Does saving 20% towards retirement starting in your twenties allow you to retire early?

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H-Town
Posts: 1747
Joined: Sun Feb 26, 2017 2:08 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by H-Town » Wed Jul 10, 2019 9:16 am

Thesaints wrote:
Tue Jul 09, 2019 8:43 pm
H-Town wrote:
Sun Jul 07, 2019 6:23 pm
bigtex wrote:
Sat Jul 06, 2019 8:22 pm
Will 20% savings rate towards retirement starting in my mid 20s allow me to retire early in my 40s, 50s, or on time at 60?
It's a start. It's a step to the right direction. But if you want to retire early and do it on your term, you gotta get after it. Increase your pay, make good decisions on house, car, kids education, and live below your means. If you actively get after it, you'll find out that increasing saving rate to 50% isn't that difficult.

On the other hand, if you spend first, save later, and cap saving rate to 20%, there'll be a lot of outside factors preventing you from retiring early.
So you get to live below your means while working only to retire as soon as possible and continue to live below your means ?
I'd rather enjoy life more, work longer, and finally retire and be able to still enjoy life. All of that above my means, if possible.
Technically if you live above your means, you can't save. You would either borrow money or someone else foots the bill for you.

cshell2
Posts: 112
Joined: Thu May 09, 2019 10:29 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by cshell2 » Wed Jul 10, 2019 9:37 am

Thesaints wrote:
Tue Jul 09, 2019 8:43 pm
H-Town wrote:
Sun Jul 07, 2019 6:23 pm
bigtex wrote:
Sat Jul 06, 2019 8:22 pm
Will 20% savings rate towards retirement starting in my mid 20s allow me to retire early in my 40s, 50s, or on time at 60?
It's a start. It's a step to the right direction. But if you want to retire early and do it on your term, you gotta get after it. Increase your pay, make good decisions on house, car, kids education, and live below your means. If you actively get after it, you'll find out that increasing saving rate to 50% isn't that difficult.

On the other hand, if you spend first, save later, and cap saving rate to 20%, there'll be a lot of outside factors preventing you from retiring early.
So you get to live below your means while working only to retire as soon as possible and continue to live below your means ?
I'd rather enjoy life more, work longer, and finally retire and be able to still enjoy life. All of that above my means, if possible.
How do you live above your means your entire life? I mean, people do it for a chunk of time, then have to pay the piper and get themselves out of debt. Living below your means does not mean not enjoying life, it just means not spending all your money. Someone making 100K and saving half of it is the same as someone making 50K and spending every dime. Is the first person struggling and the second person living it up?

Plus, you don't know if you'll be able to keep working. Many people are forced out of the work force, either by illness or downsizing, so the plan to just work longer is not a good one without savings as well as a back up.

Random Poster
Posts: 1806
Joined: Wed Feb 03, 2010 10:17 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Random Poster » Wed Jul 10, 2019 9:47 am

bltn wrote:
Mon Jul 08, 2019 8:25 pm
Small town life in a paid off house in flyover country is a lot nicer than many realize, even some of the smart people on this forum.
Of course, I was born a hick, and will probably die a hick. :)
I wish people would be a bit more specific when describing these seemingly idyllic areas of the country. At least give us an area code, or better yet, a zip code, to go by.

stoptothink
Posts: 5732
Joined: Fri Dec 31, 2010 9:53 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by stoptothink » Wed Jul 10, 2019 9:54 am

cshell2 wrote:
Wed Jul 10, 2019 9:37 am
Thesaints wrote:
Tue Jul 09, 2019 8:43 pm
H-Town wrote:
Sun Jul 07, 2019 6:23 pm
bigtex wrote:
Sat Jul 06, 2019 8:22 pm
Will 20% savings rate towards retirement starting in my mid 20s allow me to retire early in my 40s, 50s, or on time at 60?
It's a start. It's a step to the right direction. But if you want to retire early and do it on your term, you gotta get after it. Increase your pay, make good decisions on house, car, kids education, and live below your means. If you actively get after it, you'll find out that increasing saving rate to 50% isn't that difficult.

On the other hand, if you spend first, save later, and cap saving rate to 20%, there'll be a lot of outside factors preventing you from retiring early.
So you get to live below your means while working only to retire as soon as possible and continue to live below your means ?
I'd rather enjoy life more, work longer, and finally retire and be able to still enjoy life. All of that above my means, if possible.
How do you live above your means your entire life? I mean, people do it for a chunk of time, then have to pay the piper and get themselves out of debt.
People pass with a negative net worth all the time. There are several examples of it in my own family (well, my wife's).

autolycus
Posts: 256
Joined: Thu Jul 31, 2014 3:01 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by autolycus » Wed Jul 10, 2019 10:00 am

cshell2 wrote:
Wed Jul 10, 2019 9:37 am
How do you live above your means your entire life? I mean, people do it for a chunk of time, then have to pay the piper and get themselves out of debt. Living below your means does not mean not enjoying life, it just means not spending all your money. Someone making 100K and saving half of it is the same as someone making 50K and spending every dime. Is the first person struggling and the second person living it up?

Plus, you don't know if you'll be able to keep working. Many people are forced out of the work force, either by illness or downsizing, so the plan to just work longer is not a good one without savings as well as a back up.
Constant debt shell game until they eventually die with negative net worth. I know some people I fully expect to do it. I shake my head every time I think about their finances, but I think they'll pull it off to some extent.

ncbill
Posts: 506
Joined: Sun Jul 06, 2008 4:03 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by ncbill » Wed Jul 10, 2019 10:40 am

We're running the experiment now with our oldest who just graduated & commissioned.

They opted into the BRS & have taken my recommendation of 20% to Roth TSP (5% match to traditional)

I'll check back in 20 years from now and let everyone know how it went. :)

welsie
Posts: 88
Joined: Tue Feb 12, 2019 6:11 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by welsie » Wed Jul 10, 2019 11:23 am

Vulcan wrote:
Sat Jul 06, 2019 8:57 pm
bhsince87 wrote:
Sat Jul 06, 2019 8:27 pm
Compounding IS a mathematical certainty.
There is no compounding with stocks (if we disregard dividend reinvestment component).
That is sort of misleading. Economic prosperity, whether for an individual, a firm or a country, is driven over time by productivity. This is the accumulation of human capital, physical capital and technology. Firms are just groups of people who get a hold of capital and attempt to enhance its productivity. They do this every day! So when a firm is successful in doing this, its building on the productivity that already exists and is leveraging that for further gains, which is very much compounding. While capital depreciates and is heterogeneous, so that the need for specific capital changes over time, these changes are reflected in the day to day operations of a firm.

First of all, there might be diminishing returns to that growth, that is fine, but it still compounding, just at a lower rate. Alternatively, you might point out that some firms make "bad investments", a lot of that is not a function of their ability to compound growth/productivity, but that of the subjective values of consumers which cause people to value the output less than that of another firm. Blockbuster didn't go out of business because they failed to enhance productivity, they did so because value of that productivity was lower than an alternative.

A stock price just reflects the accumulated value of a firms assets (now and in the future). So there very much can be compounding of the value of those underlying assets (that is entirely what the firm is trying to accomplish), there can also not be compounding (as the firm my compound productivity internally, but that productivity may not be valued by consumers).

So I mean in a purely economic sense, I would disagree with what you said. There can be compounding with stocks, in fact an equity investor is pretty much expecting it, it is just not known which particular compounding efforts of particular firms will be valued by consumer...so you pick a low cost, broadly diversified index.

Glockenspiel
Posts: 856
Joined: Thu Feb 08, 2018 1:20 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Glockenspiel » Wed Jul 10, 2019 11:26 am

Random Poster wrote:
Wed Jul 10, 2019 9:47 am

I wish people would be a bit more specific when describing these seemingly idyllic areas of the country. At least give us an area code, or better yet, a zip code, to go by.
Area Code 507 is pretty nice. However, depending on your political leanings, you might not be able to stand talking to some of your neighbors.

cshell2
Posts: 112
Joined: Thu May 09, 2019 10:29 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by cshell2 » Wed Jul 10, 2019 12:17 pm

Glockenspiel wrote:
Wed Jul 10, 2019 11:26 am
Random Poster wrote:
Wed Jul 10, 2019 9:47 am

I wish people would be a bit more specific when describing these seemingly idyllic areas of the country. At least give us an area code, or better yet, a zip code, to go by.
Area Code 507 is pretty nice. However, depending on your political leanings, you might not be able to stand talking to some of your neighbors.
I'm area code 507!!

My neighbors are awesome though and I have both far left and far rights....coincidentally to my far left and far right respectively. LOL Sometimes having the two of them together is a powder keg.

Glockenspiel
Posts: 856
Joined: Thu Feb 08, 2018 1:20 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Glockenspiel » Wed Jul 10, 2019 12:38 pm

cshell2 wrote:
Wed Jul 10, 2019 12:17 pm
Glockenspiel wrote:
Wed Jul 10, 2019 11:26 am
Random Poster wrote:
Wed Jul 10, 2019 9:47 am

I wish people would be a bit more specific when describing these seemingly idyllic areas of the country. At least give us an area code, or better yet, a zip code, to go by.
Area Code 507 is pretty nice. However, depending on your political leanings, you might not be able to stand talking to some of your neighbors.
I'm area code 507!!

My neighbors are awesome though and I have both far left and far rights....coincidentally to my far left and far right respectively. LOL Sometimes having the two of them together is a powder keg.
What’s the population of your town? Or do you live out in the country? Do you live in the western or eastern part of the state?

cshell2
Posts: 112
Joined: Thu May 09, 2019 10:29 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by cshell2 » Wed Jul 10, 2019 12:49 pm

Glockenspiel wrote:
Wed Jul 10, 2019 12:38 pm
cshell2 wrote:
Wed Jul 10, 2019 12:17 pm
Glockenspiel wrote:
Wed Jul 10, 2019 11:26 am
Random Poster wrote:
Wed Jul 10, 2019 9:47 am

I wish people would be a bit more specific when describing these seemingly idyllic areas of the country. At least give us an area code, or better yet, a zip code, to go by.
Area Code 507 is pretty nice. However, depending on your political leanings, you might not be able to stand talking to some of your neighbors.
I'm area code 507!!

My neighbors are awesome though and I have both far left and far rights....coincidentally to my far left and far right respectively. LOL Sometimes having the two of them together is a powder keg.
What’s the population of your town? Or do you live out in the country? Do you live in the western or eastern part of the state?
I live in the country but within 10 miles of a town of 27K or so. Eastern side.

tesuzuki2002
Posts: 659
Joined: Fri Dec 11, 2015 12:40 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by tesuzuki2002 » Wed Jul 10, 2019 1:05 pm

cshell2 wrote:
Mon Jul 08, 2019 3:59 pm
tesuzuki2002 wrote:
Mon Jul 08, 2019 3:46 pm
cshell2 wrote:
Mon Jul 08, 2019 10:16 am
Grt2bOutdoors wrote:
Mon Jul 08, 2019 9:30 am
cshell2 wrote:
Mon Jul 08, 2019 9:13 am
I wish I had kept data to know how much I saved in my 20's. I THINK it was over 20%, but I can't really be sure. I'm 50 now and have been saving quite a bit more than 20% the past 15 years, but I'm definitely not in a position to retire early, but I've always been kind of low income, so even saving 20% isn't much.

I have about 10X income now at 50, but it's only 460K. Long ways to go.
Looks pretty good to me.
When I think how it took me 30 years of saving to get to this point and I want to nearly triple it by retirement...in just 15 years...it's a little overwhelming. Early retirement seems impossible and I would really, really like to have that option by 62.
You're income is not all that high compared to many on the forum, but on the same token you are making it work and saving consistently at the same time..

I would have to guess that your expenses are pretty low so you won't need a huge nest egg to carry you into the future.
Expenses aren't all that low. I have a $1600/month house payment, one kid in private school and one that still needs childcare summers and after school, but I get child support. Total income with support is more like 62K. A lot of those expenses will be gone in retirement though of course.

I'm just tired of struggling. I'd really like to be able to be comfortable and not worry about money in retirement.
Sounds like a workable budget... All those expenses do add up. I've worked diligently to get my annual budget extremely low. I've thought about moving a few times.. but It would be a big setback for sure.

tesuzuki2002
Posts: 659
Joined: Fri Dec 11, 2015 12:40 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by tesuzuki2002 » Wed Jul 10, 2019 1:17 pm

Svensk Anga wrote:
Tue Jul 09, 2019 8:28 pm
tesuzuki2002 wrote:
Mon Jul 08, 2019 3:34 pm
Svensk Anga wrote:
Sat Jul 06, 2019 9:56 pm
I think planning on a level 20% savings rate shortchanges the early retirement possibilities. If you are in a career with some real salary growth potential and save a portion of every raise, you can grow your saving rate over time quite a bit. I started with 6% contribution plus 3% company match at age 23.5 and retired by age 57. But our saving rate ramped up quite a lot over the years. It really took off when the mortgage was retired and the kids were done with school. Late in the game, we were up to about 60%. Those late 60% dollars were more significant than the 9% dollars invested 34 years earlier with all their compound growth.
Your later investment dollars were "More significant" Did you're investments not have good returns over those 34 years?
I guesstimated 7% real return for 34 years (about the long term stock market average). 9% of one dollar of salary at age 23.5 grows to $0.90 in 34 years.
I think I averaged 3.5%/year real salary growth. (it helps to start near the low end for your field.) That makes the last year's salary 3.22 x the first year. 3.22 x 60% = $1.93
So savings in the last year were about twice as significant as the first year's.

I don't quite understand your full logic. Market returns are certainly key to not losing to inflation. I have focused very specifically on savings for the long haul and currently I would likely not need to contribute another dime to my retirement savings, but I will continue to do so as I do want to retire in the next 10 years rather than working 30 more.

My only wish today is that I would have contributed 25% of my salary when I started working at 25. However, today I contribute 58% to make up for those minimal contributions early on.

The past few years my savings have had a lot of contribution growth.

Alex GR
Posts: 77
Joined: Mon Jul 31, 2017 9:17 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Alex GR » Wed Jul 10, 2019 1:59 pm

cjking wrote:
Sun Jul 07, 2019 3:05 am
Vulcan wrote:
Sun Jul 07, 2019 1:43 am
Compounding happens with interest payments.
With stocks there is no compound growth.
I was a bit puzzled by this, as that's not my definition of compounding. To me compounding is exponential growth in a financial balance. (Edited to elaborate: exponential growth that is happening because any return subsequently generates its own returns.) A random investment-related web-site agrees with me.
What Does Compound Mean?
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
https://www.investopedia.com/terms/c/compound.asp

Also, dividends are irrelevant. As far as I'm concerned, even a single stock that never pays a dividend can exhibit compounding. (The underlying business has profits which are reinvested, expanding the size of the business.)

I suppose people can define compounding so that returns have to pass through the investors hands before being reinvested, if they wish, but I don't see why growth at a geometric average of say 5% should be described differently in one case than another, just because some extra admin was involved.

Hi cjking,
I am a bit perplexed by your statement, could you explain?
When I formed my portfolio, I met with a very wealthy $30M+ acquaintance of mine and he said all the same stuff we keep seeing on this forum:
1) Try not to touch the portfolio until you're 65 or so. Compound everything.
2) Stocks pay dividends and bonds pay coupon rate. When you do need to draw from your portfolio, simply turn off reinvestment in your brokerage account and withdraw dividends you get from stocks and coupon income you get from bonds. Do not sell anything, at least try not to. For example, you get $30k from a combination of stock dividends and bond coupon payments, withdraw that 30k to your local bank account plus you get Social Security say $15k/yr for a total of $45k/Yr on which you can live comfortably assuming a paid off house.
Is that not the plan? :confused
Thanks!

randomguy
Posts: 7831
Joined: Wed Sep 17, 2014 9:00 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by randomguy » Wed Jul 10, 2019 2:04 pm

cshell2 wrote:
Wed Jul 10, 2019 7:50 am
randomguy wrote:
Wed Jul 10, 2019 7:43 am
Svensk Anga wrote:
Tue Jul 09, 2019 9:36 pm

Also, if one can get the mortgage knocked out some years before the target retirement date, it can help substantially. Savings rate can increase while the amount needed to cover expenses shrinks.
You do count your mortgage principle payments as part of your savings right? Just cause you saving in a house instead of bank account doesn't change that you putting money into a liquid asset that is expect to grow.
I don't count my equity. I live in rural midwest and there isn't a whole lot of growth involved. I don't think my house is worth much more than I paid for it in 2000. Plus I need to live somewhere, so selling it wouldn't help me a lot.

But, when you say count the principle payments do you mean as part of your 20% retirement savings? If so, I do 26% JUST to principle!
Of course it counts. It may be a poor investment but it is still money that in theory can be spent elsewhere later. If you chose to save 50k in bonds or 50k by paying off your mortgage, your networth still goes up 50k. The bonds have liquidity so you can buy anything. With the house payment, you are pretty much stuck paying for housing (well until you do a HELO:)). But as you say you are going to pay for housing no matter what.

Jags4186
Posts: 3473
Joined: Wed Jun 18, 2014 7:12 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Jags4186 » Wed Jul 10, 2019 2:08 pm

Alex GR wrote:
Wed Jul 10, 2019 1:59 pm
cjking wrote:
Sun Jul 07, 2019 3:05 am
Vulcan wrote:
Sun Jul 07, 2019 1:43 am
Compounding happens with interest payments.
With stocks there is no compound growth.
I was a bit puzzled by this, as that's not my definition of compounding. To me compounding is exponential growth in a financial balance. (Edited to elaborate: exponential growth that is happening because any return subsequently generates its own returns.) A random investment-related web-site agrees with me.
What Does Compound Mean?
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
https://www.investopedia.com/terms/c/compound.asp

Also, dividends are irrelevant. As far as I'm concerned, even a single stock that never pays a dividend can exhibit compounding. (The underlying business has profits which are reinvested, expanding the size of the business.)

I suppose people can define compounding so that returns have to pass through the investors hands before being reinvested, if they wish, but I don't see why growth at a geometric average of say 5% should be described differently in one case than another, just because some extra admin was involved.

Hi cjking,
I am a bit perplexed by your statement, could you explain?
When I formed my portfolio, I met with a very wealthy $30M+ acquaintance of mine and he said all the same stuff we keep seeing on this forum:
1) Try not to touch the portfolio until you're 65 or so. Compound everything.
2) Stocks pay dividends and bonds pay coupon rate. When you do need to draw from your portfolio, simply turn off reinvestment in your brokerage account and withdraw dividends you get from stocks and coupon income you get from bonds. Do not sell anything, at least try not to. For example, you get $30k from a combination of stock dividends and bond coupon payments, withdraw that 30k to your local bank account plus you get Social Security say $15k/yr for a total of $45k/Yr on which you can live comfortably assuming a paid off house.
Is that not the plan? :confused
Thanks!
All that matters to you, the investor, is total return.

If you have a stock portfolio worth $1,000,000 that pays no dividends but has share appreciation so that your stocks at the end of the year are worth $1,050,000 you made a 5% ROR. If you have another stock portfolio worth $1,000,000 that paid $50,000 in dividends but had no share appreciation, you again made a 5% ROR.

In case 1 you have to sell $50k worth of shares. In case 2 you spend the $50k dividends.

Dividends in a taxable account are generally taxed higher than long term capital gains so it’s to your advantage to minimize dividends paid.

randomguy
Posts: 7831
Joined: Wed Sep 17, 2014 9:00 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by randomguy » Wed Jul 10, 2019 2:17 pm

Alex GR wrote:
Wed Jul 10, 2019 1:59 pm
cjking wrote:
Sun Jul 07, 2019 3:05 am
Vulcan wrote:
Sun Jul 07, 2019 1:43 am
Compounding happens with interest payments.
With stocks there is no compound growth.
I was a bit puzzled by this, as that's not my definition of compounding. To me compounding is exponential growth in a financial balance. (Edited to elaborate: exponential growth that is happening because any return subsequently generates its own returns.) A random investment-related web-site agrees with me.
What Does Compound Mean?
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
https://www.investopedia.com/terms/c/compound.asp

Also, dividends are irrelevant. As far as I'm concerned, even a single stock that never pays a dividend can exhibit compounding. (The underlying business has profits which are reinvested, expanding the size of the business.)

I suppose people can define compounding so that returns have to pass through the investors hands before being reinvested, if they wish, but I don't see why growth at a geometric average of say 5% should be described differently in one case than another, just because some extra admin was involved.

Hi cjking,
I am a bit perplexed by your statement, could you explain?
When I formed my portfolio, I met with a very wealthy $30M+ acquaintance of mine and he said all the same stuff we keep seeing on this forum:
1) Try not to touch the portfolio until you're 65 or so. Compound everything.
2) Stocks pay dividends and bonds pay coupon rate. When you do need to draw from your portfolio, simply turn off reinvestment in your brokerage account and withdraw dividends you get from stocks and coupon income you get from bonds. Do not sell anything, at least try not to. For example, you get $30k from a combination of stock dividends and bond coupon payments, withdraw that 30k to your local bank account plus you get Social Security say $15k/yr for a total of $45k/Yr on which you can live comfortably assuming a paid off house.
Is that not the plan? :confused
Thanks!
The plan is fine. They are having a nuanced debate about the definition of compounding. By the exact definition of compounding stocks don't really qualify. But in the real world when they effectively do. Think of like like this
a) bond that pays 10% that you can reinvest. That 100 dollars you reinvest also generates 10% returns. The returns compound and in 7 years you have 20k. That is compounding
b) stock that pays 0% dividend. It goes up 0% for 9 years and then doubles. You have 20k. There wasn't compounding

You have the same amount of money but one is technically compounding. The other isn't. I am not sure the difference has any real significance for investing.

Spending only dividends is a very conservative approach right now (~2% dividend rate). In the past (dividends >6%) it was a very aggressive approach.

Vanguard Fan 1367
Posts: 954
Joined: Wed Feb 08, 2017 3:09 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Vanguard Fan 1367 » Wed Jul 10, 2019 2:22 pm

I like what Larry Burkett said in one of his books: It is easier to stay on a budget of 100 thousand than 15 thousand. If you are making 300 thousand a year saving 60 thousand a year should put you on track for early retirement.

CnC
Posts: 708
Joined: Thu May 11, 2017 12:41 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by CnC » Wed Jul 10, 2019 5:11 pm

Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 7:27 am

CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
Well it might mean something for some folks but it certainly does not work for everyone that way.
In order for that to work for everyone you would at least need:
- savings to be post taxes
- no pensions or the like
- general expenses in non working years similar to working years
- area of living similar in working years to non working years

CnC
Posts: 708
Joined: Thu May 11, 2017 12:41 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by CnC » Thu Jul 11, 2019 7:45 am

smitcat wrote:
Thu Jul 11, 2019 7:27 am
CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
Well it might mean something for some folks but it certainly does not work for everyone that way.
In order for that to work for everyone you would at least need:
- savings to be post taxes
- no pensions or the like
- general expenses in non working years similar to working years
- area of living similar in working years to non working years

Nothing works for everyone. It's a rule to thumb like 4% safe rate withdrawal. The % of your income you save includes pension or social security. Meaning at least everyone saves 6%.

Yes it assumes your expenses stay somewhat constant or similar. But if they don't, there simply is no predicting if you have enough to retire ever. If my expenses can randomly double or triple or be cut in half I will never know how much I need to retire.

Plain and simple if you save 0% plan on working till you die. And if you save less than 20% do not plan on retiring early.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 7:52 am

CnC wrote:
Thu Jul 11, 2019 7:45 am
smitcat wrote:
Thu Jul 11, 2019 7:27 am
CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
Well it might mean something for some folks but it certainly does not work for everyone that way.
In order for that to work for everyone you would at least need:
- savings to be post taxes
- no pensions or the like
- general expenses in non working years similar to working years
- area of living similar in working years to non working years

Nothing works for everyone. It's a rule to thumb like 4% safe rate withdrawal. The % of your income you save includes pension or social security. Meaning at least everyone saves 6%.

Yes it assumes your expenses stay somewhat constant or similar. But if they don't, there simply is no predicting if you have enough to retire ever. If my expenses can randomly double or triple or be cut in half I will never know how much I need to retire.

Plain and simple if you save 0% plan on working till you die. And if you save less than 20% do not plan on retiring early.
"And if you save less than 20% do not plan on retiring early."
- If that is post tax savings it might apply
- if you have a pension then it may not apply
- if you live in a HCLO area and plan to move it may not apply
- if your expenses are high now but plan to be lower it may not apply

Jags4186
Posts: 3473
Joined: Wed Jun 18, 2014 7:12 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Jags4186 » Thu Jul 11, 2019 8:05 am

20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 8:09 am

Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

BanquetBeer
Posts: 324
Joined: Thu Jul 13, 2017 5:57 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by BanquetBeer » Thu Jul 11, 2019 8:13 am

CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
If i currently make 500k/yr and save 20%, I could retire in 17 years taking 100k/yr no problem. If I earned 50k/yr I don’t know if I have the option to downgrade and live off of 10k/yr at age 39.

If you absolutely have to have the same spending - ok, but is that a realistic assumption for higher income? At low income there is some level below you can’t really live a healthy life.

CnC
Posts: 708
Joined: Thu May 11, 2017 12:41 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by CnC » Thu Jul 11, 2019 8:27 am

smitcat wrote:
Thu Jul 11, 2019 8:09 am
Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

Not unless they have a ridiculous change in life they can not. What you are arguing is not mathematically possible unless you undergo a drastic change in quality of life spending.

Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year.

Your social security benefits at full retirement age are only 22,300 a year.

If you can cut your expenses in more than half you are drastically changing your quality of life.

Anyone can retire at any age assuming they have no desire to continue with a set quality of life.


This is the Crux of why your argument is not valid. If you can live on social security you are not spending 50% of your income.

If you want to make the argument that your expenses while working have nothing to do with your expenses in retirement well we will just have to agree to disagree.

CnC
Posts: 708
Joined: Thu May 11, 2017 12:41 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by CnC » Thu Jul 11, 2019 8:31 am

BanquetBeer wrote:
Thu Jul 11, 2019 8:13 am
CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
If i currently make 500k/yr and save 20%, I could retire in 17 years taking 100k/yr no problem. If I earned 50k/yr I don’t know if I have the option to downgrade and live off of 10k/yr at age 39.

If you absolutely have to have the same spending - ok, but is that a realistic assumption for higher income? At low income there is some level below you can’t really live a healthy life.
So do you really think you can make the adjustment from 400k a year expenses to 100k a year expenses?

If so why are you spending that extra 300k every year?

Also where on Earth are you getting 10k a year at 39? Minimum you have to be if you start saving 20% every year would be in your late 50's.


If I didn't say it before I will say it here. This is all assuming you have some desire to live the life you have become accustomed to.

If you desire to go from a mobile home and Mc Donald's to a Mega yacht cruising the Caribbean with your own personal chef no this rule of thumb won't work.

Likewise if you want to go from having a luxurious life to a Spartan one this also may not apply.

But for the other +90% who want to continue living how they have for the past 15-35 years of their life it is sound advice.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 8:51 am

CnC wrote:
Thu Jul 11, 2019 8:27 am
smitcat wrote:
Thu Jul 11, 2019 8:09 am
Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

Not unless they have a ridiculous change in life they can not. What you are arguing is not mathematically possible unless you undergo a drastic change in quality of life spending.

Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year.

Your social security benefits at full retirement age are only 22,300 a year.

If you can cut your expenses in more than half you are drastically changing your quality of life.

Anyone can retire at any age assuming they have no desire to continue with a set quality of life.


This is the Crux of why your argument is not valid. If you can live on social security you are not spending 50% of your income.

If you want to make the argument that your expenses while working have nothing to do with your expenses in retirement well we will just have to agree to disagree.
A few thoughts....
"Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year."
In your example you are likely spending less than $37,700.
That would be your $50K less a $5K 401k deduction (assuming a 401K is available) less Fed , FICA and State taxes.
This is also during years when you have a mortgage and kids to take care of.

"Your social security benefits at full retirement age are only 22,300 a year."
I had figured it on $60K per year and a PIA of about $2119 or $25K per year with a benefit for a married couple of about $38K. But your numbers are certainly close enough.

So the couple works for 35 years and retires early at 60 - they need less than they did when working as their mortgage is now paid off and kids are self sufficient - they can live on about $25K per year.
They need about $25K per year for 6 years until full PIA is achieved - that is 6 x 25 = $150K
They have been savings that $5-6K equivalent per year for the past 35 years.
In my example they did not even need the 25K per year pre SS as the DH got a part time job after retiring.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 8:54 am

CnC wrote:
Thu Jul 11, 2019 8:31 am
BanquetBeer wrote:
Thu Jul 11, 2019 8:13 am
CnC wrote:
Wed Jul 10, 2019 5:11 pm
Thesaints wrote:
Sat Jul 06, 2019 8:45 pm
Doesn't mean anything. It depends on how much one makes and how much he/she needs in retirement.
:oops:

Actually it means everything.

It doesn't matter how much you make because if you save 50% it means you are saving the same amount you spend each year. Weather it's 50k or 500k.
If i currently make 500k/yr and save 20%, I could retire in 17 years taking 100k/yr no problem. If I earned 50k/yr I don’t know if I have the option to downgrade and live off of 10k/yr at age 39.

If you absolutely have to have the same spending - ok, but is that a realistic assumption for higher income? At low income there is some level below you can’t really live a healthy life.
So do you really think you can make the adjustment from 400k a year expenses to 100k a year expenses?

If so why are you spending that extra 300k every year?

Also where on Earth are you getting 10k a year at 39? Minimum you have to be if you start saving 20% every year would be in your late 50's.


If I didn't say it before I will say it here. This is all assuming you have some desire to live the life you have become accustomed to.

If you desire to go from a mobile home and Mc Donald's to a Mega yacht cruising the Caribbean with your own personal chef no this rule of thumb won't work.

Likewise if you want to go from having a luxurious life to a Spartan one this also may not apply.

But for the other +90% who want to continue living how they have for the past 15-35 years of their life it is sound advice.

"So do you really think you can make the adjustment from 400k a year expenses to 100k a year expenses?"
I am pretty sure he is talking about a pre tax income of $500K per year.

cshell2
Posts: 112
Joined: Thu May 09, 2019 10:29 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by cshell2 » Thu Jul 11, 2019 9:01 am

smitcat wrote:
Thu Jul 11, 2019 8:51 am
CnC wrote:
Thu Jul 11, 2019 8:27 am
smitcat wrote:
Thu Jul 11, 2019 8:09 am
Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

Not unless they have a ridiculous change in life they can not. What you are arguing is not mathematically possible unless you undergo a drastic change in quality of life spending.

Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year.

Your social security benefits at full retirement age are only 22,300 a year.

If you can cut your expenses in more than half you are drastically changing your quality of life.

Anyone can retire at any age assuming they have no desire to continue with a set quality of life.


This is the Crux of why your argument is not valid. If you can live on social security you are not spending 50% of your income.

If you want to make the argument that your expenses while working have nothing to do with your expenses in retirement well we will just have to agree to disagree.
A few thoughts....
"Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year."
In your example you are likely spending less than $37,700.
That would be your $50K less a $5K 401k deduction (assuming a 401K is available) less Fed , FICA and State taxes.
This is also during years when you have a mortgage and kids to take care of.

"Your social security benefits at full retirement age are only 22,300 a year."
I had figured it on $60K per year and a PIA of about $2119 or $25K per year with a benefit for a married couple of about $38K. But your numbers are certainly close enough.

So the couple works for 35 years and retires early at 60 - they need less than they did when working as their mortgage is now paid off and kids are self sufficient - they can live on about $25K per year.
They need about $25K per year for 6 years until full PIA is achieved - that is 6 x 25 = $150K
They have been savings that $5-6K equivalent per year for the past 35 years.
In my example they did not even need the 25K per year pre SS as the DH got a part time job after retiring.
From what I've observed in family members that have retired, some expenses no longer exist like mortgage and
child expenses, but other things move in to take their place, like increased medical expenses and travel.

BanquetBeer
Posts: 324
Joined: Thu Jul 13, 2017 5:57 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by BanquetBeer » Thu Jul 11, 2019 12:45 pm

smitcat wrote:
Thu Jul 11, 2019 8:54 am

"So do you really think you can make the adjustment from 400k a year expenses to 100k a year expenses?"
I am pretty sure he is talking about a pre tax income of $500K per year.
There is a lot going on here. The example was that with high income you have options. You can downgrade and still live a comfortable life - not so with low income. At 500k I’d imagine you go from (saving 20%) 400-100k tax so 300 to 100k. Not so drastic if you move from LA/NYC to LCOL suburbs but even still, if you burn out or have a life changing event (wife gets cancer) you can re-assess.


Also, I assumed more of a couples income so SS would be more, albeit not so relevant for early retirement. I used 500/50 because that is what you listed in the example but realistically someone earning 200 - you can easily have the same lifestyle on half that if you move away from high cost work area. When you earn 60k, it isn’t realistic to say the same.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Thu Jul 11, 2019 1:14 pm

BanquetBeer wrote:
Thu Jul 11, 2019 12:45 pm
smitcat wrote:
Thu Jul 11, 2019 8:54 am

"So do you really think you can make the adjustment from 400k a year expenses to 100k a year expenses?"
I am pretty sure he is talking about a pre tax income of $500K per year.
There is a lot going on here. The example was that with high income you have options. You can downgrade and still live a comfortable life - not so with low income. At 500k I’d imagine you go from (saving 20%) 400-100k tax so 300 to 100k. Not so drastic if you move from LA/NYC to LCOL suburbs but even still, if you burn out or have a life changing event (wife gets cancer) you can re-assess.


Also, I assumed more of a couples income so SS would be more, albeit not so relevant for early retirement. I used 500/50 because that is what you listed in the example but realistically someone earning 200 - you can easily have the same lifestyle on half that if you move away from high cost work area. When you earn 60k, it isn’t realistic to say the same.
I agree but its even 'better' than what you describe....
"income. At 500k I’d imagine you go from (saving 20%) 400-100k tax so 300 to 100k"
If you live in NY and figure a $24Kdedcution for a 401K your resultant taxes on that $500K will be about $158K.
And then if you saved the 10% of $500K per year what might you have after 30-35 years?
As you say you could be paying much higher fees in real estate taxes and costs of living in NY and then move to anywhere with lower costs when retired.

CnC
Posts: 708
Joined: Thu May 11, 2017 12:41 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by CnC » Thu Jul 11, 2019 1:45 pm

smitcat wrote:
Thu Jul 11, 2019 8:51 am
CnC wrote:
Thu Jul 11, 2019 8:27 am
smitcat wrote:
Thu Jul 11, 2019 8:09 am
Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

Not unless they have a ridiculous change in life they can not. What you are arguing is not mathematically possible unless you undergo a drastic change in quality of life spending.

Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year.

Your social security benefits at full retirement age are only 22,300 a year.

If you can cut your expenses in more than half you are drastically changing your quality of life.

Anyone can retire at any age assuming they have no desire to continue with a set quality of life.


This is the Crux of why your argument is not valid. If you can live on social security you are not spending 50% of your income.

If you want to make the argument that your expenses while working have nothing to do with your expenses in retirement well we will just have to agree to disagree.
A few thoughts....
"Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year."
In your example you are likely spending less than $37,700.
That would be your $50K less a $5K 401k deduction (assuming a 401K is available) less Fed , FICA and State taxes.
This is also during years when you have a mortgage and kids to take care of.

"Your social security benefits at full retirement age are only 22,300 a year."
I had figured it on $60K per year and a PIA of about $2119 or $25K per year with a benefit for a married couple of about $38K. But your numbers are certainly close enough.

So the couple works for 35 years and retires early at 60 - they need less than they did when working as their mortgage is now paid off and kids are self sufficient - they can live on about $25K per year.
They need about $25K per year for 6 years until full PIA is achieved - that is 6 x 25 = $150K
They have been savings that $5-6K equivalent per year for the past 35 years.
In my example they did not even need the 25K per year pre SS as the DH got a part time job after retiring.
The 50,000 is your post tax income by the way. Saving $5000 of your 37,000 income is completely different than 5,000 of $50,000 you are actually saving ±14% in addition to the 6% that the government is forcing you to save via social security.

While I think that is a bit risky since 25k is pretty low your information backed up what I said.

14% + 6% ~20%
20% for 35 years is pretty darn close to the 37 years on the chart.



Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Fri Jul 12, 2019 7:31 am

CnC wrote:
Thu Jul 11, 2019 1:45 pm
smitcat wrote:
Thu Jul 11, 2019 8:51 am
CnC wrote:
Thu Jul 11, 2019 8:27 am
smitcat wrote:
Thu Jul 11, 2019 8:09 am
Jags4186 wrote:
Thu Jul 11, 2019 8:05 am
20% can get you to early retirement but it would be highly dependent on returns and a relatively stable income.

A person making $50k in 1980 and only received inflation increases gets to 25x 80% of their income in about 24 years using a 100 equity portfolio split 50/50 Sp500/small cap value. After 25 years if they were 100% SP500 they aren’t there yet.

A person starting to invest in 1994 has less than 1/2 the money after 25 years with the same mix than the person starting in 1980.
That is all true but...
A person who will be able to live on SS alone and saves 10% of his/her income can still easily retire early.
Not to mention pensions and the like.

Not unless they have a ridiculous change in life they can not. What you are arguing is not mathematically possible unless you undergo a drastic change in quality of life spending.

Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year.

Your social security benefits at full retirement age are only 22,300 a year.

If you can cut your expenses in more than half you are drastically changing your quality of life.

Anyone can retire at any age assuming they have no desire to continue with a set quality of life.


This is the Crux of why your argument is not valid. If you can live on social security you are not spending 50% of your income.

If you want to make the argument that your expenses while working have nothing to do with your expenses in retirement well we will just have to agree to disagree.
A few thoughts....
"Let's say you are working saving only 10% and spending 90% making let's say 50,000 a year saving 5k a year and spending 45k a year."
In your example you are likely spending less than $37,700.
That would be your $50K less a $5K 401k deduction (assuming a 401K is available) less Fed , FICA and State taxes.
This is also during years when you have a mortgage and kids to take care of.

"Your social security benefits at full retirement age are only 22,300 a year."
I had figured it on $60K per year and a PIA of about $2119 or $25K per year with a benefit for a married couple of about $38K. But your numbers are certainly close enough.

So the couple works for 35 years and retires early at 60 - they need less than they did when working as their mortgage is now paid off and kids are self sufficient - they can live on about $25K per year.
They need about $25K per year for 6 years until full PIA is achieved - that is 6 x 25 = $150K
They have been savings that $5-6K equivalent per year for the past 35 years.
In my example they did not even need the 25K per year pre SS as the DH got a part time job after retiring.
The 50,000 is your post tax income by the way. Saving $5000 of your 37,000 income is completely different than 5,000 of $50,000 you are actually saving ±14% in addition to the 6% that the government is forcing you to save via social security.

While I think that is a bit risky since 25k is pretty low your information backed up what I said.

14% + 6% ~20%
20% for 35 years is pretty darn close to the 37 years on the chart.



Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.
"The 50,000 is your post tax income by the way. Saving $5000 of your 37,000 income is completely different than 5,000 of $50,000 you are actually saving ±14% in addition to the 6% that the government is forcing you to save via social security. "
In my example the $60K was the gross income - save $6K and taxed on the $60K.
If we are saying that SS is also a savings in that chart then yes maybe 15% may be better.

"While I think that is a bit risky since 25k is pretty low your information backed up what I said.'
This is not an example about us - it is a real life example of persons close to us.

"20% for 35 years is pretty darn close to the 37 years on the chart."
10% for 35 years is all that was needed - actually not even that.

KlangFool
Posts: 12987
Joined: Sat Oct 11, 2008 12:35 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by KlangFool » Fri Jul 12, 2019 7:51 am

CnC wrote:
Thu Jul 11, 2019 1:45 pm


Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.
CnC,

I look at my savings based on my annual expense. It does not make any sense to be based on any form of income (gross, net, after-tax). I save 100% of my annual expense every year.

The financial goal is either FI and/or retirement. It makes perfect sense to calculate your savings based on the financial goal.

KlangFool

smitcat
Posts: 3571
Joined: Mon Nov 07, 2016 10:51 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by smitcat » Fri Jul 12, 2019 7:56 am

KlangFool wrote:
Fri Jul 12, 2019 7:51 am
CnC wrote:
Thu Jul 11, 2019 1:45 pm


Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.
CnC,

I look at my savings based on my annual expense. It does not make any sense to be based on any form of income (gross, net, after-tax). I save 100% of my annual expense every year.

The financial goal is either FI and/or retirement. It makes perfect sense to calculate your savings based on the financial goal.

KlangFool
+1 - we always look at our savings based on expenses.

randomguy
Posts: 7831
Joined: Wed Sep 17, 2014 9:00 am

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by randomguy » Fri Jul 12, 2019 10:03 am

KlangFool wrote:
Fri Jul 12, 2019 7:51 am
CnC wrote:
Thu Jul 11, 2019 1:45 pm


Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.
CnC,

I look at my savings based on my annual expense. It does not make any sense to be based on any form of income (gross, net, after-tax). I save 100% of my annual expense every year.

The financial goal is either FI and/or retirement. It makes perfect sense to calculate your savings based on the financial goal.

KlangFool

Must be tough to save 100% of expenses when your cash flowing college:)

It makes no sense to use current expenses. I am planning for FI and/or retirement NOT for my current spending situation. When you retire that number will be different (i.e. have to pay for health insurance, might not be paying mortgage interest, kids may be gone, might want to travel more or spend on recreation for all that free time,.....) than your current one.

In the end it doesn't matter how you do the math. Saving 20k is saving 20k no matter if it is 20% of gross, 30% of net, or 50% of expenses. You can still put the numbers in to a calculator and figure out how much income when you hit your retirement date but it is going to be a big approximation either way. Assuming your tax situation and spending will be the same and using percentage of gross works. So does using expenses. You just need to understand the effect of those assumptions.

As far as the base question, a person saving 20% gross in 1989 would be retired in 30 years. A 1979 person would have hit their number in 20 years. I would consider both those early retirements. You can hit a bad sequence of returns (good returns when you don't have a lot of money, bad returns when you do) and get worse results but expecting to retire in 25-30 years off 20% gross savings is pretty reasonable. Saving more obviously brings in the numbers but you might get more enjoyment out of spending that money on your kids when they are young than spending it on yourself when your old. That is pretty situation dependent.

KlangFool
Posts: 12987
Joined: Sat Oct 11, 2008 12:35 pm

Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by KlangFool » Fri Jul 12, 2019 10:11 am

randomguy wrote:
Fri Jul 12, 2019 10:03 am
KlangFool wrote:
Fri Jul 12, 2019 7:51 am
CnC wrote:
Thu Jul 11, 2019 1:45 pm


Unless you guys are different from me I look at what my savings are after taxes, it doesn't make any sense to base the number off of money you will never see.
CnC,

I look at my savings based on my annual expense. It does not make any sense to be based on any form of income (gross, net, after-tax). I save 100% of my annual expense every year.

The financial goal is either FI and/or retirement. It makes perfect sense to calculate your savings based on the financial goal.

KlangFool

Must be tough to save 100% of expenses when your cash flowing college:)

It makes no sense to use current expenses. I am planning for FI and/or retirement NOT for my current spending situation.
randomguy,

It does not make sense for you.

But, for me,

1) I had been unemployed for more than 1 year a few times. I know that my FI/retirement expense is the same or lowered than my current annual expense.

2) My annual expense had stayed about the same for the last 10+ years.

In any case, it is a good starting number for everyone. A more accurate estimate is possible with more efforts.

KlangFool

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by BanquetBeer » Fri Jul 12, 2019 10:29 am

It makes the most sense to convert everything to Depreciated value of target income in retirement. Not sure the right terminology here but:

If goal is 100k in today’s dollars and I save 50k I save 0.5x

Next year, assuming 2% inflation, I would need to save 51k to stay at 0.5x and I would estimate 0.5*1.055+0.5= 1.02x saved. Should take about 25 years to reach 25x

This removes the debate on spend now vs retirement, saving % or net vs gross, etc.

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by H-Town » Fri Jul 12, 2019 10:46 am

randomguy wrote:
Fri Jul 12, 2019 10:03 am
In the end it doesn't matter how you do the math. Saving 20k is saving 20k no matter if it is 20% of gross, 30% of net, or 50% of expenses.
I agree with this statement. If you have goals and you do my best to achieve them, you shouldn't be concerned about anything else other than raising the bar next year.

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by ryanayd » Sat Jul 13, 2019 12:33 pm

FoolMeOnce wrote:
Sat Jul 06, 2019 8:32 pm
This is a decent starting point.

Image

Source:
https://www.mrmoneymustache.com/2012/01 ... etirement/
This is the most vague and ridiculous chart ever! How much do you need to retire is a personal choice and depends on how much you need to survive. MMM makes a ton of money from his website in his "early retirement" and pushes unrealistic return expectations. Be careful with putting your retirement horizon in a box.

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by youngpleb » Sat Jul 13, 2019 4:27 pm

ryanayd wrote:
Sat Jul 13, 2019 12:33 pm

This is the most vague and ridiculous chart ever! How much do you need to retire is a personal choice and depends on how much you need to survive. MMM makes a ton of money from his website in his "early retirement" and pushes unrealistic return expectations. Be careful with putting your retirement horizon in a box.
I'd imagine that's why the poster included the link to the article...FYI this chart assumes 5% annual returns after inflation. Doesn't sound unrealistic to me. I'd also disagree that this amount is a personal choice...how much you WANT in retirement, sure. How much you NEED? It's literally a math equation.

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by Toons » Sat Jul 13, 2019 4:31 pm

I would say it would stack the cards in your favor,
In tandem with keeping debt at a Minimum,
Like zero credit card debt or school loan debt.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by willthrill81 » Sat Jul 13, 2019 4:45 pm

ryanayd wrote:
Sat Jul 13, 2019 12:33 pm
MMM makes a ton of money from his website in his "early retirement" and pushes unrealistic return expectations.
5% is hardly an unrealistic long-term expectation for a reasonably aggressive portfolio.

While MMM has not been very forthcoming with his income source nor retirement expenses, to be fair, it appears to be very common for those in the FIRE community to do some kind of income producing activity after they quit their first career (i.e. 'retire'). It's such a common thing that Fritz of The Retirement Manifesto has suggested that the FIRE acronym be changed to say "financial independence, recreational employment."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Does saving 20% towards retirement starting in your twenties allow you to retire early?

Post by abuss368 » Sat Jul 13, 2019 6:45 pm

bigtex wrote:
Sat Jul 06, 2019 8:22 pm
Will 20% savings rate towards retirement starting in my mid 20s allow me to retire early in my 40s, 50s, or on time at 60?
No one knows. Furture bull markets or bear markets may impact that in terms of timing. The best you can do is save and invest as much as you can. Save and invest until it hurts. Keep costs real low and diversify.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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