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Re: Ben Stein - More doom and Gloom on Retirement............
Old 04-19-2006, 01:55 PM   #41
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Re: Ben Stein - More doom and Gloom on Retirement............

Thank you all for your warm welcome.

Something I think is interesting about the formula I mentioned is that you have to realize this at a very young age if you want to be able to retire early. Even I should say if you want to retire at all with a lifestyle anywhere close to pre-retirement. A 25 year old needs to save 25% to make it to a normal retirement of 65. Unfortunately for them few realize it at that age.
I myself didn't realize this but I was lucky enough to start saving for ... well... any kind of things I wanted. House. Cars. Vacations etc

In effect the most difficult is to overcome taxes, as even savings will be taxed at higher income rate. (except 401k, deductible IRA portion). The situation gets better in retirement with an overall lower tax burden.

As for the fact that money will be invested at higher return than inflation. Even this helps it will not be for much the amount of savings is the overwelming factor.
If your savings rate is very high you will reach retirement earlier and investments will not have time to grow much so the difference is minimal. If your savings rate is low, well, then you are not worried about early retirement. Remember the SWR rate of 4% well it applies to pre-retirement as well as post-retirement. If you are counting on a much higher rate of return prior to retirement you can also count on a higher SWR.
Are you ready to increase your SWR masterblaster?
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Re: Ben Stein - More doom and Gloom on Retirement............
Old 04-19-2006, 03:06 PM   #42
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Re: Ben Stein - More doom and Gloom on Retirement............

Quote:
Originally Posted by perinova
A 25 year old needs to save 25% to make it to a normal retirement of 65. Unfortunately for them few realize it at that age.
I'm 45 and I STILL don't "realize" it.

Retirement is a multi-factored formula with several non-correlated variables, so from what do you derive that seemingly simplistic statement?

Frankly it suspiciously resembles the kind of sound bite that claims retirees need 70-100% of their pre-retirement income-- and we all know how true that assertion is.
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Re: Ben Stein - More doom and Gloom on Retirement............
Old 04-19-2006, 03:24 PM   #43
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Re: Ben Stein - More doom and Gloom on Retirement............

Quote:
As for the fact that* money will be invested at higher return than inflation. Even this helps it will not be for much the amount of savings is the overwelming factor.
I'll just point out that the money that is saved when you are young is the money that has time to really snowball. I haven't tracked it too carefully but I beleive that I have a career average return of around 8 percent over inflation for my return.

At 8% over inflation and 25 years my return would be over 3 times what an inflation only savings plan would yield.

Another way to look at is I would only have to save for ~14 years what it would take someone earning only rate of inflation to have in 25 years.

Contrary to your statement...rates of return over long periods do make a big big difference.

Similarly investment expenses act as a big big drag on earnings and over long periods of time can be very very costly. High investment expenses should therefore be avoided.
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Re: Ben Stein - More doom and Gloom on Retirement............
Old 04-19-2006, 04:47 PM   #44
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Re: Ben Stein - More doom and Gloom on Retirement............

Quote:
Originally Posted by MasterBlaster
...the money that is saved when you are young is the money that has time to really snowball. I haven't tracked it too carefully but I beleive that I have a career average return of around 8 percent over inflation for my return.
...
Another way to look at is I would only have to save for ~14 years what it would take someone earning only rate of inflation to have in 25 years.
...
Similarly investment expenses act as a big big drag on earnings and over long periods of time can be very very costly. High investment expenses should therefore be avoided.
MasterBlaster
I agree with you completely on all counts.( save early, watch expense ratios,)
I didn't mean to say that returns don't matter. Just that - for me personally- I would rather not count on higher return to compensate for lower savings rate.

Quote:
Originally Posted by Nords
Retirement is a multi-factored formula with several non-correlated variables, so from what do you derive that seemingly simplistic statement?

Frankly it suspiciously resembles the kind of sound bite that claims retirees need 70-100% of their pre-retirement income-- and we all know how true that assertion is.
Nords:
Yes the method (in my previous post did you see it) is simplistic but it is there as a guideline. I in the past many spreadsheets and other methods to plan finances for retirement, varied many variables to make scenarios... I only came up with this method in the past year and interestingly enough got the same answer using this simple method.
I am not claiming anything. The formula shows that by saving 25% of income you will be able to retire after saving for 40 years, and you will then be able to draw 75% of pre-retirement income and SUSTAIN THE SAME LIFESYLE BEFORE AND AFTER.

Nothing else is claimed by this. It is just a Point of Reference you can use. If you want more after retirement save more or retire later. If you want less do the opposite.
This simple method is a good tool to alert younger workers to the challenge of retirement. Like everything financial the actual result will higher for some, lower for others. and the target needs adjustment from time to time based on life events and actual returns.

------------------------------------------------

By the way for those who want to experiment with this method, the formula to use is: Time_to_retire = (1/save_rate - 1)/SWR

After experimenting with investment returns etc I concluded that (for my own use) I could rely on 10/save_rate as an approximation. It works for 4% SWR for savings period above ~7 years.

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Re: Ben Stein - More doom and Gloom on Retirement............
Old 04-19-2006, 08:49 PM   #45
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Re: Ben Stein - More doom and Gloom on Retirement............

Quote:
Originally Posted by perinova
The formula shows that by saving 25% of income you will be able to retire after saving for 40 years, and you will then be able to draw 75% of pre-retirement income and SUSTAIN THE SAME LIFESYLE BEFORE AND AFTER.
Well, if it works for you then good.

I'd prefer to stick with the approach that got us here and has worked for the last five years of ER-- LBYM, DCA into low-cost funds, & ER budgeting.

I think financial advisors flinch at having to suggest to anyone that they'll need to save 25% of their pay for 40 years to preserve their standard of living. People should look at their current spending, figure out how it'll change in ER, and set a savings target to fund the ER budget. The required annual savings may be 25% but I bet it's lower for many.
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