"How to Retire With $2 Million On a $50,000 Salary"

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Taylor Larimore
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"How to Retire With $2 Million On a $50,000 Salary"

Post by Taylor Larimore »

Bogleheads:

We often appear to represent mostly upper-income investors. This is despite the fact that many of the most financially successful Boglehead investors started-out small.

There is a current article on The Motley Fool website that I can relate to and I hope that it will also help our younger investors:

"How to Retire With $2 Million On a $50,000 Salary"

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Put money in a stock market index fund and you balance it out with some bonds, depending on age and so on, and don’t look at it for 50 years. But when you retire, open the envelope. Be sure a doctor is nearby to revive you. You’ll go into a dead faint; you won’t believe there’s that much money in the world.”
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Kenkat »

I think a lot of young investors worry about fund selection and performance, but the first two suggestions in this article really are the most important for those just starting out:

Step 1: Start saving from a very early age
Step 2: Contribute to savings consistently

I started investing in low cost Vanguard funds in the late 80s and as Mr. Bogle said, I can’t believe what it has grown to.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Charon »

This assumes 8% real return on the portfolio and also that the $50k salary starts at age 26. Someone who's making $50k at age 55 is unlikely to have been making (inflation-adjusted) $50k at 26.

There's a reason most Americans have Social Security as their primary retirement.

Anyone can make funding retirement seem easy if you make up numbers for when you start and what the real return will be. I recently read an article claiming PhD students could essentially fund their retirement just from savings in the Roth IRAs during grad school.

The primary mistakes such articles make are

1) assuming really optimistic returns (also usually ignoring fees, and behavioral losses)
2) assuming really long compounding periods (generally unrealistically assuming young people can set aside substantial amounts of their incomes - in fact I could have maxed my Roth during grad school or I could have eaten food)

The basic point of start early, steady wins the race, yes, fine. But making up numbers to sell people on that story is misleading.
Last edited by Charon on Sun Nov 14, 2021 2:11 pm, edited 2 times in total.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by nedsaid »

Reminds me of the old joke that the best way to make a million in the stock market is to start with two million.

As for me, I have built a nice nest egg through hard work, thrift, and careful investing. I did this despite making rather modest salaries for much of my career, which was mostly in the not for profit sector. I could throw in good looks, talent, brilliance and being an all around good guy, but that is the topic for another thread. :wink:

Yes, Taylor, many of us here didn't start life on 3rd base, many of us came from more humble circumstances. As Mr. Bogle showed us, a nice nest egg is in the reach of people determined to do it. Doesn't require making insane amounts of money. For me, a big key was starting early, I started saving with my first paycheck. Probably a 1/3 to 1/2 of the monies I have now can be traced to what I saved and invested during the first decade of my career, from age 24 to age 34. (I know, I squeezed four years of college into six, but that is the topic of yet another thread).
Last edited by nedsaid on Sun Nov 14, 2021 2:11 pm, edited 1 time in total.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by dukeblue219 »

Charon wrote: Sun Nov 14, 2021 2:04 pm This assumes 8% real return on the portfolio and also that the $50k salary starts at age 26. Someone who's making $50k at age 55 is unlikely to have been making (inflation-adjusted) $50k at 26.

There's a reason most Americans have Social Security as their primary retirement.
Motley Fool has (like Dave Ramsey) always pushed the idea that stocks will have very, very high real returns for the next 50 years. It's almost impractical economically for that to be true.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Apathizer »

nedsaid wrote: Sun Nov 14, 2021 2:07 pmYes, Taylor, many of us here didn't start life on 3rd base, many of us came from more humble circumstances. As Mr. Bogle showed us, a nice nest egg is in the reach of people determined to do it. Doesn't require making insane amounts of money.
Nicely said. I read some of these threads of people with 7-figure investments only considering retirement. If I had 7-figures I would've retired a loooonnng time ago. Or at least I'd retire from normal work and maybe work part-time for a not-for-profit like you.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by manatee2005 »

"by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by JoMoney »

manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Kenkat »

dukeblue219 wrote: Sun Nov 14, 2021 2:08 pm
Charon wrote: Sun Nov 14, 2021 2:04 pm This assumes 8% real return on the portfolio and also that the $50k salary starts at age 26. Someone who's making $50k at age 55 is unlikely to have been making (inflation-adjusted) $50k at 26.

There's a reason most Americans have Social Security as their primary retirement.
Motley Fool has (like Dave Ramsey) always pushed the idea that stocks will have very, very high real returns for the next 50 years. It's almost impractical economically for that to be true.
The article did not state 8% real returns, just 8% returns. Yes, the $2,000,000 ending value would be worth less after inflation but it would still be a substantial sum.

In addition, a person making $50,000 / yr. at 55 wouldn’t need to save $2,000,000.

You are correct that social security is an important part of most American’s retirement income, but the article is not really being misleading about what can be saved if you start early and invest consistently. It is overall good advice, regardless of the exact numbers involved.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Cecelio »

I read the article as $500 a year. That doesn't make the cut...
Last edited by Cecelio on Sun Nov 14, 2021 3:37 pm, edited 1 time in total.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by oldfort »

Kenkat wrote: Sun Nov 14, 2021 2:37 pm The article did not state 8% real returns, just 8% returns. Yes, the $2,000,000 ending value would be worth less after inflation but it would still be a substantial sum.

In addition, a person making $50,000 / yr. at 55 wouldn’t need to save $2,000,000.

You are correct that social security is an important part of most American’s retirement income, but the article is not really being misleading about what can be saved if you start early and invest consistently. It is overall good advice, regardless of the exact numbers involved.
If the $2 million isn't adjusted for inflation, the article is misleading. You can retire with $2 million in 40 years, which at a 4% inflation rate, would be worth $400k in today's dollars.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by wander »

The article paints a very nice picture of a person who earns $50,000 a year can make to $2,000,000 with only 15% saving from income a year. While it is true, it ignores the fact that many people do not work 40 straight years. My advice to my young friends was to visit bolgeheads.org and ask questions and get serious about financial independent, they would get to that milestone mark way before 67.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Triple digit golfer »

Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by willthrill81 »

Charon wrote: Sun Nov 14, 2021 2:04 pm This assumes 8% real return on the portfolio and also that the $50k salary starts at age 26. Someone who's making $50k at age 55 is unlikely to have been making (inflation-adjusted) $50k at 26.

There's a reason most Americans have Social Security as their primary retirement.

Anyone can make funding retirement seem easy if you make up numbers for when you start and what the real return will be. I recently read an article claiming PhD students could essentially fund their retirement just from savings in the Roth IRAs during grad school.

The primary mistakes such articles make are

1) assuming really optimistic returns (also usually ignoring fees, and behavioral losses)
2) assuming really long compounding periods (generally unrealistically assuming young people can set aside substantial amounts of their incomes - in fact I could have maxed my Roth during grad school or I could have eaten food)

The basic point of start early, steady wins the race, yes, fine. But making up numbers to sell people on that story is misleading.
I agree. If we assume a historically more realistic 5% inflation-adjusted return, the inflation-adjusted ending balance would be $959k. That's still far more than most retire with, and when combined with SS benefits should provide for a very ample retirement, but it's less than half what many readers would be expecting. Dave Ramsey makes the same error on an even bigger scale with his projections (i.e., 12% return). And you're correct that few 26 year olds are saving $625/month for retirement.

When I was getting my Ph.D., we were making $15k. Maxing out our Roth IRAs was the last thing on our minds.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by willthrill81 »

Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
We don't have a problem with that, but we shouldn't be creating unrealistic expectations in an attempt to motivate people to save for their own future.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Kenkat »

oldfort wrote: Sun Nov 14, 2021 3:07 pm
Kenkat wrote: Sun Nov 14, 2021 2:37 pm The article did not state 8% real returns, just 8% returns. Yes, the $2,000,000 ending value would be worth less after inflation but it would still be a substantial sum.

In addition, a person making $50,000 / yr. at 55 wouldn’t need to save $2,000,000.

You are correct that social security is an important part of most American’s retirement income, but the article is not really being misleading about what can be saved if you start early and invest consistently. It is overall good advice, regardless of the exact numbers involved.
If the $2 million isn't adjusted for inflation, the article is misleading. You can retire with $2 million in 40 years, which at a 4% inflation rate, would be worth $400k in today's dollars.
Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Triple digit golfer »

willthrill81 wrote: Sun Nov 14, 2021 3:25 pm
Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
We don't have a problem with that, but we shouldn't be creating unrealistic expectations in an attempt to motivate people to save for their own future.
What is unrealistic? The author didn't say $2 million in today's dollars. An 8% nominal return over decades is very realistic.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by willthrill81 »

Triple digit golfer wrote: Sun Nov 14, 2021 3:31 pm
willthrill81 wrote: Sun Nov 14, 2021 3:25 pm
Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
We don't have a problem with that, but we shouldn't be creating unrealistic expectations in an attempt to motivate people to save for their own future.
What is unrealistic? The author didn't say $2 million in today's dollars. An 8% nominal return over decades is very realistic.
It's true that the author didn't say 'today's dollars', but that detail is very important, and many of their readers won't notice it. Heck, even around here, we have to be very careful to specify real or nominal returns.

The only reasons I can think of for why the $2.1 million nominal amount was provided was because the author didn't catch it, which is very possible in the freelance writing space that Motley Fool may have gone to for the article, or the author was trying to grab attention.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Triple digit golfer »

willthrill81 wrote: Sun Nov 14, 2021 3:34 pm
Triple digit golfer wrote: Sun Nov 14, 2021 3:31 pm
willthrill81 wrote: Sun Nov 14, 2021 3:25 pm
Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
We don't have a problem with that, but we shouldn't be creating unrealistic expectations in an attempt to motivate people to save for their own future.
What is unrealistic? The author didn't say $2 million in today's dollars. An 8% nominal return over decades is very realistic.
It's true that the author didn't say 'today's dollars', but that detail is very important, and many of their readers won't notice it. Heck, even around here, we have to be very careful to specify real or nominal returns.

The only reasons I can think of for why the $2.1 million nominal amount was provided was because the author didn't catch it, which is very possible in the freelance writing space that Motley Fool may have gone to for the article, or the author was trying to grab attention.
I guess I'm different. I always assume nominal as the default unless someone says real. So I immediately, in my head, said that would be $2 million in future dollars.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Kenkat »

For the number crunchers:

Starting in 1985 (as far back as Portfolio Visualizer goes):

Initial Investment: $1
Annual Contribution: $7500 (15% of $50,000)
Investment: 100% VFINX (S&P 500 Index)
Inflation Adjusted: Yes - includes contributions - i.e., this person’s income increased with inflation

Inflation Adjusted Final Value: $1,565,581
Nominal Final Value: $4,112,292

https://www.portfoliovisualizer.com/bac ... ion1_1=100

So close to 36 years in, $2m, even adjusted for inflation, isn’t far off.

I would agree that this would be a better analysis, but the message is the same. The way we get so hung up on numbers and details here is why people end up at Edward Jones. It’s too overwhelming when the simpler message will suffice.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by CyclingDuo »

Kenkat wrote: Sun Nov 14, 2021 3:52 pm For the number crunchers:

Starting in 1985 (as far back as Portfolio Visualizer goes):

Initial Investment: $1
Annual Contribution: $7500 (15% of $50,000)
Investment: 100% VFINX (S&P 500 Index)
Inflation Adjusted: Yes - includes contributions - i.e., this person’s income increased with inflation

Inflation Adjusted Final Value: $1,565,581
Nominal Final Value: $4,112,292

https://www.portfoliovisualizer.com/bac ... ion1_1=100

So close to 36 years in, $2m, even adjusted for inflation, isn’t far off.

I would agree that this would be a better analysis, but the message is the same. The way we get so hung up on numbers and details here is why people end up at Edward Jones. It’s too overwhelming when the simpler message will suffice.
Don't forget to throw in the employer match into the 401k on top of the 15% the employee is saving. Be it 3%, 4%, 5%, 6% or more. Or, in the case of public education and government employees - the pension.

Cheers.

:sharebeer

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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Harry Livermore »

Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm
Do so, and all else equal, things will work out well.
Agreed.
And, just as important: things will work out MUCH BETTER than if one had done nothing at all, which is what many people do...
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by livesoft »

This is old news. At ages 26, my spouse and I were making somewhat less than $50K a year. We are not 67 (nor even 65) yet. And I would not have considered us upper income like some folks around here. Nevertheless, we each have more than $2 million for when we retire plus decent SS benefits.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by rocket354 »

CyclingDuo wrote: Sun Nov 14, 2021 4:00 pm
Kenkat wrote: Sun Nov 14, 2021 3:52 pm For the number crunchers:

Starting in 1985 (as far back as Portfolio Visualizer goes):

Initial Investment: $1
Annual Contribution: $7500 (15% of $50,000)
Investment: 100% VFINX (S&P 500 Index)
Inflation Adjusted: Yes - includes contributions - i.e., this person’s income increased with inflation

Inflation Adjusted Final Value: $1,565,581
Nominal Final Value: $4,112,292

https://www.portfoliovisualizer.com/bac ... ion1_1=100

So close to 36 years in, $2m, even adjusted for inflation, isn’t far off.

I would agree that this would be a better analysis, but the message is the same. The way we get so hung up on numbers and details here is why people end up at Edward Jones. It’s too overwhelming when the simpler message will suffice.
Don't forget to throw in the employer match into the 401k on top of the 15% the employee is saving. Be it 3%, 4%, 5%, 6% or more. Or, in the case of public education and government employees - the pension.

Cheers.

:sharebeer

CyclingDuo
To add more details to the post decrying all the details, $50,000 in 1985 was worth a lot more than $50,000 today (closer to $125,000). And that $1.5 million is in 1985 dollars. A correct comparison if we're going to go back to 1985 is to have the equivalent of $50,000 inflation-adjusted for then, which is about $19,450. Starting with that amount, and saving 15%--ok, I rounded up to $3000 per year--we get a portfolio in today's dollars of a little over $1.6MM ($626k inflation adjusted, back to 1985 dollars). (Also, not a surprise that the given inflation-adjusted value from the previous calculation and the nominal value given in my calculation are more or less the same.)

Certainly nothing to sneeze at, but that specific time period has been very lucrative: the given TWRR and MWRR values are 11.79% and 10.83%, respectively. Many assume much lower returns than that going forward.

I do very much agree with the general point that a little bit goes a long way with regards to regular investing over a lifetime. Articles like the one posted, while not as rigorous as they could be, do illustrate the point for people new to the concepts.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by oldfort »

Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by manatee2005 »

JoMoney wrote: Sun Nov 14, 2021 2:21 pm
manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Triple digit golfer »

oldfort wrote: Sun Nov 14, 2021 4:48 pm
Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
For 40 or 50 years? That's incredibly low.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by oldfort »

Triple digit golfer wrote: Sun Nov 14, 2021 4:53 pm
oldfort wrote: Sun Nov 14, 2021 4:48 pm
Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
For 40 or 50 years? That's incredibly low.
30-year treasury yields are 1.95%. I'm expecting after-inflation returns on Treasury bonds to be negative. The yield on TIPS is negative. If you assume 6% real on the equity side which I think is optimistic, a 50/50 portfolio comes out to below 3%.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by retiringwhen »

manatee2005 wrote: Sun Nov 14, 2021 4:52 pm
JoMoney wrote: Sun Nov 14, 2021 2:21 pm
manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
From Ken Fisher's "10 Roads To Riches" :
Image
This is all they should teach in school.

I still haven’t used logarithms once in my life.
I love you managing other people's money is shown by Ken Fisher to be a great way to get rich! :shock:
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by am »

In practice, I would bet that except for a few bogleheads, 99.99% of those making 50k or less will never see 7 figure retirement portfolios. What percent of those with upper 5% income have 7 figure retirement portfolios?
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by willthrill81 »

manatee2005 wrote: Sun Nov 14, 2021 4:52 pm
JoMoney wrote: Sun Nov 14, 2021 2:21 pm
manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
From Ken Fisher's "10 Roads To Riches" :
Image
This is all they should teach in school.

I still haven’t used logarithms once in my life.
I used the quadratic formula just the other day when I was changing the oil in my SUV. :mrgreen:
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by invest4 »

Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
+1
willthrill81 wrote: Sun Nov 14, 2021 3:25 pm We don't have a problem with that, but we shouldn't be creating unrealistic expectations in an attempt to motivate people to save for their own future.
I share your concern. However, given the sad state of affairs as it relates to personal finance and investing; I will hold my nose with the hope the reader will still be better off for having clicked on it.
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alpenglow
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by alpenglow »

nedsaid wrote: Sun Nov 14, 2021 2:07 pm (I know, I squeezed four years of college into six, but that is the topic of yet another thread).
Thanks for a good laugh!

More seriously, I've never done the math, but I was a heavy saver early in life too. I imagine much of the position my family is in now can be traced to those early savings.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Zeno »

Taylor Larimore wrote: Sun Nov 14, 2021 1:51 pm Bogleheads:

We often appear to represent mostly upper-income investors. This is despite the fact that many of the most financially successful Boglehead investors started-out small.

There is a current article on The Motley Fool website that I can relate to and I hope that it will also help our younger investors:

"How to Retire With $2 Million On a $50,000 Salary"

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Put money in a stock market index fund and you balance it out with some bonds, depending on age and so on, and don’t look at it for 50 years. But when you retire, open the envelope. Be sure a doctor is nearby to revive you. You’ll go into a dead faint; you won’t believe there’s that much money in the world.”
Taylor:

We are indebted to you. Thank you.
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alpenglow
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by alpenglow »

manatee2005 wrote: Sun Nov 14, 2021 4:52 pm
JoMoney wrote: Sun Nov 14, 2021 2:21 pm
manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
From Ken Fisher's "10 Roads To Riches" :
Image
This is all they should teach in school.

I still haven’t used logarithms once in my life.
The imaginary numbers were super useful too. (Actually, I think they have uses in EE, but I'm a biology teacher.)
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Dottie57 »

Triple digit golfer wrote: Sun Nov 14, 2021 3:20 pm Only on Bogleheads will we debate this.

The simple lesson is to simply save as much as you can as early as you can and invest in broad market index funds. Let compound interest work. Not much else to it.

Do so, and all else equal, things will work out well.
+1.

Keep slogging away. Paycheck after paycheck.
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Brianmcg321
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Brianmcg321 »

manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.

Learn to code.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
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langelgjm
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by langelgjm »

Charon wrote: Sun Nov 14, 2021 2:04 pm Anyone can make funding retirement seem easy if you make up numbers for when you start and what the real return will be. I recently read an article claiming PhD students could essentially fund their retirement just from savings in the Roth IRAs during grad school.

The primary mistakes such articles make are

1) assuming really optimistic returns (also usually ignoring fees, and behavioral losses)
2) assuming really long compounding periods (generally unrealistically assuming young people can set aside substantial amounts of their incomes - in fact I could have maxed my Roth during grad school or I could have eaten food)

The basic point of start early, steady wins the race, yes, fine. But making up numbers to sell people on that story is misleading.
I started my Roth IRA during the first year of my PhD. It took me five years to finish, and I contributed the maximum each year ($5k at the time). I finished at age 28.

Ignoring any growth of the IRA during that time, assume I had $25k at the end. Full retirement age will be 67. That $25k has 39 years to grow. Assume 6% real growth, and without adding another dollar, the final balance is north of $240k by retirement age. Obviously not enough by itself to fund retirement, but that is also more than the current mean IRA (or 401k) balances for people at retirement age (and several times the median).

We can quibble with lots of details... is 6% real return realistic? 401k has barely been around 40 years, let alone widely used... many PhD students don't receive a stipend sufficient to cover living expenses, let alone save... but it certainly is possible for a PhD student to sock away what will eventually become a substantial amount into an IRA during graduate school.
"Simplicity is the master key to financial success." - John Bogle | "If I am what I have and if what I have is lost, who then am I?" - Erich Fromm
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nedsaid
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by nedsaid »

alpenglow wrote: Sun Nov 14, 2021 5:36 pm
nedsaid wrote: Sun Nov 14, 2021 2:07 pm (I know, I squeezed four years of college into six, but that is the topic of yet another thread).
Thanks for a good laugh!

More seriously, I've never done the math, but I was a heavy saver early in life too. I imagine much of the position my family is in now can be traced to those early savings.
Yes, I graduated from College Thank You Lordy.

The compounding effects of returns really adds up. In my opinion, people need to start early or else they may never be able to have what they need to retire. What I did wrong was that I was ultraconservative as a young man with my investments. I didn't really start buying stocks in earnest until I was about 28 years old, then it was off to the races. Young people need to invest aggressively.
A fool and his money are good for business.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Fallible »

Taylor Larimore wrote: Sun Nov 14, 2021 1:51 pm Bogleheads:

We often appear to represent mostly upper-income investors. This is despite the fact that many of the most financially successful Boglehead investors started-out small.

There is a current article on The Motley Fool website that I can relate to and I hope that it will also help our younger investors:

"How to Retire With $2 Million On a $50,000 Salary"

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Put money in a stock market index fund and you balance it out with some bonds, depending on age and so on, and don’t look at it for 50 years. But when you retire, open the envelope. Be sure a doctor is nearby to revive you. You’ll go into a dead faint; you won’t believe there’s that much money in the world.”
Taylor, I think your point about how "we often appear to represent mostly upper-income investors" is an important one that reminds us how "small" many of us started out (and how not-all-that-big many of us remain). It's a reminder I think we need (like your reminders to keep it simple) to let new investors know we can understand their situations and will help when we can.

I'm also glad for the Jack Bogle quote here because it focuses on something I think is missing in the "Motley Fool" article, in particular a mention of stock index funds and some bonds. The article does mention a diverse mix of stocks, but I wonder if that might not get lost among the wordage here (boldface mine), especially among new investors:
Step 3: Invest aggressively
Playing it too safe in your retirement account could mean falling short of your savings goal. If you want to hit millionaire status on an average salary, be prepared to go heavy on stocks.

Though stocks are more volatile than bonds, they've also delivered stronger returns over time. And if you load up on a diverse mix of stocks, you'll put yourself in a great position to weather market downturns and come out ahead.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
rockstar
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by rockstar »

It's a nice idea.

I think, getting to $1m if you're making $50k now is a more reasonable goal.
retire2022
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by retire2022 »

All this does work it happened to me 1987-2021 at 27 to 61, low salary now retired I have 2.69 million portfolio.

Compound interest does work.

Best
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Kenkat
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Kenkat »

oldfort wrote: Sun Nov 14, 2021 4:48 pm
Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
The article never claimed an 8% real return. Here’s what was said:
Finally, let's go heavy on stocks in your retirement plan and assume you'll score an 8% average annual return. That return is a bit below the stock market's average.
I will point back to my post upthread that addresses your point about the $2.1m not being inflation adjusted. It wasn’t, but neither were the contributions. I am assuming most of us make more than we did 30+ years ago.

viewtopic.php?p=6329751#p6329751
Triple digit golfer
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Triple digit golfer »

Kenkat wrote: Sun Nov 14, 2021 7:33 pm
oldfort wrote: Sun Nov 14, 2021 4:48 pm
Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
The article never claimed an 8% real return. Here’s what was said:
Finally, let's go heavy on stocks in your retirement plan and assume you'll score an 8% average annual return. That return is a bit below the stock market's average.
I will point back to my post upthread that addresses your point about the $2.1m not being inflation adjusted. It wasn’t, but neither were the contributions. I am assuming most of us make more than we did 30+ years ago.

viewtopic.php?p=6329751#p6329751
Excellent post, this one and the one you made earlier and linked above.
MarkRoulo
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by MarkRoulo »

nedsaid wrote: Sun Nov 14, 2021 6:25 pm
alpenglow wrote: Sun Nov 14, 2021 5:36 pm
nedsaid wrote: Sun Nov 14, 2021 2:07 pm (I know, I squeezed four years of college into six, but that is the topic of yet another thread).
Thanks for a good laugh!

More seriously, I've never done the math, but I was a heavy saver early in life too. I imagine much of the position my family is in now can be traced to those early savings.
Yes, I graduated from College Thank You Lordy.

The compounding effects of returns really adds up. In my opinion, people need to start early or else they may never be able to have what they need to retire. What I did wrong was that I was ultraconservative as a young man with my investments. I didn't really start buying stocks in earnest until I was about 28 years old, then it was off to the races. Young people need to invest aggressively.
I hear you!

Started investing in 1990. Each paycheck sent $100 to each of (a) The Japan Fund, (b) Janus Venture Fund, (c) Twentieth Century Select.

I credit doing this with relatively small amounts of money with allowing me to be calm during the dot-com collapse a decade later :-)

NOTE:
For those of you keeping score at home:
  • The Japan Fund had a run of bad luck, mostly due to the fact that it was supposed to invest in Japan. The fund has since gone to its ancestors.
  • Twentieth Century Select managed to follow up twenty good years of stock picking performance (~1970 - ~1990) with at least a decade of under-performance. Its focus on value stocks didn't play well with the 1990s
  • Janus Venture Fund had a small cap focus, but seemed to lose its ability to pick winning stocks around 1990
A very nice first decade of experience with investing in general. But no bonds for me! Much to exposed to inflation :-)
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by Independent George »

manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
There is only one way to make a lot of money quickly: take a LOT of risk. That can mean starting a business, entering into speculative trades, earning giant sales commissions, or entering a high risk/high reward field like writing, entertainment, or professional sports. Those are the fields where you see a lot of rich young people (but also much more poor young people).

On the plus side, the consequences of failure in your 20s and 30s are pretty minimal. On the downside, the nature of risk means that you are far more likely to fail than succeed. I greatly respect those people with the courage to go forward on any of those high risk ventures - the world needs them, and the one success generally outweighs the many, many failures. But the very nature of those highly skewed outcomes is that there is no blueprint to how to succeed, because every success is very, very different from the others.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by ResearchMed »

alpenglow wrote: Sun Nov 14, 2021 5:38 pm
manatee2005 wrote: Sun Nov 14, 2021 4:52 pm
JoMoney wrote: Sun Nov 14, 2021 2:21 pm
manatee2005 wrote: Sun Nov 14, 2021 2:12 pm "by age 67, you'll have a cool $2.1 million in savings"

How about we teach how to get $2.1 million by age 37 or even 27. Nobody teaches that.
From Ken Fisher's "10 Roads To Riches" :
Image
This is all they should teach in school.

I still haven’t used logarithms once in my life.
The imaginary numbers were super useful too. (Actually, I think they have uses in EE, but I'm a biology teacher.)

Those imaginary numbers were all that we were able to save back then!

RM
This signature is a placebo. You are in the control group.
averagedude
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by averagedude »

I agree 100% that a person with a 50k salary can retire with 2 million and can reach a goal of retiring early in their 50's. I know someone right now who is married that neither one of them has made over 70k in their lifetime and they are sitting on 3 million dollars and will be retiring in their 50's. This couple has alway's invested in boring index funds. The dirty little secret is that you have to start in your 20's. Opportunity is available for people who plan. Noone plans to fail, they just fail to plan.
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by ivgrivchuck »

I don't like this sort of articles. They mean well, but leave out many important details:

- As others have pointed out, one may perhaps retire with 2M in 40 years, which sounds great, but will be more around $800k in today's dollars which doesn't sound that great anymore.

- John Bogle in his "Little Book of Common sense investing" said that the true return of stock market (excluding speculative price movements) is dividend yield + earnings growth (in real terms). Add inflation and you get it in nominal terms. For VTI dividend yield is around 2%, long term historical average for earnings growth is around 2%, inflation going forward is hopefully going to be around 2.5%. So one should expect perhaps around 4% real and 6.5% nominal returns from stocks going forward. It might of course be higher, but 8% nominal for a mix of stocks and bonds (when bonds have heavily negative returns) is just overly optimistic...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
oldfort
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Re: "How to Retire With $2 Million On a $50,000 Salary"

Post by oldfort »

Kenkat wrote: Sun Nov 14, 2021 7:33 pm
oldfort wrote: Sun Nov 14, 2021 4:48 pm
Kenkat wrote: Sun Nov 14, 2021 3:28 pm Yes but the person making $50,000 / yr. is probably not going to be making that same salary for the next 40 years either. One could write a more complicated article that would grow wages by some percentage as well and discuss inflation adjusted final values but the conclusion would be the same. Bogleheads would enjoy that but the average person’s eyes would glaze over.
Articles do people a disservice when they create the impression people can expect 8% real rates of return, whether deliberately or by being ambiguous. For a balanced portfolio, I would plan on a 2-3% real rate of return for a balanced portfolio of stocks and bonds.
The article never claimed an 8% real return. Here’s what was said:
Finally, let's go heavy on stocks in your retirement plan and assume you'll score an 8% average annual return. That return is a bit below the stock market's average.
I will point back to my post upthread that addresses your point about the $2.1m not being inflation adjusted. It wasn’t, but neither were the contributions. I am assuming most of us make more than we did 30+ years ago.

viewtopic.php?p=6329751#p6329751
You're assuming someone is going to be 100% stocks until they are 67. This is a very aggressive asset allocation.
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