Amount You Need To Save Annually Over Lifespan

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msk
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Re: Amount You Need To Save Annually Over Lifespan

Post by msk » Sun Dec 03, 2017 12:03 am

Frankly I am surprised at the perceived difficulties in saving and investing, early and continuously, as expressed in the foregoing discussion. I recall distinctly yet another rule-of-thumb that was appropriate in my days of first-steady-job. It was never-pay-more-than-25%-of-income-for-accommodation. Of course, to the older BHs 25% is far too high, but for the young graduate earning, say, $40k or less, 25% is huge and does not afford him luxury over-the-top accommodation. He can pay rent or he can pay a mortgage. Please, youngsters who do not have the discipline of saving 30% of after tax income. Get yourself a mortgage on a tiny house/apartment, short (15 years mortgage or as short as you can go and still not exceed that 25%) and pay it off asap. All payments towards principal (hence a SHORT mortgage) count as savings and investing. With most reasonable outcomes your home will keep up or even exceed inflation. So then you will not find it so hard to meet that magic 30% of after tax income as savings. Once you see your income being sucked away into a mortgage, you soon adjust to living on the rest and soon you pick up the discipline like any wise old BH. It may be much cheaper and economically wiser to rent, but if you are unable to save, get that mortgage to force you into saving :moneybag Inflation is the major killer and if you do not start saving and investing early, you are condemning yourself to worries and endless arguments with your partner as you approach an ill funded retirement.

WanderingDoc
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Re: Amount You Need To Save Annually Over Lifespan

Post by WanderingDoc » Sun Dec 03, 2017 2:12 am

MI_bogle wrote:
Fri Dec 01, 2017 3:41 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
2 million real (age 25 dollars?) At 4% real growth, you'd need to save 20K per year starting at age 25 to hit 2 million at age 65. If you get 6% real, drop that down to 12K a year.

Obviously due to sequence of returns, there's a huge range around that 20K though. Given the amount of real-world fuzziness involved, I am not sure how good a metric this would be to assist in decision making, other than a rough guide of "boy I need to save a bunch of money, every year"
You are being unrealistic thinking one needs to save $20K per year. The AVERAGE pre-tax household income in the U.S. is currently $57K. This means that only folks in the 80th percentile or higher will even have an opportunity to save $20K, even then only if they are frugal.

Do you think 80% of the population is destitute after age 60? No, not even close. They use SS, family support, part-time income, or other programs and they are just fine. $10K per year is fine and I would actually be proud if most people saved that much.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

WanderingDoc
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Re: Amount You Need To Save Annually Over Lifespan

Post by WanderingDoc » Sun Dec 03, 2017 2:22 am

snarlyjack wrote:
Fri Dec 01, 2017 3:47 pm
Alexa,

1). Invest in Vanguard TSM fund $3,000.
2). Invest $850.00 per month.
3). At 7% rate of return.
4). For 40 years (age 25 - age 65).
5). You should have approx. $2Million.

Here is the calculator that you need (play around with your numbers).

Have Fun...

https://www.investor.gov/additional-res ... calculator
I have a better strategy. Invest $20K per year into income-producing real estate, in markets with strong rent growth and appreciation (publicly available info). Reinvest returns from cash flow, inflation hedge, tax benefits, principal paydown, value-add, and capital appreciation into new deals and watch your returns snowball.

Buy one property/deal in year 1, two in year 2, four in year 3, seven or eight deals in year 4. Now you have enough INCOME from real estate coming in that covers your basic expenses ($3K-$5K per month). {this is very similar to my story}

Now you can choose to continue working full time, find another part-time job, travel, or be a stay at home parent and take your kids to hockey or soccer. Forget the 40 year plan! :P
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

minimalistmarc
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Re: Amount You Need To Save Annually Over Lifespan

Post by minimalistmarc » Sun Dec 03, 2017 6:48 am

WanderingDoc wrote:
Sun Dec 03, 2017 2:22 am
snarlyjack wrote:
Fri Dec 01, 2017 3:47 pm
Alexa,

1). Invest in Vanguard TSM fund $3,000.
2). Invest $850.00 per month.
3). At 7% rate of return.
4). For 40 years (age 25 - age 65).
5). You should have approx. $2Million.

Here is the calculator that you need (play around with your numbers).

Have Fun...

https://www.investor.gov/additional-res ... calculator
I have a better strategy. Invest $20K per year into income-producing real estate, in markets with strong rent growth and appreciation (publicly available info). Reinvest returns from cash flow, inflation hedge, tax benefits, principal paydown, value-add, and capital appreciation into new deals and watch your returns snowball.

Buy one property/deal in year 1, two in year 2, four in year 3, seven or eight deals in year 4. Now you have enough INCOME from real estate coming in that covers your basic expenses ($3K-$5K per month). {this is very similar to my story}

Now you can choose to continue working full time, find another part-time job, travel, or be a stay at home parent and take your kids to hockey or soccer. Forget the 40 year plan! :P
Sounds like far too much hard work to me. I prefer passive investments.

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stemikger
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Re: Amount You Need To Save Annually Over Lifespan

Post by stemikger » Sun Dec 03, 2017 7:31 am

Nate79 wrote:
Sat Dec 02, 2017 1:27 pm
$2m is a nice goal for a BH but for average person they will retire on SS and a paid for home, maybe some CD's in the bank. To think you need $2m to retire on misunderstands the situation of 90%+ of people in this country.
+1

I agree. I also thinks it hurts even some Boglheads to think they need that much. They might see that number and say "why should I even try". The bottomline is no matter how much you save will be better than nothing and it will help.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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CyclingDuo
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Re: Amount You Need To Save Annually Over Lifespan

Post by CyclingDuo » Sun Dec 03, 2017 12:52 pm

msk wrote:
Sun Dec 03, 2017 12:03 am
Frankly I am surprised at the perceived difficulties in saving and investing, early and continuously, as expressed in the foregoing discussion.
I doubt any of us should be surprised, as many young people (not to mention not so young) are living paycheck to paycheck, have overspent on housing, transportation, food, and spend too much on discretionary.
msk wrote:
Sun Dec 03, 2017 12:03 am
I recall distinctly yet another rule-of-thumb that was appropriate in my days of first-steady-job. It was never-pay-more-than-25%-of-income-for-accommodation. Of course, to the older BHs 25% is far too high, but for the young graduate earning, say, $40k or less, 25% is huge and does not afford him luxury over-the-top accommodation. He can pay rent or he can pay a mortgage.
Typical rules of thumb still exist that are equivalent, or near equivalent to the 25% of income going to housing. It got bumped from 25% to 30% in 1981 under the Reagan Administration. Some use the 28% of gross figure. Some use the figure of 30% of after tax income. Some think those numbers are useless - especially for younger workers just starting out as their incomes should rise in the years going forward to balance out the equation. Or, they are making so little that a figure such as 30% is more than they could afford to make ends meet on a $20-22K salary, for example. It's also useless for those making high salaries. Somebody bringing in $400-500K a year could easily afford more than 30% on housing, and still have plenty leftover for everything else with money to spare.

So the 30% is an arbitrary number that is simply used as a starting point.
msk wrote:
Sun Dec 03, 2017 12:03 am
Please, youngsters who do not have the discipline of saving 30% of after tax income. Get yourself a mortgage on a tiny house/apartment, short (15 years mortgage or as short as you can go and still not exceed that 25%) and pay it off asap. All payments towards principal (hence a SHORT mortgage) count as savings and investing. With most reasonable outcomes your home will keep up or even exceed inflation. So then you will not find it so hard to meet that magic 30% of after tax income as savings. Once you see your income being sucked away into a mortgage, you soon adjust to living on the rest and soon you pick up the discipline like any wise old BH. It may be much cheaper and economically wiser to rent, but if you are unable to save, get that mortgage to force you into saving :moneybag Inflation is the major killer and if you do not start saving and investing early, you are condemning yourself to worries and endless arguments with your partner as you approach an ill funded retirement.
We're not sure that is very good advice at all for young, newly starting in their career workers. :shock:

General consensus would be for that age of worker setting aside 15-20% in savings (which includes 401K, Roth IRA, as well as paying off student loan debt) - all of which will get more bang for the buck. The 401K (plus the employer match) along with after tax in the Roth IRA will be able to utilize the magic power of time and compounding where those fewer dollars going in at age 20 something will have much more power at increasing their wealth, than say the money they contribute to the same in their 50's.

In addition, most young workers in their 20's that are starting out are going to be very mobile with their first few jobs as it may involve moving from suburb to suburb, city to city, state to state, and job to job. Not the best scenario for involving real estate and a mortgage in the mix at that age. Many will be going from relationship to relationship as well as they find themselves socially in the adult world, and take their time searching for a partner. Better to "have car, suitcase, short term rental lease - and will travel" as a motto for the early in their career workers. Working on their budgeting formulas (which can be something super simple such as the 50/20/30), getting going in their careers, saving in their 401k/Roth IRA's, paying off any student loans, developing relationships, social involvement, etc... seem to be the more prudent thing to do in terms of fiscal and mental discipline. Save the worry about purchasing real estate for down the road if and when the picture becomes clearer of who they are, where they will work and live, as well as who they will spend their time with in a relationship.

So in that regard, we differ from your suggestion for the 20 something crowd.

WanderingDoc
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Re: Amount You Need To Save Annually Over Lifespan

Post by WanderingDoc » Sun Dec 03, 2017 2:59 pm

minimalistmarc wrote:
Sun Dec 03, 2017 6:48 am
WanderingDoc wrote:
Sun Dec 03, 2017 2:22 am
snarlyjack wrote:
Fri Dec 01, 2017 3:47 pm
Alexa,

1). Invest in Vanguard TSM fund $3,000.
2). Invest $850.00 per month.
3). At 7% rate of return.
4). For 40 years (age 25 - age 65).
5). You should have approx. $2Million.

Here is the calculator that you need (play around with your numbers).

Have Fun...

https://www.investor.gov/additional-res ... calculator
I have a better strategy. Invest $20K per year into income-producing real estate, in markets with strong rent growth and appreciation (publicly available info). Reinvest returns from cash flow, inflation hedge, tax benefits, principal paydown, value-add, and capital appreciation into new deals and watch your returns snowball.

Buy one property/deal in year 1, two in year 2, four in year 3, seven or eight deals in year 4. Now you have enough INCOME from real estate coming in that covers your basic expenses ($3K-$5K per month). {this is very similar to my story}

Now you can choose to continue working full time, find another part-time job, travel, or be a stay at home parent and take your kids to hockey or soccer. Forget the 40 year plan! :P
Sounds like far too much hard work to me. I prefer passive investments.
Same amount of work to be honest. Currently, I spend 2-3 hours on my real estate investments per month in totality. I have spent 8-10 hours on this forum/researching per month since I got back into investing in mutual funds. The point is, you could spend as much or as little as you want. One may say MFs are more passive, not how it often works out in real life. YMMV
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

MI_bogle
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Re: Amount You Need To Save Annually Over Lifespan

Post by MI_bogle » Mon Dec 04, 2017 9:46 am

WanderingDoc wrote:
Sun Dec 03, 2017 2:12 am
MI_bogle wrote:
Fri Dec 01, 2017 3:41 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
2 million real (age 25 dollars?) At 4% real growth, you'd need to save 20K per year starting at age 25 to hit 2 million at age 65. If you get 6% real, drop that down to 12K a year.

Obviously due to sequence of returns, there's a huge range around that 20K though. Given the amount of real-world fuzziness involved, I am not sure how good a metric this would be to assist in decision making, other than a rough guide of "boy I need to save a bunch of money, every year"
You are being unrealistic thinking one needs to save $20K per year. The AVERAGE pre-tax household income in the U.S. is currently $57K. This means that only folks in the 80th percentile or higher will even have an opportunity to save $20K, even then only if they are frugal.

Do you think 80% of the population is destitute after age 60? No, not even close. They use SS, family support, part-time income, or other programs and they are just fine. $10K per year is fine and I would actually be proud if most people saved that much.
The question was how much you would need to save to hit 2 million invested by age 65. It's a math question. It wasn't asked if it was realistic, if the average person could do it, nor if they would be fine if they didn't have 2 million dollars

heyyou
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Re: Amount You Need To Save Annually Over Lifespan

Post by heyyou » Tue Dec 05, 2017 6:09 am

Alexa9,
Save all you can until you do hit the % that fits your calculations. The best growth will be from whatever you save in your 20s. Consider starting with annual Roth IRAs since they grow tax free with savings on which you have already paid income tax.

Saving pay raises is simple but not easy when your friends will have better cars or apartments than you do. David Bach wrote about setting up automatic payroll deductions so you don't ever see your savings pass through your checking account, the money is sent directly to savings. Consider maxing out all of your retirement accounts as a challenge each year, but if your 401k allows after tax contributions, just keep sending the same amount there and the excess will be put in an after tax account for you. Be aware that most 401k plans charge more to manage your money than Vanguard (VG) charges for personal accounts, so transfer your after tax money once a year to VG after it is large enough to open an account there.

kathyauburn
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Re: Amount You Need To Save Annually Over Lifespan

Post by kathyauburn » Tue Dec 05, 2017 6:18 am

I think that all of this talk of saving takes a significant back seat to a more important question: Are you happy in what you do? If you're not happy--if you hate your job, your partner, your burdens--then either you won't be able to meet a savings goal because you'll inevitably crash and burn or you'll kill yourself slowly with drink or other vices. Or if you do manage to tough it out, you'll end up with a pile of cash but an empty heart and a lifetime of experiences and relationships that mean little or nothing to you.

Do what you love because life is short. Then figure out how to live below your means, and save what you can.

Also, remember that the U.S. is not the only "game" in town. The world is big, and there are other ways, other values, other systems, ones that value human relationships more than a pile of cash, for example. We're all in a better position than ever before to look outside of a country's borders for work.

Happiness first. The other stuff later.

Bacchus01
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Re: Amount You Need To Save Annually Over Lifespan

Post by Bacchus01 » Tue Dec 05, 2017 8:32 am

msk wrote:
Fri Dec 01, 2017 11:06 pm
Garco wrote:
Fri Dec 01, 2017 10:42 pm
My first year gross salary was about $16K and my last year was about $180K.
Interesting data. 38 years compounding at 6.6% p.a., or 2.6% above inflation. Somewhere between my terminology of good and very good :beer Perhaps I should have called 2% above inflation as very good and 4% above inflation as high flyer.
I’m the 20 yrs since college grad, mine is just under 13% CAGR

Wakefield1
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Re: Amount You Need To Save Annually Over Lifespan

Post by Wakefield1 » Tue Dec 05, 2017 7:47 pm

As in MSK's post,a mortgage is really seen as sort of a forced savings investment by a lot of people-there might not be much left over to save after the mortgage is paid!

a thought: If a young adult (employed) is not paying on a mortgage,perhaps a mortgage like amount should be put into some kind of investment-any kind- including Roth,401,taxable -monthly.

msk
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Re: Amount You Need To Save Annually Over Lifespan

Post by msk » Wed Dec 06, 2017 1:07 am

Bacchus01 wrote:
Tue Dec 05, 2017 8:32 am
msk wrote:
Fri Dec 01, 2017 11:06 pm
Garco wrote:
Fri Dec 01, 2017 10:42 pm
My first year gross salary was about $16K and my last year was about $180K.
Interesting data. 38 years compounding at 6.6% p.a., or 2.6% above inflation. Somewhere between my terminology of good and very good :beer Perhaps I should have called 2% above inflation as very good and 4% above inflation as high flyer.
I’m the 20 yrs since college grad, mine is just under 13% CAGR
That's simply astounding if it is just job-income! Assuming you started with around $30k back in 1997, your current income is $340+k. Of course there are many who achieve that kind of growth through investments in RE, or stock options in nascent industries, etc. But just through salary increments is very extreme, IMHO from my stint in HR. Congrats and keep it up. My own job in a Fortune 10 company just eked out a compound growth of 7.6% over the 26.5 years before I retired early, i.e. 3.6% compounded above inflation. Post retirement I had more time (and luck!) for investing and I managed to compound my NW (i.e. net after withdrawals) at 11.5% p.a. over the past 18 years, before narrowing/retiring further to whole world ETFs. Looks as if my real talent lay in investing rather than engineering management :annoyed Unfortunately I still cannot pin down anything that worked out well investment-wise and that is repeatable/teachable to my offspring. All significant opportunities (above indexing) seem to be one-off...

randomguy
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Re: Amount You Need To Save Annually Over Lifespan

Post by randomguy » Wed Dec 06, 2017 1:24 am

snowox wrote:
Sat Dec 02, 2017 5:13 am

I know what you meant and wasnt trying to pick a fight with you :sharebeer I was basically saying I dont believe 15% is anywhere close to being enough of gross pay. Meaning 15% of what gross income number. It just wont get you there unless you come out with a starting wage of at least 125k.
It is pretty close. Say you start off making 100k, save 15k, inflation and your salary both increase by 2%, and you make 7% nominal, you end up with 4.3 million (1.9 real). Given you were living on 85k pre tax, having 1.9 million gets you in the ballpark. And you have oversaved if SS is still around.

Now in the real world, nobody saves like that. They get promotions and save more. They have kids and save less. The lose jobs. The get higher paying jobs. Save less when the kids go to college. Save more when they leave. And so on.

randomguy
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Re: Amount You Need To Save Annually Over Lifespan

Post by randomguy » Wed Dec 06, 2017 1:30 am

msk wrote:
Wed Dec 06, 2017 1:07 am

That's simply astounding if it is just job-income! Assuming you started with around $30k back in 1997, your current income is $340+k. Of course there are many who achieve that kind of growth through investments in RE, or stock options in nascent industries, etc. But just through salary increments is very extreme, IMHO from my stint in HR. Congrats and keep it up. My own job in a Fortune 10 company just eked out a compound growth of 7.6% over the 26.5 years before I retired early, i.e. 3.6% compounded above inflation. Post retirement I had more time (and luck!) for investing and I managed to compound my NW (i.e. net after withdrawals) at 11.5% p.a. over the past 18 years, before narrowing/retiring further to whole world ETFs. Looks as if my real talent lay in investing rather than engineering management :annoyed Unfortunately I still cannot pin down anything that worked out well investment-wise and that is repeatable/teachable to my offspring. All significant opportunities (above indexing) seem to be one-off...
Maybe he wasn't making 30k? For example I was paid 12k/year as a grad student my first year out of college. Or maybe the OP was resident making 20k/year for a couple of years. This isn't a number that means much without context.

snowox
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Re: Amount You Need To Save Annually Over Lifespan

Post by snowox » Wed Dec 06, 2017 5:09 am

randomguy wrote:
Wed Dec 06, 2017 1:24 am
snowox wrote:
Sat Dec 02, 2017 5:13 am

I know what you meant and wasnt trying to pick a fight with you :sharebeer I was basically saying I dont believe 15% is anywhere close to being enough of gross pay. Meaning 15% of what gross income number. It just wont get you there unless you come out with a starting wage of at least 125k.
It is pretty close. Say you start off making 100k, save 15k, inflation and your salary both increase by 2%, and you make 7% nominal, you end up with 4.3 million (1.9 real). Given you were living on 85k pre tax, having 1.9 million gets you in the ballpark. And you have oversaved if SS is still around.

Now in the real world, nobody saves like that. They get promotions and save more. They have kids and save less. The lose jobs. The get higher paying jobs. Save less when the kids go to college. Save more when they leave. And so on.

Yesterday a report came out they were talking about it on CNBC that now there even saving less. The mentality is we will worry about it later. Everyone was hammering retail the stocks were tanking and now there talking record sales because of consumer confidence is way up. Record Holiday spending etc.. Its going to be interesting to see what the next 10 years looks like with all these little bubbles out there (or big) like college debt etc.. hits the fan. Your numbers make sense. I know its off point but more people need to do it. Even thought for the economy sake the goverment wants us to spend spend spend.

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snackdog
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Re: Amount You Need To Save Annually Over Lifespan

Post by snackdog » Wed Dec 06, 2017 6:56 am

Most people don't save a constant dollar amount but rather a fraction of a salary which often increases over time. In addition, the fraction saved often increases over time once basic needs are met and salary increases. But let's be simple and assume a constant savings rate and salary increase.

Given -
Starting salary $75K/yr
3% annual raises
7% return
40 year period working, saving and investing

To have $2MM after 40 years would require saving 9.1% of gross salary. Total savings about $0.5MM. The rest is earnings on investment.

NPT
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Re: Amount You Need To Save Annually Over Lifespan

Post by NPT » Wed Dec 06, 2017 12:18 pm

Alexa9 wrote:
Fri Dec 01, 2017 3:52 pm
I bring this up because many young people seem to live paycheck to paycheck and spend whatever they get whether it's the latest smart phone or an expensive vacation. They don't realize how much they need to save to retire. I rarely hear it mentioned that you should save X amount per year on average or have X amount by the time you're 50 years old. Of course it varies and there are many factors (lifestyle, income, etc.).
One of the most useful things my parents taught me (by example) is that you always strive to live well below your means and save a significant amount, even if it means spending a lot less than your peers and having a much more modest lifestyle. (This does not apply to those who are so very poor that they are truly living hand to mouth, but that is a tiny minority in the developed world. If someone buys a new phone when an old one could still be used, they are not in that group.)

This is not primarily about values or morality or placing the blame, it is a very practical matter. Logically:

If the majority of your peers overspend relative to their income (and they probably do), then you can
  • either fit in completely
  • or act responsibly.
In other words, you can either be fiscally irresponsible or resist peer pressure and accept being a little different. You cannot have it both ways, you have to make a choice.

Today it may be smartphones, in the past it was something else, and there will always be some yardstick by which to compare ourselves to others because it is human nature. There is nothing special about the present, this has always been an extremely tough choice.

It is good to have rules of thumb on how much to save, but there are so many uncertainties (your income, rate of return on investments, inflation, taxes, how long you will be employed, and so on) that it makes sense to consider how much you could save beyond the estimated minimum requirement in order to have a healthy margin of safety.

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Wed Dec 06, 2017 1:01 pm

NPT wrote:
Wed Dec 06, 2017 12:18 pm
Alexa9 wrote:
Fri Dec 01, 2017 3:52 pm
I bring this up because many young people seem to live paycheck to paycheck and spend whatever they get whether it's the latest smart phone or an expensive vacation. They don't realize how much they need to save to retire. I rarely hear it mentioned that you should save X amount per year on average or have X amount by the time you're 50 years old. Of course it varies and there are many factors (lifestyle, income, etc.).
One of the most useful things my parents taught me (by example) is that you always strive to live well below your means and save a significant amount, even if it means spending a lot less than your peers and having a much more modest lifestyle. (This does not apply to those who are so very poor that they are truly living hand to mouth, but that is a tiny minority in the developed world. If someone buys a new phone when an old one could still be used, they are not in that group.)

This is not primarily about values or morality or placing the blame, it is a very practical matter. Logically:

If the majority of your peers overspend relative to their income (and they probably do), then you can
  • either fit in completely
  • or act responsibly.
In other words, you can either be fiscally irresponsible or resist peer pressure and accept being a little different. You cannot have it both ways, you have to make a choice.

Today it may be smartphones, in the past it was something else, and there will always be some yardstick by which to compare ourselves to others because it is human nature. There is nothing special about the present, this has always been an extremely tough choice.

It is good to have rules of thumb on how much to save, but there are so many uncertainties (your income, rate of return on investments, inflation, taxes, how long you will be employed, and so on) that it makes sense to consider how much you could save beyond the estimated minimum requirement in order to have a healthy margin of safety.
NPT,

Let me summarize a bit.

If you live like your peers, you will save nothing. Average American save close to nothing.

KlangFool

alfaspider
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Re: Amount You Need To Save Annually Over Lifespan

Post by alfaspider » Wed Dec 06, 2017 1:12 pm

KlangFool wrote:
Fri Dec 01, 2017 3:30 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.


KlangFool
Flipping a coin 40 times and have it come up heads each time is effectively impossible. Though being continuously employed until 65 is probably not the most likely outcome, it is hardly impossible. I know plenty of people who have managed that feat with the same employer :shock:

randomguy
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Joined: Wed Sep 17, 2014 9:00 am

Re: Amount You Need To Save Annually Over Lifespan

Post by randomguy » Wed Dec 06, 2017 1:17 pm

KlangFool wrote:
Wed Dec 06, 2017 1:01 pm
NPT,

Let me summarize a bit.

If you live like your peers, you will save nothing. Average American save close to nothing.

KlangFool
[/quote]

Only if your peers are average americans. My peers were all college educated people with 100k+/year jobs who were saving at least 6% (i.e. everyone did the match).:) I am sure the person whose peers are all high school drops working at star bucks have different experiences.

KlangFool
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Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Wed Dec 06, 2017 1:19 pm

alfaspider wrote:
Wed Dec 06, 2017 1:12 pm
KlangFool wrote:
Fri Dec 01, 2017 3:30 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.


KlangFool
Flipping a coin 40 times and have it come up heads each time is effectively impossible. Though being continuously employed until 65 is probably not the most likely outcome, it is hardly impossible. I know plenty of people who have managed that feat with the same employer :shock:
alfaspider,

Past performance does not forecast the future. The correct question should be how likely for a 25 years old person to repeat the same possibility now.

KlangFool

KlangFool
Posts: 7197
Joined: Sat Oct 11, 2008 12:35 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Wed Dec 06, 2017 1:20 pm

randomguy wrote:
Wed Dec 06, 2017 1:17 pm
KlangFool wrote:
Wed Dec 06, 2017 1:01 pm
NPT,

Let me summarize a bit.

If you live like your peers, you will save nothing. Average American save close to nothing.

KlangFool
Only if your peers are average americans. My peers were all college educated people with 100k+/year jobs who were saving at least 6% (i.e. everyone did the match).:) I am sure the person whose peers are all high school drops working at star bucks have different experiences.
[/quote]

randomguy,

I have the same kind of peers and they save nothing.

KlangFool

alfaspider
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Re: Amount You Need To Save Annually Over Lifespan

Post by alfaspider » Wed Dec 06, 2017 1:21 pm

KlangFool wrote:
Wed Dec 06, 2017 1:19 pm
alfaspider wrote:
Wed Dec 06, 2017 1:12 pm
KlangFool wrote:
Fri Dec 01, 2017 3:30 pm
Alexa9 wrote:
Fri Dec 01, 2017 1:51 pm
Assuming you want $2M @ age 65: If you start saving for retirement at age 25 with zero debt, how much do you need to save on average using IRA/401k and Target Date Funds? Just a rough estimate. Assuming some people may save/make more as they get closer to retirement and buy a house when they are younger. I would guess 10-20k/year.
Age 25: 0
Age 35: 250k
Age 45: 500k
Age 55: 1M
Age 65: 2M
Alexa9,

1) At 25 years old, how could a person knows that he/she will be continuously fully-employed until 65 years old? This is like believing a person could flip a coin 40 times and it will come up head all the times.


KlangFool
Flipping a coin 40 times and have it come up heads each time is effectively impossible. Though being continuously employed until 65 is probably not the most likely outcome, it is hardly impossible. I know plenty of people who have managed that feat with the same employer :shock:
alfaspider,

Past performance does not forecast the future. The correct question should be how likely for a 25 years old person to repeat the same possibility now.

KlangFool
It's not likely, but the chances are certainly better than the chance of 40 coin flips coming up heads. Besides, there's little real benefit to staying with the same employer for 40+ years in most cases these days (unless you are your own employer), as it's often necessary to switch employers in order to advance professionally. I agree with the philosophy that one should plan for the worst, but there's no need to assume the worst unless you just like being morose :beer

JimmyJammy
Posts: 120
Joined: Sat Oct 26, 2013 1:08 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by JimmyJammy » Wed Dec 06, 2017 1:27 pm

For me, and for a lot of people, the biggest unknown factor is health care costs. What diseases will I get? How much will treatment cost? Such costs could eat into your nest egg in a big way. (And this is why ALL Americans need health care to help mitigate this risk)

So, I think it's important to invest Time and Money into EXERCISE and NUTRITION.

That's my 2 cents.

KlangFool
Posts: 7197
Joined: Sat Oct 11, 2008 12:35 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Wed Dec 06, 2017 1:31 pm

alfaspider wrote:
Wed Dec 06, 2017 1:21 pm

It's not likely, but the chances are certainly better than the chance of 40 coin flips coming up heads. Besides, there's little real benefit to staying with the same employer for 40+ years in most cases these days (unless you are your own employer), as it's often necessary to switch employers in order to advance professionally. I agree with the philosophy that one should plan for the worst, but there's no need to assume the worst unless you just like being morose :beer
alfaspider,

1) My precise statement is how likely for a person to be continuously employed over 40 years. If you agreed that it is likely for a person to change employer a few times across 40 years, then, it is more likely for a person to have an employment gap between employers. It takes a very lucky person to be continuously employed over 40 years.

2) If you agreed that there will be an employment gap, then, we have a problem similar to the sequence of return problem. An employment gap before a person accumulate sufficiently large net worth could be fatal to the person's financial future.

KlangFool

alfaspider
Posts: 968
Joined: Wed Sep 09, 2015 4:44 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by alfaspider » Wed Dec 06, 2017 1:41 pm

KlangFool wrote:
Wed Dec 06, 2017 1:31 pm
alfaspider wrote:
Wed Dec 06, 2017 1:21 pm

It's not likely, but the chances are certainly better than the chance of 40 coin flips coming up heads. Besides, there's little real benefit to staying with the same employer for 40+ years in most cases these days (unless you are your own employer), as it's often necessary to switch employers in order to advance professionally. I agree with the philosophy that one should plan for the worst, but there's no need to assume the worst unless you just like being morose :beer
alfaspider,

1) My precise statement is how likely for a person to be continuously employed over 40 years. If you agreed that it is likely for a person to change employer a few times across 40 years, then, it is more likely for a person to have an employment gap between employers. It takes a very lucky person to be continuously employed over 40 years.

2) If you agreed that there will be an employment gap, then, we have a problem similar to the sequence of return problem. An employment gap before a person accumulate sufficiently large net worth could be fatal to the person's financial future.

KlangFool
A gap of material length normally only occurs in the case of an involuntary separation. While many people will be involuntarily separated during the course of their career- and one should plan on the possibility of such a thing happening- there are many people who will go through their careers leaving only on their own terms. And, there are in fact things you can do professionally to minimize (but of course never eliminate) the risk of involuntary separation. Certain careers are also more prone to such things, and those who are likely know it already.

thangngo
Posts: 437
Joined: Sun Feb 26, 2017 2:08 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by thangngo » Wed Dec 06, 2017 1:50 pm

Why make it so complicated to younger folks? If you want to teach your children about savings, keep it as simple as possible. You can't expect them to know about inflation, historical growth rate, and how much they will need when they retire, etc. You don't even know it yourself as you can only predict those things and plan for the worst.

So... Either:
1) Save 15% gross pay if you want to work until 60 and have a comfortable retirement.

or

2) Pay your tax, then save $1 for every dollar you spent. You'll get to financial independence 20 years earlier than folks who save just 15% gross income.

KlangFool
Posts: 7197
Joined: Sat Oct 11, 2008 12:35 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by KlangFool » Wed Dec 06, 2017 1:52 pm

alfaspider wrote:
Wed Dec 06, 2017 1:41 pm

A gap of material length normally only occurs in the case of an involuntary separation. While many people will be involuntarily separated during the course of their career- and one should plan on the possibility of such a thing happening- there are many people who will go through their careers leaving only on their own terms. And, there are in fact things you can do professionally to minimize (but of course never eliminate) the risk of involuntary separation. Certain careers are also more prone to such things, and those who are likely know it already.
alfaspider,

I was young and foolish at 25 years old. And, a common theme among the young and foolish like I was is we do not plan for the possibility of being laid off until we faced the first laid off/recession. In fact, there are plenty of folks in their 30s/40s/50s that never plan for this possibility.

<<A gap of material length normally only occurs in the case of an involuntary separation.>.

Those events occur during a recession. And, there will be multiple recessions across 40 years. In a recession, even if a person plan for a laid off, the person may be unemployed for a while.

KlangFool

alfaspider
Posts: 968
Joined: Wed Sep 09, 2015 4:44 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by alfaspider » Wed Dec 06, 2017 2:04 pm

KlangFool wrote:
Wed Dec 06, 2017 1:52 pm
alfaspider wrote:
Wed Dec 06, 2017 1:41 pm

A gap of material length normally only occurs in the case of an involuntary separation. While many people will be involuntarily separated during the course of their career- and one should plan on the possibility of such a thing happening- there are many people who will go through their careers leaving only on their own terms. And, there are in fact things you can do professionally to minimize (but of course never eliminate) the risk of involuntary separation. Certain careers are also more prone to such things, and those who are likely know it already.
alfaspider,

I was young and foolish at 25 years old. And, a common theme among the young and foolish like I was is we do not plan for the possibility of being laid off until we faced the first laid off/recession. In fact, there are plenty of folks in their 30s/40s/50s that never plan for this possibility.

<<A gap of material length normally only occurs in the case of an involuntary separation.>.

Those events occur during a recession. And, there will be multiple recessions across 40 years. In a recession, even if a person plan for a laid off, the person may be unemployed for a while.

KlangFool
Nobody is denying it is possible to lose one's job in the middle of a recession with a considerable period of unemployment. Nor is anyone denying that one should take reasonable steps to plan for such a thing. Personally, I keep two years expenses in stable liquid assets for just such an eventuality and also have a savings rate in excess of 40%. But I would point out that during the 2008 recession, U-6 unemployment (the most generous measure of unemployment that includes discouraged workers and underemployed workers) peaked at 18% during the great recession up from around 8% pre-recession. That's still the vast majority of workers who were not unemployed or underemployed. Of course we could also have another great depression (where u-6 was still under 40%), or we could all perish in WWIII (in which case no amount of frugality can protect you).

In order to plan for the worst, one does not need to assume it. And I would posit that there are in fact downsides to assuming for the worst. I know people who have been overly conservative financially out of fear, and lost quite a bit of enjoyment for doing so. I'm a big believer of making financial decisions based on data rather than feelings.

Bacchus01
Posts: 1144
Joined: Mon Dec 24, 2012 9:35 pm

Re: Amount You Need To Save Annually Over Lifespan

Post by Bacchus01 » Wed Dec 06, 2017 10:19 pm

msk wrote:
Wed Dec 06, 2017 1:07 am
Bacchus01 wrote:
Tue Dec 05, 2017 8:32 am
msk wrote:
Fri Dec 01, 2017 11:06 pm
Garco wrote:
Fri Dec 01, 2017 10:42 pm
My first year gross salary was about $16K and my last year was about $180K.
Interesting data. 38 years compounding at 6.6% p.a., or 2.6% above inflation. Somewhere between my terminology of good and very good :beer Perhaps I should have called 2% above inflation as very good and 4% above inflation as high flyer.
I’m the 20 yrs since college grad, mine is just under 13% CAGR
That's simply astounding if it is just job-income! Assuming you started with around $30k back in 1997, your current income is $340+k. Of course there are many who achieve that kind of growth through investments in RE, or stock options in nascent industries, etc. But just through salary increments is very extreme, IMHO from my stint in HR. Congrats and keep it up. My own job in a Fortune 10 company just eked out a compound growth of 7.6% over the 26.5 years before I retired early, i.e. 3.6% compounded above inflation. Post retirement I had more time (and luck!) for investing and I managed to compound my NW (i.e. net after withdrawals) at 11.5% p.a. over the past 18 years, before narrowing/retiring further to whole world ETFs. Looks as if my real talent lay in investing rather than engineering management :annoyed Unfortunately I still cannot pin down anything that worked out well investment-wise and that is repeatable/teachable to my offspring. All significant opportunities (above indexing) seem to be one-off...
Yep, just salary. Actually, if your math is correct, I underestimated the CAGR. More like 14%

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