Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Burns: Every $1 you do not spend = $50 invested
Old 07-24-2006, 05:57 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,880
Burns: Every $1 you do not spend = $50 invested

http://www.dallasnews.com/sharedcont...s.159f94d.html


The power of your personal decisions is enormous. Every dollar of spending you avoid eliminates sales taxes and income taxes.

Follow this trail. An item priced at $1 will cost $1.075 with a typical sales tax. To net $1.075 after a 15 percent federal income tax, you need to earn $1.26 on your investments. At a safe withdrawal rate of 4 percent, that means you need $31.61 in investments to support every $1 of retirement spending.

If you happen to trigger the taxation of Social Security benefits or live in a state with an income tax, the investment multiple you will need can be much higher.

A retiree who triggers the worst possible rates will need to earn $2 on his investments to generate $1.075 of after-tax income to buy something that costs $1.

Every dollar you don't spend eliminates the need for $50 in investments.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I have never seen this aspect of expenses/investments/savings quantified before and I have held this position for many years, I just could never figure out how to do the calculations.

__________________

__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Burns: Every $1 you do not spend = $50 invested
Old 07-24-2006, 06:32 PM   #2
 
Posts: n/a
Re: Burns: Every $1 you do not spend = $50 invested

Yes and this is why after a down market year, reducing spending is a powerful tool to ensure portfolio survival.
__________________
  Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-24-2006, 08:20 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by mickeyd

Every dollar you don't spend eliminates the need for $50 in investments.
I can't help but think that my wife will turn this logic around on me:

'Gee honey, I spent $100 less last month like you asked. Can I have the $5,000 I saved now?'

-ERD50
__________________
ERD50 is online now   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-24-2006, 09:45 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,292
Re: Burns: Every $1 you do not spend = $50 invested

Please, let us not go there. It is a bad week for jokes like this.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 04:31 AM   #5
Recycles dryer sheets
 
Join Date: May 2006
Posts: 174
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by mickeyd


Every dollar you don't spend eliminates the need for $50 in investments. [/i]
Unfortunately, Burns was more than a little sloppy on this point.* It's not per-one-dollar that you spend.* Rather, it's per one dollar per year, recurring every year for the rest of your life.* So nothing like $50 is eliminated by not spending one dollar one time.
__________________
jeff2006 is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 06:52 AM   #6
Recycles dryer sheets
 
Join Date: Apr 2005
Posts: 184
Re: Burns: Every $1 you do not spend = $50 invested

We're still working. I try to look at expenses on a "pre tax basis" - what do we need to earn to net a certain expenditure.

Better yet to look at "what do I need to save" to support an annual return to cover an expense.

Years back Buffett's wife bought new furniture - apparently around $5,000. He made the point that the furniture really cost $20,000 -- the growth potential of $5,000 over 10 years at 15%
__________________
Delawaredave is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 07:57 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,505
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Unfortunately, Burns was more than a little sloppy on this point. It's not per-one-dollar that you spend. Rather, it's per one dollar per year, recurring every year for the rest of your life. So nothing like $50 is eliminated by not spending one dollar one time.
Good point. Did Burns print that? That was definitely a mistake.
__________________
azanon is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 08:38 AM   #8
Thinks s/he gets paid by the post
ladelfina's Avatar
 
Join Date: Oct 2005
Posts: 2,713
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Years back Buffett's wife bought new furniture - apparently around $5,000. He made the point that the furniture really cost $20,000 -- the growth potential of $5,000 over 10 years at 15%
Geez.. yeah, well there is a limit..
For a mega-multi-billionaire to bitch about $5k of furniture is like a regular guy bitching about...?

"Honey, I can't believe you bought that Kraft Mac & Cheese for supper!! In 10 years that .89 could be worth $5.00.. are you trying to bankrupt us?!?"
__________________
ladelfina is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 08:58 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by Azanon
Good point. Did Burns print that? That was definitely a mistake.
Not so much a mistake, what he said is correct - but his lack of emphasis certainly could lead to someone 'hearing what they want to hear'.

His numbers are actually fairly close to the 4% SWR guideline. 4% is 25x spending, he uses 30 to 50x, but it is after-tax spending. Same ballpark.

-ERD50
__________________
ERD50 is online now   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 09:30 AM   #10
Thinks s/he gets paid by the post
Leonidas's Avatar
 
Join Date: May 2006
Location: Where the stars at night are big and bright
Posts: 2,847
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by Delawaredave
Years back Buffett's wife bought new furniture - apparently around $5,000. He made the point that the furniture really cost $20,000 -- the growth potential of $5,000 over 10 years at 15%
Warren knows the value of money and he's not one given to wasting it on frivolities. But his idea of LBYM is a little different than mine. I read somewhere a few years ago that his house still has shag carpeting in it.
__________________
There is no pleasure in having nothing to do; the fun is having lots to do and not doing it. - Andrew Jackson
Leonidas is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 10:30 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 1,375
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by Leonidas
his house still has shag carpeting in it.
30-year-old shag? dust mite fiesta! :P
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
astromeria is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 10:31 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Re: Burns: Every $1 you do not spend = $50 invested

Shagadelic... 8)
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 11:26 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,880
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
It's not per-one-dollar that you spend. Rather, it's per one dollar per year, recurring every year for the rest of your life
I'm not sure I agree Jeff. If I were say 20 years old (don't I wish) and was saving until my retirement at age 70, $1 per year ($50) does not work.

I do agree with ERD50's statement of
Quote:
His numbers are actually fairly close to the 4% SWR guideline. 4% is 25x spending, he uses 30 to 50x, but it is after-tax spending. Same ballpark.
and think we are only refering to a single dollar ($1) in a single year.
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 11:28 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,880
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Shagadelic...
Oh, BE-HAVE...
__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 12:48 PM   #15
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: Burns: Every $1 you do not spend = $50 invested

So,
According to Burns...if you are really well off with a very high income in a very high income tax state and you trip the SS income tax and you are in the over 15% Fed. tax bracket you would need $50 for every dollar you spend annually while in a 30 year retirement based on the usual assumptions about needing $25 for every $1 spent annually while in retirement.

That seems to be on the fringes of reality for most folks. Maybe the top 5% of folks who can generate the kind of retirement income that would put one into a very high tax bracket would ever really experience this amount of tax. It just seems like a real stretch to me to double the amount needed to generate an after tax income.

I have always figured taxes as part of my expenses since the expenses must be lbalanced by some form of income. Once I know my expenses I can then determine the amount of income needed to fund them. Then I can add the tax on top to see the "real" income needed to fund all of it. In no case is it double my pre-tax income stream even if I really crank up the income levels. 30% higher but not 50%. Am I missing something here?
__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 01:25 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by SteveR
. . . *Am I missing something here?
Yeah. Burns is still working and he had a deadline.

Actually, I really respect Scott Burns and like reading most of his articles. But if you have a recurring deadline, you have to publish some stuff that just isn't as good. There may be some very wealthy retirees who need $50 for the last incremental dollars they spend in a year, but I don't think it applies to everyone or even every dollar.
__________________
sgeeeee is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 04:24 PM   #17
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 374
Re: Burns: Every $1 you do not spend = $50 invested

I think the "$5000 spent on furniture story" was actually told by Jim 'Investment Biker" Rogers, a bright enough guy, but MUCH different than Warren Buffett.

Cb
__________________
Cb is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 05:55 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Re: Burns: Every $1 you do not spend = $50 invested

Warren probably OWNS a furniture company (or two)... :P
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 06:03 PM   #19
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,398
Re: Burns: Every $1 you do not spend = $50 invested

Quote:
Originally Posted by SteveR
I have always figured taxes as part of my expenses since the expenses must be lbalanced by some form of income. Once I know my expenses I can then determine the amount of income needed to fund them. Then I can add the tax on top to see the "real" income needed to fund all of it. In no case is it double my pre-tax income stream even if I really crank up the income levels. 30% higher but not 50%. Am I missing something here?
You might be missing sales tax on the item if it's subject to sales tax in your state.
You might be missing federal income tax, state income tax, SS tax, medicare taxes on the income.
Not to mention the additional expenses and time incurred to earn the money that you pay those previous four taxes on before you pay sales tax before you get your item. See YMOYL by Domiguez and Robin.

In my case, let's say I earn $2.00, of which I spend 10% of my earnings and time to get, so that takes it down to about $1.90. SS tax is 6.2%, Medicare is 1.45%, state is 8%, feds are 25%, for a total of 40.65%. That leaves me with $1.13, which is enough to pay my state sales tax on a $1.00 item with about a nickel left over. Those of you with higher state taxes, higher incomes, or long commutes probably have it worse, so I'd say Mr. Burns is right on the money.

2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Re: Burns: Every $1 you do not spend = $50 invested
Old 07-25-2006, 06:14 PM   #20
Recycles dryer sheets
 
Join Date: Jun 2006
Posts: 322
Re: Burns: Every $1 you do not spend = $50 invested

I have always looked at it the other way around. Save a dollar today and invest it and make it 2 dollars by the time I retire.
Which would make the guy right .
Although he did say that the $50 was the worst possible scenario, I have to wonder if he factored in the Bush effect. Then theres the threat of Hilary coming to office. Pushing her health benefits for all. Someones going to have to foot the bill.
Rob
__________________

__________________
spideyrdpd is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Do you spend a significant amount of money on your appearance/grooming Tracker FIRE and Money 46 03-26-2007 10:01 PM
Scott Burns burns Home Depot REWahoo Other topics 17 03-06-2007 10:09 PM
Saving to spend kz Life after FIRE 16 09-09-2006 04:34 PM
Scott Burn's Swan Song? Telly FIRE and Money 26 10-05-2005 01:58 PM
Scott Burns: Stay safe on retirement spending PL FIRE and Money 49 12-22-2004 11:59 AM

 

 
All times are GMT -6. The time now is 10:20 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.