27 pm While I love xkcd, thats a bit off. 2% doesn't seem like a lot, because it isn't a lot. Also 10 years is not enough time for compound interest to do much, to really see compounding you need 30+ years.
If I invest $1000 into 30-year TIPS today, I'll have $900 in 30 years (inflation-adjusted).
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by flaccidsteele »

Hyperchicken wrote: Fri Aug 21, 2020 12:14 am This makes no sense to be honest.There is no such thing as "critical mass" in this context. The gains are proportional to the amount of savings. Nothing "explodes upwards" any more than an exponential plot explodes upwards. Well, it sort of does, but there is no special point on it after which it starts doing so. You change the scale, and you get the same exponential plot.

I get the idea of saving much and early, but this "critical mass" talk is just not how math works.
+1 ^this

Weird thread. Just a teacher happy with a modest nest egg 🤷‍♂️
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by Grt2bOutdoors »

market timer wrote: Fri Aug 21, 2020 11:33 pm
redmaw wrote: Fri Aug 21, 2020 1:27 pm While I love xkcd, thats a bit off. 2% doesn't seem like a lot, because it isn't a lot. Also 10 years is not enough time for compound interest to do much, to really see compounding you need 30+ years.
If I invest $1000 into 30-year TIPS today, I'll have $900 in 30 years (inflation-adjusted).
Instead invest $1,000 in Series EE savings bonds and it will be worth $2,000 in 20 years.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Advice to a Millennial about nest egg "Critical Mass"

Post by 000 »

Grt2bOutdoors wrote: Fri Aug 21, 2020 11:59 pm
market timer wrote: Fri Aug 21, 2020 11:33 pm
redmaw wrote: Fri Aug 21, 2020 1:27 pm While I love xkcd, thats a bit off. 2% doesn't seem like a lot, because it isn't a lot. Also 10 years is not enough time for compound interest to do much, to really see compounding you need 30+ years.
If I invest $1000 into 30-year TIPS today, I'll have $900 in 30 years (inflation-adjusted).
Instead invest $1,000 in Series EE savings bonds and it will be worth $2,000 in 20 years.
What about inflation?
Or if you need the money sooner? TIPS can be sold in the secondary market.
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