What is Digg?161 Comments
- Evari, on 10/11/2007, -5/+66wow, you must be fun at parties
- sra8sra8, on 10/11/2007, -5/+56I have some concerns about the advice being given here. While such aggressive savings plans are not bad advice by any means, I dont think the full picture is provided.
1. The historical return of the Vanguard 500, is not 12%, it is lower because mutual fund companies deceptively use average returns rather than compounded geometric returns. Basically, in down years, you start with a lower base so you grow less as well.
2. Furthermore, the 90's bull market was likely a once-in-30-years increase in asset values. Values went up far more than inflation adjusted earnings, so while we can expect growth, we cannot necessarily expect more irrational price increases above such growth. It could happen, but the fundamentals would suggest it will not.
3. The returns will further be less because of taxes. Since the blog speaks about taxable non-retirement accounts, any dividends or realized capital gains will be taxed, decreasing the reinvestment amount. Granted, there isnt a lot of turnover in the Vanguard 500, but i'm still surprised you werent recommended SPY, which would provide the same assets at a lower fee, plus eliminate the tax issues due to being an ETF.
4. If you are really serious about this, I would consider a more diversified portfolio with mid-caps and small-caps and some international component as well. Vanguard offers a variety of funds you could use to better balance your investment. Note, DO NOT LET THE FEAR OF NOT UNDERSTANDING THIS POINT KEEP YOU FROM STARTING YOUR INVESTMENT PLAN. THE MOST IMPORTANT THING IS TO START THE PLAN, YOU CAN ALWAYS FINE TUNE IT LATER.
5. Please reconsider your plans to live frugally. What is life if all you are doing is stashing away all your money. After all, you could die at 40. Do you really want to waste the best years of your life? - Andareed, on 10/11/2007, -1/+52The math is correct. I assume you think it's unrealistic that anyone would commit 20% of their income per year to a retirement plan.
- dissident, on 10/11/2007, -2/+51stay single and it's possible. Get married or even have a girlfriend and it's not going to happen, period. Pussy costs a LOT of money.
- Akaji, on 10/11/2007, -8/+42Here's to hoping that they're not kidding. I'd love to be able to retire before I'm ~45-50. And by retire, I mean change to working part-time (or volunteering)... fully retiring would be boring as crap!
- daRoach, on 10/11/2007, -5/+36Akaji, are you serious? I hate when people tell me they would be bored without a job to go to. I have so many of my own personal projects I could be working on right now if I didn't have to spend so much of my time at work.
- inactive, on 10/11/2007, -4/+29I guess I can read it again, and check their math. Do Index funds really average 12%? I've heard you're doing good when your fund averages 10% over an extended period of time. I'm having a hard time believing that you can retire at 40 after 20 years working. I'm 23 and am actually a better saver than that kid; last year I saved almost half of my take home pay. I'd love to have the option to never work again at 40, but realisticly I think (esp. considering I plan to marry and start a family) that 50 is a good "best case" goal for retirement.
- inactive, on 10/11/2007, -8/+30hdtvdust:
stop being a presumptuous douchebag. seriously. not everyone who lives below their means is living with their parents, and in fact most who do live at home are horrendous savers. - edebolt, on 10/11/2007, -2/+24You could buy a condo. Get a roommate to pay the mortgage. Over 20 to 30 years pay it off and then rent it out for $1000 to $1500 in todays dollars and move to Costa Rica or Thailand. Or many other affordable countries. Argentina, Panama, China, Philipines, Cambodia, Boliva, Peru, Ecuador, Brazil,. Uruguay. etc etc. Your investment in the condo will continue to grow if you picked a wise property. At some point you could choose to sell the condo and buy a different property if you thought it represented better growth potential.
I live in Thailand on less than $1000 a month and its the good life. Good food, luxury condo that I am renting. massages most days, Affordable quality health care, decent internet and Sat TV. Much better social life too. Age 45 - inactive, on 10/11/2007, -16/+34FTA: "If you were to take 20% of your annual income starting at age 20 and put it in a S&P 500 index fund, that index fund continues to grow at the long-term historical rate (12%), and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary, or quit at 43 and be able to give yourself a 4% “raise” each year from the interest, which is probably the better plan because it combats inflation. Raise the amount to 25% and you’re done at age 38 and able to live in perpetuity at age 40."
- They've got to be kidding. - BobTrips, on 10/11/2007, -0/+15Reality check - I did it.
I retired 19 years ago at the age of 44 by following roughly the strategy laid out in the article.
Retirement has been wonderful. I've not been bored for one moment, have never regretted my decision for one second.
Having control over your life might not be best for everyone. It has been for me. - 2shae, on 10/11/2007, -2/+16"The've got to be kidding"
Why?
That's how it works, yet only a small percentage of the population is actually doing it. - Albionshores, on 10/11/2007, -0/+13The secret is not in retiring early. The secret is finding something that you so enjoy so much that you never want to stop - and then working out how to get paid for it.
- dustyshadow, on 10/11/2007, -1/+13happy endings?
- spargo, on 10/11/2007, -4/+16Understandable. Now try and have fun and take vacations with 80% of your salary.
- Grumby24, on 10/11/2007, -5/+16A 12% a year return in perpetuity is highly unlikely going forward. With baby boomers retiring starting in the next few years, the sell off in the stock market will keep returns much lower than was achievable in the past.
- gharding, on 10/11/2007, -3/+13The inherent flaw with this is that it's far more fun to spend that 25k than to save it. I don't save as much as I'd like to, but I much prefer taking some nice vacations while I'm young and can enjoy it.
- etnu, on 10/11/2007, -6/+13Quick, everyone start taking financial planning advice from a 20 year old.
Now then, could we have a show of hands, please, from everyone who can actually afford to sock away 20% of their monthly income?
I'll toss out some numbers to put things into perspective.
I'm 23 years old.
My base monthly salary is ~$7000 before taxes.
Pre-tax contributions are a possibility, so let's use that: $1400 a month to the fund. Note that i'm cheating here, since 401(k) and IRA programs generally won't let you touch the money until you're 60. In practice, the amount you would have to contribute to equal 20% would be more like $1800-2000 a month. Also note that these programs actually cap out at $15k or so a year, so $1400 a month isn't even possible.
Taxable income is now $5600 for the month.
I am married, filing jointly, and will have 2 children by next tax filing time. According to an online tax calculator, this makes my federal tax obligation a very low $305 a month.
According to the california tax board's web site, I owe them another $179
Social security claims $347 (this sounds too high, but I calculated it from the normal 6.2% * 5600. I think the actual taxable income is considered to be more like $4000 a month though, so I could be wrong).
Medicare: $78 (could be lower, again, same reason)
Medical / Dental / Vision: $30 (my employer has a great plan)
Total payroll deducations: $939
Actual pay: $4661
Now, here are my mandatory monthly expenses:
Rent: $1800
Electricity: $60
Cable/Internet: $100
Cell phone(s): $100
Student Loans: $250
Auto insurance: $140
Car payment: $300
Gas: $150
Renter's insurance: $50
Total: $3050
This leaves us with around $1600 a month left over to pay for food, clothing, diapers, toiletries, and everything else. Not to mention saving for the education of our children. I suppose if we were really frugal and bought strictly low-quality food from wal-mart and the like and never had any fun we could do it, but I'd probably die or kill myself before I hit 40.
I'd rather actually enjoy my life, work at a job that I like, and retire at 65 like most people. - inactive, on 10/11/2007, -0/+7http://www.nytimes.com/2007/05/27/business/yourmoney/27stra.html?_r=1&ref=business&oref=slogin
The NY Times covered this question, and came to the same conclusion I've been leaning towards. It's not a big deal. - Syntaxis, on 10/11/2007, -0/+7It's all about common sense, really. Do you need a plasma TV in your bedroom? Do you really need an expensive new car instead of a used cheap one? Do you really need to loan money for a vacation? You could keep your 20% and get all that and be in debt for the rest of your working life (and beyond) but you could also choose to go for used cars, regular TV's, a vacation in a tent in the wild instead of a hotel in some fancy overpriced city in another country.
It might mean you're lowering your standards. But really, who are you kidding? Your neighbour with the same job but who does go on a vacation 3 times a year, with his new SUV? With his small but really nice boat? With his 3 plasma TV's?
Heh..
He'll be working till he's 70. You'll be retired 15 years before him and you'll have little or no debts to pay, you'll have a huge savings account and well.. he's still paying for stuff that has gone the way of the dodo years ago. - Hamletlere, on 10/11/2007, -0/+7I guess it's all about where you live and what you buy. Here's my equivalent:
Mortgage (3Bdr. House): $800
Electricity: $100
(No Cable)/Internet: $45
Cell phone(s) (2, emergency use only): $15
Student Loans: $0
Auto insurance: $37
Car payment: $450
Gas: $150
Renter's insurance: $0
Total: $1597
My total monthly expenses tend to be around $3000 (including groceries, dining out, child and spouse expenses, entertainment, clothing, etc.) I specifically targeted my current area of employment (RTP, North Carolina) for its high-tech businesses and low cost of living. While the climate in California is wonderful, and the cities would provide plenty of excitement, I have absolutely no interest in living there.
I am one of those who live below my means and saves around 20% of my salary (not income). Probably the most critical part of living below my means was settling for a 1600 sq. ft. house, when all of my coworkers live in 2500 sq. ft. houses. There are many times I have wished for more space, but then again, I live in a nice neighborhood and really like the house we found. - inactive, on 10/11/2007, -0/+6I manage to save about 30% of my meager salary. I live in my own decent apartment however I don't currently have a GF. When I DO have a GF that number drops to about 20% and if I had kids I'd bet it would go to 0.
In short, if you go stag through your entire life and don't buy ***** you don't need you can die quite wealthy. Assuming you don't eat a bullet before the compounding gets to work. - aliengoods, on 10/11/2007, -6/+12Unfortunately, paying for student loans is about 25% of my take-home, so here's a big ***** you to everyone who had their daddy pay for school.
- daborg, on 10/11/2007, -0/+6"Since when did Yoda start posting financial advise?"
Dude that was perfectly valid English. This would be Yoda:
"Open still the validity of a 12% return is." - billsil, on 10/11/2007, -1/+720% is brave...30% is a bit excessive (what i do). the thing about it is, i can do it cause i dont have to buy a house, dont have kids to pay for and have a roomate. If one of those werent true i wouldnt be able to put away 30%.
- JohnSteel, on 10/11/2007, -0/+5"Let’s take the case of Roger, who makes about $60,000 a year."
Who makes that kind of money, especially at 20 years old? And what about having a family? Seems to me that this retirement advice is useless if you're the average person. - tucsonsun13, on 10/11/2007, -2/+7@ jeebugorn
while the Military route certainly has its benefits, steps 1 and 2 might include:
1. Meet with Army/Navy/Air Force recruiter who lies about your future deployments and benefits.
2. Get shipped out to Iraq, Afghanistan or some other charred hellscape
3. After a few weeks of driving in circles within the Baghdad Shooting Gallery, you are ambushed and wounded badly.
4. Into Walter Reed, where you lie alone in a bed with no certainty as to where medical payments will come from.
5. Military doctors purposely misdiagnose you as having a "psychological disorder".
6. Eligibility for college assistance, medical assistance VOIDED.
You're life is over. Seriously. And while Bush & Co. continue to slash funding for the VA and other medical organizations, it is becoming increasingly difficult for our troops to get the help they need. - martoq, on 10/11/2007, -4/+9I'd rather chase a dream and fail, than never having chased it and wonder "what if" the rest of my life.
- zcereal, on 10/11/2007, -0/+5nobody is forcing you to retire at 40, but for people such as myself who don't want kids it's very doable. I want to retire as early as possible and enjoy the rest of my life, working on projects I want to work on, maybe have kids after I retire if i so choose. I hope to sock away alot of what I earn, and assuming I finish my engineering degree it's very possible to live well AND retire early
- edebolt, on 10/11/2007, -1/+6Hehe yup happy endings.... Figure about $12 for an hour massage and HE.
I am American semi retired in Thailand but still actively trade FOREX and some futures. I stay pretty conservative because the real estate income is plenty but the extra trading money is nice increase of assets. - Hillsfar, on 10/11/2007, -0/+4@Tiak
The estimated cost of adding approximately 8 million illegal immigrants to the Social Security rolls by giving them amnesty is approximately $2.5 trillion (NET of their contributions minus estimated lifetime withdrawals based on rough actuarial estimates).
http://digg.com/politics/Price_tag_of_illegal_alien_amnesty_could_be_over_2_5_trillion_dollars
Social Security is already a crisis-in-waiting without illegal immigrants getting amnesty and adding to the mix. - Tiak, on 10/11/2007, -1/+5Question: How did the illegal aliens get access to my bank account?...
- rtakach, on 10/11/2007, -0/+4sra8:
Yeah it doesn't mention tax-sheltered accounts because he wants to RETIRE YOUNG. You can't touch your RothIRA or 401k until you're 59 1/2.
Still doesn't change the fact that you should be paying into them anyways, to ensure that when you're 60 you'll be even more comfortable. - CaptainRant, on 10/11/2007, -1/+5Plan on working your entire life. The Federal Government will continue to inflate our currency and slowly deplete or tax away any savings you might have.
And even if you manage to get ahead the traditional way, the dollar will be practically worthless in 20 years. So you're screwed either way. - EarlOfLade, on 10/11/2007, -1/+5I used to pay around 30% tax on my income when I lived in Norway. From that tax, I get health care and a nice pension when I retire. Americans have gotten the wrong end of the stick, that's for sure.
Here in the US I paid a lot more totally when adding federal tax (no state tax in Florida). health insurance, and all other kinds of insurances I didn't need back home. Car insurance is also more expensive.
The fun part is that USA is paying TWICE the amount per capita for health care that does not include 47 million people. What a bad deal!
Make sure that your retirement money is not disappearing because the companies you invested in, goes down the drain (Think Enron et al) - bseyler, on 10/11/2007, -0/+4All I have to say is "12%" This is assuming more than a lot and flies in the face of most economic predictions for growth of the U.S. economy over the next 20-40 years. I wouldn't plan around 12%. I'd plan around 7-8% and be pleasantly surprised if I got 9 or 10. 12 in the S&P would be like winning the lottery.
BTW, I'm trained as a professional investment adviser and financial planner. - ptbarnett, on 10/11/2007, -0/+4While there are some problems in the original article, some posters are compounding that mistake: You can withdraw from an IRA or 401(k) before age 59-1/2, without paying penalties. But, you will have to pay taxes. The rules are complicated, but you are effectively limited to a withdrawal plan that takes your remaining life expectancy into account.
The original author did account for inflation, by increasing the hypothetical investor's salary 4% each year, and increasing the post-retirement income 4% each year. Historically, inflation has averaged less than that.
A bigger problem is the difficulty in saving 20% of your income in a tax-deferred (IRA/401(k)) or tax-free (Roth IRA/401(k)) account. Depending on your income level, various laws limit the amount that you can contribute to these accounts. And if you invest in a non-tax-deferred/free account, the annual income taxes on distributions is going to reduce your long-term return. There are strategies to mitigate this, but you can't completely eliminate it.
That being said, 12% is too high for a sustainable long-term return. You can achieve 9% long-term, at the risk of significant volatility. Competent financial planners use 8% pre-retirement, and 6% post-retirement.
The original author didn't account for one factor: the cost of health care. If your employer provides health care insurance, it's a big percentage of your total benefit package. It would cost you a large amount of money to replace that coverage on your own. While the "common wisdom" is that your expenses will go down after retirement, the reality is that many are finding that their expenses go UP after retirement, due to things like health care premiums. - UnderWurlde, on 10/11/2007, -0/+4I must say that I'm impressed. That salary (7K$/mo) is very high, but it seems all salaries in the US are very high compared to Canada. I listen to American financial advice radio shows, and they always mention those salaries. It was interesting to see the breakdown of where the money goes, though... 250$ for a student loan is quite affordable, 1800 rent is - wow - triple what you'd find here, the rest is pretty much on par with Canadian prices. But that 1800 is California - I'm sure Tennessee or Vermont would be similar to ours.
I agree with your statement that life events change your budget, and having kids, planning for their future is not in those advisers articles. They look at you as an individual and skip the family portion. Plan a 1-week family trip to Disney, and the money you could've saved for a year goes to Mickey. That's life.
The portion that any one individual can save will fluctuate with life events. If in your 20's you can put aside 30%, then at 35 you lose your job, and can only put 2% aside, until the kids go to college and work so you can increase your savings to 35%... The point is, keep saving, just change the percentage as life events unfold. Even 1% is worth it, because it makes you keep a good habit. - nreynolds, on 10/11/2007, -6/+9yes.
- edebolt, on 10/11/2007, -1/+4@ bluenash
http://thorntree.lonelyplanet.com/categories.cfm?catid=51
and
http://www.thaivisa.com
are good places to start for Thailand.
Also check out http://www.escapeartist.com (although be warned their articles are not so current sometimes so check the date)
or email me if you have questions. - billsil, on 10/11/2007, -0/+3wow...you're married with 2 kids at 23 AND making $84k a year. thats insane. if you're wife worked, even if only for a few years, you'd be a lot better off. my roomate and i pull in bout $110k and we each put massive amounts into our 401k, cept we dont have kids and live in a $1300/month apartment.
putting $100/month away at 23 is like $500/month, assuming no inflation
compound interest is a powerful thng, if you dont take advantage of it, you're working too hard - Metasquares, on 10/11/2007, -0/+3I was a government employee. Everything the parent says is true.
Left after a year because I couldn't stand the numbness. It's a great way to make a good amount of money while simultaneously accomplishing nothing with your life. - Dross, on 10/11/2007, -0/+3The value of a dollar in the future is a big consideration. Most pensions (private) pensions are not indexed for inflation, and medical costs tend to raise with age.
I am an engineer and I work with many government type people, apparently their pensions and retirement benefits are considerably better than the private sector. And working for the government is low stress, at 4:30 the government types get up and leave, whereas the private sector folks will sit there and hash out the details as long as it takes. And it is almost impossible to get fired from a government job. Whereas it is always a possibility in the private sector. The trade off is the soul crushing numbness of being a government employee.
As far as investment return from Wall Street, "Random Walk Down Wall Street" by bogle is the book to read. However I have to say I have been returning ~10% annually not the 12% to 15% which is the historical value, your mileage may vary. Which is moving my retirement from 50 to 60.
Also do you take in to account children? They are very expensive. Ballet lessons are pricey. Saving for college is a retirement plan in itself. Not to mention getting divorced! They (soon to be ex-wifes) rarely go away without money. The big risk in retirement planning is "life" it happens when you aren't looking. - Misogyny, on 10/11/2007, -3/+6Everything you said is possible and perhaps even likely. You're being dugg down because despite people realizing what a mess this country is, they don't want to believe it will ever drastically impact them.
- korvan504521, on 10/11/2007, -0/+3its also highly dependent on location. 60k a year in new york isn't the same as 60k as year in kansas city.
- xabstract, on 10/11/2007, -2/+5Google Cache:
http://209.85.165.104/search?q=cache:RqkxtDSdf_YJ:www.thesimpledollar.com/2007/05/08/im-twenty-years-old-and-have-no-debt-when-can-i-retire-and-live-off-my-investments/+http://www.thesimpledollar.com/2007/05/08/im-twenty-years-old-and-have-no-debt-when-can-i-retire-and-live-off-my-investments/&hl=en&ct=clnk&cd=1&gl=us - bluenash, on 10/11/2007, -1/+4@ edebolt
>I live in Thailand on less than $1000 a month
got a blog? or maybe could you point me to some websites that cover this issue? - Jeebugorn, on 10/11/2007, -2/+5how bout this...
1. join the army (or air force/navy/marines) at 17/18 years old
2. stay in for 20 years (get a free education along the way)
3. retire from military and start getting a paycheck and free healthcare for the rest of your life at the age of 37/38
4. if you get bored take the degree you got while in the military plus the experience and get another job - Buzzbean, on 10/11/2007, -0/+3Here's my rant and ramble about my retirement:
The math works. I wish I had started contributing to my 401(k) earlier, but I started about 8 years ago. I started by contributing 3% of my pay. Each year I bumped it up a percent or two. If you slowly increase the amount you contribute like this, you won't miss what you're contributing. I am now contributing 16% of my own money. The company I work for adds another 5%. I plan on upping it until I'm contributing 20% of my pay. For calculation purposes, I'll use just the 16% though.
Depending on which online calculator you use and what percentage you figure I'd earn for the next 20-25 years, It appears I will end up with $800,000 to $2,000,000 to retire on in my mid-sixties, not counting on Social Security. I always figure that Social Security won't exist when I figure out my retirement income so if it is there, that will be gravy. In real dollars, if I withdraw 4% of the fund each year, increasing it at the rate of inflation, I will be able to withdraw anywhere from $32,000 to $80,000 each year, depending on my actual rate of return. In inflation-adjusted dollars, that $80,000 is about what I make now. Once you figure that I'm contributing 16% of my pay, that $80,000 is 16% more than I take home now. Once you figure contributing 20%, which I'll be contributing in the next couple of years, and allow that I will likely get social security and I'll be fine.
Now, I'm sure many of you are saying there's no way you could live on $80,000 per year. I live in the Midwest and make far far less than most other Diggers just because of where I live. The cost of living is much less expensive. I'm currently living very comfortably on $50,000 per year, minus the 16% I contribute and taxes. That is making payments on a nice house in a nice suburban neighborhood, dating regularly, going out to movies and dinners occasionally, cell phone, high-speed Internet, decent car, going on one or two nice trips per year. The trips are typically one domestic trip (New York, Chicago, Miami, D.C.) plus one international trip per year. So far, my international trip has only been the Carribean but I'll be going to Europe next year and plan on South America and Southeast Asia in the next few years.
I'm single and have no children so that helps, but the math does work if you scale it up to what you earn and live on in New York. Just up your contribution a percent or two each time you get a raise. You won't notice it's gone. If you go out to eat every single meal and hang out at the bar or clubs every weekend, you'll have trouble saving no matter what. Can't help you there.
All this means I should be able to retire on about what I'm making now. Sure I'd love to retire rich but if I'm not rich now, how likely is that? My mother lives on a very meager (what used to be)-standard pension with no problems. I'd be living on substantially more than that, adjusted for inflation. Regardless, having even a small amount of income in retirement is much better than not having it at all, isn't it? I don't want to be unable to work with no income other than social security. The old saying "I never thought I'd live this long" comes to mind. - Solis, on 10/11/2007, -1/+4I'm barely getting by on 100% of my wages, I can't even fathom being able to knock off 20% of that. Not everyone's rich. This seems highly impractical for most.
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