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When Can I Retire And Live Off My Investments?

thesimpledollar.com — Right now, I ’m twenty years old. I am willing to take a large percentage off the top of my salary for the rest of my working life in order to be able to retire very young and live off of the proceeds of my investments and do volunteer work. How many years would I have to work if I saved 20% of my income?

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  • jcm267, 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.
    • 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!
    • 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.
    • jcm267, 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.
    • unlimitedorb, on 10/11/2007, -25/+3That's why you need to get laid and have kids...

      Hopefully they don't pop out retarded. The more the merrier.
    • hdtvdust, on 10/11/2007, -33/+29Who wants to live off the equivalent of their salary at age 20 their entire life?

      jcm267..move out of your parents house. Seriously.
    • 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.
    • jcm267, 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.
    • 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.
    • djjester, on 10/11/2007, -3/+4tho the article really was a little vague, it didn't mention whether a mortgage was factored in (or what kind of a mortgage for that matter). It just mentioned living within your means.
    • 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?
    • Y0tsuya, on 10/11/2007, -9/+3@Andareed:

      "The math is correct"

      No the math is faulty. TFA failed to take into account inflation. In 20 years the dollar will be worth 50% of what it does now. He may be able to retire with an income with same numerical income, but it will have half the buying power. The chump will need to work at least into his mid 50's if everything else plays out like it says in TFA. That is not likely as we're currently standing at the precipice of major economic calamity.
    • KibibyteBrain, on 10/11/2007, -1/+3The problem is no one smart enough to actually pull off planning to retire by age 40 actually goes through with it. They are bribed into becoming executives at companies. Seen it so many times. Its not bad for them, their jobs aren't too shabby, they get a fair amount of input, and get very well compensated. Of course they'd still have been off retiring at age 40 comfortably than at age 60 with a few million stashed away, but no one can bring themselves to make that choice...
    • 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.
    • jiggleflop, on 10/11/2007, -5/+3You could be dead tomorrow! Someone I know just died from a blood clot after a routine hernia operation...

      Enjoy your money and and dont worry about it.
    • 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.
    • mattmollysdad, on 10/11/2007, -8/+6Hey u don't retire with the same body u had when u were 20. Retiring is *****. All u do is sit at ur computer telling some junior high kid about ur adventures back in the day. Keep working till u drop...
    • mille716, on 10/11/2007, -4/+6I want sra8sra8 to be my financial adviser.
    • macman2k, on 10/11/2007, -3/+2The government already forces us to "save" 15.3% of our income in social security! (if you make less than 100K/yr) I know I won't be getting 100% of my income and retire in my 40's from social security!
    • HayString, on 10/11/2007, -4/+2He'll probably get killed in his mid 30's.
    • sra8sra8, on 10/11/2007, -0/+2rtakach:
      You may have missed my point. You can get some level of tax sheltering with ETFs such as SPY (and lower fees) even in a non-retirement account! Basically, with the ETF, the capital gains and dividends get reinvested into more shares and you dont have to pay the taxes until you sell the ETF. The Vanguard500, OTOH, will give you yearly tax notices on any turnover or dividends and you have to pay taxes yearly, greatly reducing the reinvestment value.
      See: http://finance.yahoo.com/etf/education/06
    • dannyapplesauce, on 10/11/2007, -2/+1It's unrealistic to assume anyone would not incur debt during these said years which could make appropriating 20% very hard while not living in your parents basement =/
    • 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.
    • 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.

    • LogicBomB, on 10/11/2007, -1/+4If I lived on my own or with my parents I would be able to put away almost 80% of my income and still ive comfortably. Throw in a girlfriend, marriage, a child (future), a house and a car and you are lucky if you are left with ANY disposable income before savings.

      Save as much as you can but don't expect that your plans won't be changing over the years.
    • Hillsfar, on 10/11/2007, -0/+2@dissident

      Actually, assuming you're both working and your wife doesn't leave you, being married is very helpful in saving towards retirement.

      There are significant tax advantages to being married. There are also significant cost savings advantages such as a shared living space to save on rent or mortgage, shared food expenses, shared services, etc.
    • Salgat, on 10/11/2007, -0/+2@Logicbomb

      I suggest leaving your girlfriend if your married and expecting a kid. You'll save money from having only one woman, and you won't have to worry about losing 50% later on when your wife finds out your cheating on her.
    • Y0tsuya, on 10/11/2007, -1/+3@ptbarnett, and everybody else here,

      You guys are morons. Before burying somebody, you need to do your own calculation in a spreadsheet or something. I did mine, and found that the math does not add up. Why? Because I'm doing the same thing and found that I can't retire until my mid-50's. For one thing, when you retire, you do not put all your money in stocks to get 12% ROI each year. You stick that into bonds and other fixed income vehicles that yield only slightly above inflation. That kid would not have save enough to live off his savings this way by his 40's.

      Assuming he earns $100K today, and like he says saves 20% (pretax) into some tax-deferred saving scheme. Also assume constant 4% inflation and constant 12% ROI. By the time he's 41 he would have an income of $227,877 with same purchasing power today as $100K. His savings would be $2,432,598. To maintain the lifestyle he would draw the same income and inflation-adjust it each year, starting at $235,670 at age 42. The savings would go to an income fund yielding 6%. Based on the drawdown, he would be bankrupt by age 55. Even if he keeps the savings in high-risk stocks yielding 12%/yr, he would still be bankrupt by the age of 66.

      I stand by my calculations. How many of you could say the same? If you want my spreadsheet I'd be happy to share. But I think most of you can do your own math. So don't be morons by burying perfectly good math.
    • ptbarnett, on 10/11/2007, -0/+3Y0tsuyam, be careful about who you call a moron, unless you want to demonstrate the severity of your reading comprehension impairment. I didn't say I agreed with the conclusion of the original article, and never have. My problem is that most of the complaints about the methodology were inaccurate. However, you took the time to discredit it properly, by doing the calculations.

      And, you don't have to do the calculations yourself to see that something is fishy. There are quite a few retirement calculators that you can use to determine how much must be contributed in the 20 years from age 21 to age 41 to yield an inflation-adjusted income of $100,000 (and sustain that income in spite of inflation). http://apps.nasd.com/investor_Information/Calculators/nasd/retirementcalc.aspx predicts that $31,654.83 will be required in the FIRST year, with a 4% increase each year thereafter until age 85. With a more realistic long-term ROI of 9%, it's $61,107.54. And that's with NO income taxes on future distributions, i.e. a Roth 401(k) or Roth IRA -- which is impractical because contributions to those accounts are limited.

      If you use the above URL again, with a 25% average tax rate before and after retirement, WITHOUT using a tax-sheltered account, you must make an annual contribution of $61,107.54 (for 12% ROI) and $106,358.39 (for 9% ROI). That makes the original story even more incredible.

    • Y0tsuya, on 10/11/2007, -0/+1@ptbarnett

      My apologies. I originally wanted to respond to your inflation comment, but went ahead and lumped you all together when I expanded my comment to berate those mindlessly burying my original post. Your arguments were perfectly reasonable and was in line with my thinking.
    • brundlefly76, on 10/11/2007, -0/+1You really need to ask yourself *why* you would want to retire early - and especially why you would want to retire early on a marginal fixed income.

      I know retirement sounds appealing to people who don't like their jobs - but as a young person you are much more likely to lead a happy life with employment you enjoy then no employment whatsoever - in the short term its fun, in the long term its all boredom and possibly even depression - especially for a young person.
  • AegisGFX, on 10/11/2007, -64/+10Dreams are like rainbows. Only idiots chase them.
    • Evari, on 10/11/2007, -5/+66wow, you must be fun at parties
    • fullphaser, on 10/11/2007, -5/+3Oddly enough dreams are also like speeches, often time leading to inspiration or new ideologies.
    • 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.
    • superpotential, on 10/11/2007, -0/+2people who don't know how a rainbow works and who hypothetically don't have the resources or books to find out how they work, and proceed to chase rainbows because they are curious, are not idiots.
  • 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.
    • jcm267, 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.
    • jeffiek, on 10/11/2007, -2/+4@jcm267

      That covers the "baby boom" effect. Still open is the validity of a 12% return.
    • deemzzzz, on 10/11/2007, -1/+112% going forward is a long term (read LONG term) calculation. Post WWII, the stock market has had a 12% average cumulative return with 15% standard deviation. (Yes, that does mean crazy boom and bust years.)

      Baby boomers retiring - even if it does by some odd chance have a measurable effect - will be a short term dip which will only benefit you by providing an artificially low valuation to buy at. In reality, I think the new generation of workers who put their savings in the stock market rather than trust employers defined benefit retirement plans and want greater returns than savings bonds will offset the slow trickle of cash being taken out by retirees.
    • digghasnoethics, on 10/11/2007, -0/+2"the professors assumed that eligibility and participation rates would keep climbing"

      So workers are supposed to continue to pay into schemes tied to the market, so that baby boomers can extract that cash? People do stupid things, but if they don't see the value increasing (because of the BB actions) they won't put the money in and it goes into a downwards spiral.

      People already look on pension investments as risky and uncertain. That will only get worse.
    • mille716, on 10/11/2007, -4/+1"Still open is the validity of a 12% return." -jeffiek

      Since when did Yoda start posting financial advise?
    • mcduckov, on 10/11/2007, -0/+1Boomers are going to wind up working well into retirement and are going to wind up being a major boost to the US economy. They are not ready to give up running the world just yet and I know lots of people who are making vital contributions well into their 60s and 70s...that is a number that will continue to shift to the right as medical science advances.
    • 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."

    • SerpentMage, on 10/11/2007, -0/+0>>12% going forward is a long term (read LONG term) calculation. Post WWII, the stock market has had a 12% average cumulative return with 15% standard deviation. (Yes, that does mean crazy boom and bust years.)

      I did the numbers for the S&P 500 since 1950 and the return is 8.5%. What people confuse with the stock market is that they look at the numbers since the late 80's and think, wow this is going on and on. If you look at the period from 1970 to the late 1980's the stock market sucked dinosaur eggs in a major way.

      What you need to realize is that if we have for the past 15 years been getting 15% returns, what do you think will be returns in the next 15 years so that the S&P averages out to 8.5%? Not 15, nor 12, how about 3-4!
    • Gella321, on 10/11/2007, -0/+1Not entirely true. The second largest age cohort Echo-boomers (kids of baby boomers) have entered or will be entering the work force soon. Surveys say many of these young people are more inclined to save in IRAs or 401(k)s. The shock on the stock market won't be as bad as you may think.

      That being said, I still don't think you can expect an annualized return of 12%. More like 8-10%
    • verse101, on 10/11/2007, -0/+1Sounds like too much Robert Kiyosaki reading for you. The majority of the assets that are held by baby boomers won't be tapped, it's a MINIMUM distribution they take. I work in the financial services industry and can tell you that the the real people who control the wealth of this country reinvest the money that comes from MRD's. And who cares if they take money out of the market, it goes back into the economy anyway.
  • yoos, on 10/11/2007, -10/+0 It's not loading.... what's the digg mirror site for this? Thx!!
  • DetroitAdam, on 10/11/2007, -11/+5Never...The dollar is worth four cents and depreciating. Buy gold young man, but know your enemy- The Federal Reserve!

    Peace from Detroit,
    Adam
  • 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.
    • spargo, on 10/11/2007, -4/+16Understandable. Now try and have fun and take vacations with 80% of your salary.
  • WaltDismal, on 10/11/2007, -14/+12The correct answer is, 300 years, assuming the stock market crashes, the Fed continues to print money to inflate the dollar and make it worthless, and we continue an endless war long after the dictator was deposed. And don't count on Social Security, that'll crash and burn after all the illegal aliens are made citizens and get to draw on your retirement money. What? Me being pessimistic? Nawwwww. Oh, and look forward to $10 a gallon gas all too soon, too.
    • 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.
    • Tiak, on 10/11/2007, -1/+5Question: How did the illegal aliens get access to my bank account?...
    • 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.
    • WaltDismal, on 10/11/2007, -0/+2I want to note that Lake Geneva Wisc has $4.60 a gallon gas and it's headed for $5, and that's not the far future, it's right now. I predict $10 gas way sooner than you realize. If Bush's carrier fleet hits Iran, we will immediately see gas shoot way, way up. And even if that does not happen, the price of gas will hit $10 within the next couple of years as the oil industry squeezes us without mercy. Thank Dick Cheney for that.

      Right now, recreational boaters in the Midwest have to pay $400 to fill their boats' gas tank. As a result, not a lot are going cruising this July 4th.
    • Xemus83, on 10/11/2007, -0/+0Solution? Invest in oil funds/stocks to offset oil prices. If the cost to fill your car goes up, (typically) you make money with your stocks. If the cost to fill your car goes down, your stocks will probably lose a little money, but at least gas doesn't cost as much. It's a good way to offset each other.
    • ziggy1959, on 10/10/2007, -0/+0First, undocumented workers (NO human being is "illegal!") do not and will not get social security unless they 1. regularize their status (permanent resident or citizen) AND 2. contribute to the system. Second, many undocumented workers currently contribute to the system, but they are not permitted to collect anything, so they are actually helping to shore up the system for the rest of us.
      Unfortunately, the trillions spent on war for oil, the rising gap between rich and poor, and the near total loss of actual productive capacity does mean we're in deep *****, you're right about that!
  • c126, on 10/11/2007, -6/+4what's the point of working for 20 years if you're just gonna live a mediocre life so you can retire a little earlier? i'd rather live the most of my 20-40, then spend it working to live the most out of my 40-70.
    • Klinky, on 10/11/2007, -0/+2You say that, but many people become miserable working aimless jobs during their 20s - 30s. A good goal is to find a career you enjoy & are passionate about, or if you're not able to then to at least have enough set aside so that you don't have to do your aimless job for the rest of your life. People can still enjoy life, but live frugally.
    • glmory, on 10/11/2007, -0/+2You will still have a better life than most of the people who have ever lived while only spending 80% of your income. It is hardly impossible......... Now if only I could convince myself of that when I am at the store :(
  • IdiotDogMachine, on 10/11/2007, -8/+3buried as Inaccurate. 20 year hold digg user not living with parents nor mooching off them.
  • 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

  • Urusai, on 10/11/2007, -8/+3Only a sucker retires on their own money. Either plan on mooching off the government, or steal until you think you're rich enough like the big boys do.
  • AlexApetrei, on 10/11/2007, -9/+2Yeah, saving money is an act of bravery ... pfffft ...

    Dude , to be fair, chances are you will die before you get to live of the interest. Plans for a distant future are crap, something always comes up to ***** with them. Live now, don't plan just do what you feel like doing and get enough money to not starve. Material possessions are pointless wases of space, and don't give me that ***** that it's just a dream, the real world is hard cruel and you need money and such.

    If poor people can get by for $1 a day ... ***** you could do it too on $10.
  • 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%.
    • Tiak, on 10/11/2007, -3/+1Of course in the long run not buying a house and constantly paying for someone else's rather than your own is going to be a drain on your finances...

      ...Not that I'm in a situation any different and I care to do anything about it.
    • glmory, on 10/11/2007, -0/+3"Of course in the long run not buying a house and constantly paying for someone else's rather than your own is going to be a drain on your finances"

      This would have been true in 1990. It probably will be true again in 2015. Right now the real estate market is pretty volatile. It could easily continue slowly dropping another 4 so 5 years, just as it skyrocketed for all those years. Renting is hardly a bad idea in the present market.
    • optigon, on 10/11/2007, -0/+1In most places renting is generally a smart idea.

      Where I live, once you have saved an appropriate down-payment for a house, the interest in a 5% bearing savings account would pay a significant portion of your rent in the first place, if not all of it. While it can be argued that you could get smaller house payments or whatever, the upkeep and taxes completely nullify the possibility of it working.
  • 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

    • dustyshadow, on 10/11/2007, -1/+13happy endings?
    • rtakach, on 10/11/2007, -0/+2are you thai? or are you an american working in thailand?
    • 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.

    • tony4moroney, on 10/11/2007, -0/+0@ edebolt
      dugg for the great idea of buying a condo and renting it out to a roommate. oh and the idea of renting it out, when paid off while moving to another country with a weaker dollar.
    • edebolt, on 10/11/2007, -0/+2when I said "get a roommate to pay the mortgage", I meant to say get a roommate to help you pay the mortgage and or let you pay the mortgage balance down faster if you have more money left over from your job.

      Let's say after 15 years rental rates have increased substantially and your net rent minus your net mortgage = equals your live in a foreign country lifestyle then you don't have to wait until its paid off.

      Just to clarify
  • 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.
    • 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.
    • 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.
    • 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)

    • lensman00, on 10/11/2007, -0/+2A back-of-napkin economic analysis of car ownership:

      In the two examples above, annual car ownership not including maintenance and repairs runs around $7k. I tend to use a conservative estimate of $500/mo total cost of car ownership, perhaps that should be a little higher but let's use it for argument's sake.

      Living well without a car generally involves a mix of public transit, towncar, car sharing, taxis, motorcycle, bicycle, scooter etc. I'll use my own situation as an example. We spend around $80/mo on transit, $50 on taxi trips, and $80 on frequent use of a car sharing program (works great for day trips). We have good transit service to airport, train and intercity bus terminals, but for convenience we like to take a rental car or long-term car share a couple of times a year, which could be averaged out to a monthly cost of $30 or so. Total for two people with no dependents: $240/month.

      So a reasonable way to frame the car situation from a budget standpoint would be: is it worth the extra planning and lack of spontaneity in order to save $260 each month? A few other advantages are: no dealing with the motor vehicles department, no exchanging insurance info for fender-benders, no waiting while the car is in the shop, no car break-ins, and garage/driveway space is available for other uses.

      Caveats:
      I understand that a USA resident with younger kids probably needs a car. If that's your situation then maybe going car-free is something to keep in mind when you approach an "empty nest" phase.

      It's trickier to pull of being car-free in some localities due to climate or lack of access to transit and car sharing. But I've done it in all sizes of towns and in various regions of the USA, so I suspect it's rarely impossible. And keep in mind what you might be able to save if you are willing to live closer to a good transit node.
    • Daedalus81, on 10/11/2007, -0/+1The 402g limit on 401ks has been rising every year. I don't recall if it will go up in 2008, but its likely. You are also able to contribute to the 401k as well as an IRA on seperate limits. You can also withdraw from 401ks before the age of 59.5, however you must not longer be employed by the company and likely suffer a 10% penalty in taxes. If you do it right you can avoid the penalty, but thats for your tax advisor to figure out.
  • 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
  • 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
  • mrskin, on 10/11/2007, -0/+3Well, if you are earning $60K annually at the age of 20, you probably shouldn't think of retirement.
  • 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.
    • fatas, on 10/11/2007, -4/+1Doing blowjobs on the side of course
    • jcm267, on 10/11/2007, -0/+3I know plenty of 18 year olds who make $50,000 or more dealing cards, handing out slot jackpots, bartending. A good friend of mine is an apprentice (or whatever they call it) in the lineworkers union making $22/hr, with tons of overtime. In a few years he'll be making a base rate of $40/hr. There's half decent money out there young people with no education past a high school diploma.
    • BrK1, on 10/11/2007, -0/+2Depending on what you do for work, that's really not all that extreme. In most of the tech sectors, I'd call that about average.

      It's definitely a better than average salary when you look at society as a whole, though.
    • glmory, on 10/11/2007, -1/+2I know several students who right out of college got job offers ranging from 50k-70k a year. Of course, the fact I am at Cornell and in Engineering probably biases that, and most of them have absurd amounts of student loans. Still, with a high paying bachelors degree, or 1 year masters degree you can do quite well...
    • 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.
    • jcm267, on 10/11/2007, -0/+1"I know several students who right out of college got job offers ranging from 50k-70k a year. Of course, the fact I am at Cornell and in Engineering probably biases that, and most of them have absurd amounts of student loans. Still, with a high paying bachelors degree, or 1 year masters degree you can do quite well..."

      - Well my cousin just graduated from UConn (a top 100 school, but not exactly Cornell), and his starting salary falls between that range. I went to a ***** (party) school in a city... I'd have probably dropped out of Uconn given how serious I treated schoolwork, but I'm not doing too bad myself a couple years out of school. I think what a lot of people say about this is true. The piece of paper gets you a better job right away, but 10 years down the road it matters more who you are then where you went to school.
  • billsil, on 10/11/2007, -0/+1JohnSteel

    add 10 years onto that if you have kids, and 10 more if you have a house. the point is, you can cut 15 years (assuming kids+house) off you're working years by saving, especially when you're young.
    • glmory, on 10/11/2007, -0/+2People with kids who make 45 grand a year don't starve. People with kids who make 35 grand a year don't starve. People with kids who make 25 grand a year don't starve. People with kids who make 15 grand a year, well, thats starting to push your luck, but I doubt they starve either. If you were really dedicated you can still live below your means and save 20% of your income. Just figure out how people in the bracket below you in income survive, and do what they do. If these people making only 80% of your income survive, surely you are smart enogh to... I don't do it, but it is totally possible, and if I ever stop commenting on digg long enough to graduate I likely will.
  • paker, on 10/11/2007, -0/+3Better figure in health insurance. Once you hit 40 odds are very good you'll need it for either health or dental issues.
  • smartass007, on 10/11/2007, -2/+1live in a cardboard box under a highway overpass and eat dry ramen noodles for the next 30 years...you'll save tons of money
  • 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.
    • 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.
    • mparker7410, on 10/11/2007, -0/+1My souls being crushed in the private sector ...so dropping everything and leaving at 4:30 sounds great! Less soul crushing FTW!
  • 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.
    • MicroBerto, on 10/11/2007, -0/+1albion - great post. Everyone can argue about saving young or spending it on travels/nice pad/etc... but you're the only one that GETS it here
    • yellowsnowcone, on 10/11/2007, -0/+2I agree with you 100%. I'm saving a lot for retirement, and could probably do so early if I wanted ... but I have a job I love and won't ever do that ...
    • sbader, on 10/11/2007, -0/+1That's a good point, and I'm doing that now, but I'm also saving just in case something happens and I loose that.
  • kkeith02, on 10/11/2007, -0/+2Lets see if these financial planning classes have helped me at all...

    The Vanguard 500 Index - VFINX has averaged 16.3% over the last 10 years, the past 5 years, only 8.77%.
    Since the Vanguard 500 follows the S&P 500, and since Google is my friend, I have found that since 1975 to 2006, the S&P has had an average annualized return of 10.95% (so the article is a little off). However, that isn't to say there aren't mutual funds out there that could easily get you 12% per year, but you'd have a high expense ratio. Don't forget, there were bear markets as well as the bull markets since 1975 which would offset the bubble.

    Ok, lets take the hypothetical case of the person making $60,000 aged 25 (lets assume they got into cushy job). They invest in the S&P 500 Index fund earning 10.95% on average (of course it can go negative and way positive which it has done regularly). I want to save 20%, when can I retire? True Value of Money is your answer.
    20% of 60,000 = 12,000/12 = 1,000/month (we're saving monthly here, to take advantage of compounding).
    We want to live on 80% of our pre-retirement income (which is a good target expense rate in retirement) which is $48,000. The PV of $48,000 per year for 50 years (age 40 to age 90) at 10.95% (which will most likely be adjusted lower due to changing risk tolerance levels, but I'll ignore it for now) is $483,660.98 needed in today's dollars at age 40.

    Now, take the $483,660.98 and put that as our future value, N=40-25= 15*12=180, i=10.95%, PV=0, FV=$483,661 your payments per month to get the FV is: $1,111.30

    So, theoretically, you can save about $1,000 and retire at age 40 from the age of 25. Lets not count the consulting or part-time work that you would most likely due to being bored out of your mind and it becomes even more possible.
  • 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.
    • hueristix, on 10/11/2007, -0/+1I think most people are aware of stats like this. Fun to play with money most of us don't have. What about unexpected medical or other bills? To have a 'buffer zone' and then put 20% away for the long haul is beyond most of us. One or two nights on vacation or a crazy speeding ticket is enough to take up the extra we make beyond the regular bills. Many a portfolio has been liquidated when the stuff hits the fan.

      For most of us, the question is not knowing how much to put away- the question is how to earn enough (more!) to live well today and consistently put ANY amount into a long term savings. Even some of us that consistently outperform the S&P 500.
  • 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.
    • withincontext, on 10/11/2007, -0/+1My Fidelity Target Date fund 401k did extremely well last year. With my international investments, the portfolio did about 14%. I've since rolled everything into a mix-growth at American Funds and it's done 5% average over 4 months. So, to your point, 12% is not impossible but pretty optimistic, relatively speaking. There are always those investors who do really poorly, or those that do really well.

      Everyone should invest. However, make sure that if you marry a hot blonde that she isn't a beneficiary, lest you end up face down in a lake somewhere.
  • 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.
    • Hazardc, on 10/11/2007, -0/+1That's kinda how i see things

      but there's also the

      "now you're old, and have all of the money that you could have used to buy the things you wanted your whole life. you conserved everything you had and never enjoyed what you had when you were young. at least you were lucky enough to not already die and make all your savings a moot point."

      I'm 25 right now, i dont make much at all and live debt free while managing to save, granted my current savings is short of having even a 5 number balance, ive been doing pretty good lately
      i suppose i have given up having the nice cars and such. ive been doing a lot of buying and selling of cheaper cars, Im trying to do flight training without loans
  • Pyroxene, on 10/11/2007, -0/+1Is this a Dave Ramsey article?
  • nutsackninja, on 10/11/2007, -3/+2Saving 20% is nothing, I am 25 live with my parents I am probably one of the cheapest people on the planet. I can easily save over 110% of my 9-5 job's salary no problem. I work after work doing odd jobs and during my weekends to pay for my gas/rent/food. If your a hard worker and saving 20% is no problem.
    • danieldeyoung, on 10/11/2007, -2/+3Absolutely, living with your parents while your in your 20's is one of the great ways to save huge amounts of money. Sure you lose a little freedom, but retiring many years earlier provides a heckuva lot more freedom than what you lost.
  • aserer511, on 10/11/2007, -2/+1to quote the beatles, when I am 64....
  • 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.
    • edebolt, on 10/11/2007, -1/+3you can invest in other currencies very easily and profit from a falling US$ . Google FOREX. Be careful though.. The US$ will probably rally in a year or three.


  • mrMt, on 10/11/2007, -1/+3Funny, i read a lot about 'i want to retire and enjoy my life' kind of stuff so what about enjoying it now?

    Here in many european countries, people work 7,5 hours/day, 5 weeks holidays per year and income is (not in all cases) good enough for a mortgage, travelling and do some saving, u got plenty of ways of enjoying life now rather than in 20 years

    btw, while certain math arguments are somewhat reasonable, dont forget that Enron things happens
  • 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.

  • 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
    • nutsackninja, on 10/11/2007, -3/+3Get shipped off to some God forsaken desert to bring democracy to a bunch animals. Get an I.E.D in the head. You'll have the worlds shortest retirement.
    • Jeebugorn, on 10/11/2007, -2/+3you driving through an intersection, get t-boned by someone running the red light, you die. you driving your car, someone in the oncoming lane falls asleep at the wheel, head on collision, you die. you flying in a plane, plane crashes, you die. you gettin money out of an ATM, get mugged, mugger shots/stabs you, you die. but hey, at least you didnt get blown up by an IED.
  • jaxzin, on 10/11/2007, -0/+2If you are looking to forecast this stuff, there's an applet to do it (disclaimer: I wrote it). Most retirement forecasts talk about the return (12%) but don't mention the fact that its an average and the actual returns fluctuate from year-to-year, which is known as risk and is measured by standard deviation. This applet shows you the whole picture, giving you the most pessimistic and optimistic predictions and everything in between. Basically the goal is to get as many lines to intersect with the right side of the chart, aka minimize the chance you are penniless when you die.

    http://jaxzin.com/ira/ira.html
    http://jaxzin.com/2006/02/401k-forecaster.html
    http://digg.com/tech_news/401(k)_Forecaster
  • 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.
    • Jeebugorn, on 10/11/2007, -2/+4or how about this scenario.....since we are dealing with "what if's" and all

      YOU drive your car down some street in some city in america
      you get broadsided by some poor schmuck with no car insurance and no money
      you get hospitalized and have to pay out of your own pocket since the other guy has not insurance to pay for it and suing him would do no good since he doesnt have they money to pay

      but hey, at least you aren't in the military so you're safe from harm i guess

      FYI, you dont have to pay for medical assistance in the military, its free. and it doesnt matter if you have a psychological disorder, you'll still get help for whatever is wrong with you.
  • ecbearden, on 10/11/2007, -0/+1I'm surprised no one has mentioned the book "Your Money or Your Life" This is an excellent resource for giving you the big picture on saving and retiring early. It also makes you figure out what's important. Your money or your life.

    http://www.yourmoneyoryourlife.org/

    I read the book many years ago but this discussion makes we want to read it again.
  • gentlax13, on 10/11/2007, -0/+2Just invest in rent homes, Charge enough to keep $200 or so form each one every month and retire in 5 years when your rent home income meets your monthly expenses.
  • erikwithaknotac, on 10/11/2007, -1/+1I served 4 years in the Marine Corps and managed to come out with 20k saved. And yes, I did have fun too. Everything was paid for, food, housing, medical, your pay is just spending money. So I invested in their TSP plan and bought bonds so i wouldn't spend it. I managed to put a down on a condo and im working two jobs trying to maintain the lifestyle that I had then. Yes deployments sucked, but you were paid well.
  • rosswinn, on 10/11/2007, -0/+1I worked in sec urities for a few years, if you make over 50k, saving 20% of your income is not difficult. People do it all of the time.
  • bluenash, on 10/11/2007, -0/+2I'm putting 14% of my gross pay away into my 401K (which, thankfully, is managed by Vanguard), plus at the beginning of the year I max out my Roth fund (also Vanguard). I live frugally, am single, no children. I'm buying a house so no, I'm not living at home with mom. I hope to have my 1500 square foot house paid for in ten years. Perhaps what fuels my saving is feelings of insecurity about my future. By this I feel there is no one to take care of me. I remember a line in a book written by the former talk show host Phil Donahue: Show me a secure man and I'll show you the manager of a deli. Show me an insecure man and I'll show you the CEO of a multinational corporation.
  • uptown, on 10/11/2007, -0/+1If you work for yourself, and save well ... what's the solution to ensure you can afford your life-long healthcare costs when you get old and retire?
  • withincontext, on 10/11/2007, -0/+2On August 17, President Bush signed the Pension Protection Act of 2006 into law. This new legislation includes important benefits related to 401(k) and other salary deferral plans.

    Pension Protection Act of 2006: http://americanfundsretirement.retire.americanfunds.com/news/2006/pension-protection-act.htm

    Basically, the Federal government is improving the pension laws to increase the incentives and participation in retirement planning. Social Security will be dead when Generations X and Y retire.
  • carbbomb, on 10/11/2007, -6/+1This works out perfectly for a kid who doesn't ever plan to make any kind of big expense, get married or have kids.

    In other words, a loser.
    • withincontext, on 10/11/2007, -1/+3Go beat up a geek and make yourself feel better, meathead.
    • bluenash, on 10/11/2007, -2/+1spoken like a loser.
  • whorunbartertwn, on 10/11/2007, -0/+1I sure wouldn't count on 12% from broad market equity funds going forward, but that doesn't mean it's not possible to save 20% of your income while still enjoying life and take money out of IRAs (google "72t") before age 59 1/2.

    Want to meet people who've retired early thru living below their means? See here:
    http://www.early-retirement.org/forums/

    Or here:
    http://www.retireearlyhomepage.com/

    I'm astounded some believe it's not possible to save 20% of your income and still enjoy a meaningful life with vacations and food that isn't oatmeal.

  • Drecoll, on 10/11/2007, -0/+0There are plenty of articles that come from much more reputable sources than this that show you how to accurately invest your money, I'm sure that all digg users know how to google, well thats where you can find an article from someone who knows more about it than a 20 year old blogger.
    • devolver42, on 10/11/2007, -0/+1Wow... just, wow. Let me guess - we should get all of our news and content from the trusted sources at CNN, right? Because this "20 year old blogger" (if you had read the post at all, you'd realize how stupid this phrase alone was) obviously is out to screw his readership, while the altruistic mass media has nothing to gain at all by force-feeding you crap. Thanks for the clarity.
  • JebJoya, on 10/11/2007, -0/+2Well, from throwing together a little thing in a spreadsheet, I'm going into Actuarial work as a Maths graduate (in the UK). Wage will be about £23k starting (age 23), going to ~£50k after 3-6 years of exams (guessing 5). Setting annual salary rise at 4% after that, 10% out of the original salary (gross? before tax, whichever), calculating after tax how much i can spend, and setting interest rate on my savings to 6% (pretty reasonable after tax, regular savers here can get 8-10% on standard savings accounts, then add in some investments, take away tax, and 6% sounds OK). At 50 I'd be earning £22.5k in interest which is reasonable, where my actual take-home salary minus my investment 10% is £54k (that is £118k before tax, minus 10% and minus tax). Working til 65 I would get £75k in interest, which'd be my take-home from when i was 59-60.

    Of course, the joy here is that my girlfriend (who I'm proposing to soon - shhh, don't tell her) is also becoming an Actuary, so we're sorted :) Actually, maybe I'll ditch the job and just become a researcher... I'd earn no money, but hell! I like maths!

    Jeb
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