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.
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.
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.
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.