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Did you save much toward the end?
Old 01-02-2008, 01:34 PM   #1
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Did you save much toward the end?

I'm 32 now and am investing aggressively. In running the numbers, I've noticed that the amount of "new" money invested in, say, the last 5 years before retirement, really doesn't matter. That is, getting a lot of money in early and giving it time to grow is the real key (duh). But knowing that, I couldn't help wondering if I should bother investing anything at all during those last 5 years before retirement.

If your portfolio is growing by $200k/year on its own, just through compounding, does it really matter if I throw another $30k into it, if that new money isn't going to be in there long enough to really take advantage of compound interest? What did the rest of you do? Do you direct that money elsewhere? Splurge with it? Loosen the purse strings and enhance your lifestyle? Or did you continue socking it away out of pure habit, or a desire to maximize retirement savings as much as possible?
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Old 01-02-2008, 01:53 PM   #2
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I'm 32 now and am investing aggressively. In running the numbers, I've noticed that the amount of "new" money invested in, say, the last 5 years before retirement, really doesn't matter.
It may not show its growth value very much as of the day you retire, but it sure will show it 20 years later. Not every bit of savings is for day 1, given a 30 year retirement. Early is better, but late helps, too.
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Old 01-02-2008, 01:54 PM   #3
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I think "socking it away" is a fair bet. Old habits are hard to break.
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Old 01-02-2008, 01:58 PM   #4
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What Rich said. In 20 years the money you save now won't be "new" money, it will be money you "got in early". It's never too late to save for retirement.
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Old 01-02-2008, 01:58 PM   #5
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Although adding it to the pile doesn't accelerate the date much, I think it can save you from the bigger problem of getting used to a higher standard of living, which in turn requires a larger portfolio to provide. That's the bigger problem with spending it, IMHO.

To say it another way, every $1,000 per year you don't spend is $25,000 in retirement portfolio you don't have to have.

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Old 01-02-2008, 02:28 PM   #6
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Along the lines of 2cor521:

It would be like:
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $50k, save $30k
spend $80k, save $0
spend $80k, save $0
spend $80k, save $0
spend $80k, save $0
spend $80k, save $0
retire, then go back to
spend $50k
spend $50k
spend $50k
spend $50k
spend $50k.

What would you spend that extra $30k/yr on that you would feel ok doing without once you retire? If you permanently increase your spending by $30k, you'll need $750,000 in your portfolio to support this extra spending.

Maybe taking the $30k/yr and using it to pay down any remaining debt (like a mortgage) would make sense. You wouldn't increase your expenses any.
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Old 01-02-2008, 02:55 PM   #7
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If your portfolio is growing by $200k/year on its own, just through compounding, does it really matter if I throw another $30k into it, if that new money isn't going to be in there long enough to really take advantage of compound interest? What did the rest of you do? Do you direct that money elsewhere? Splurge with it? Loosen the purse strings and enhance your lifestyle? Or did you continue socking it away out of pure habit, or a desire to maximize retirement savings as much as possible?
33 here, and while I feel like the savings are like a drop of water in the ocean, I still do it out of habit. I figure every little bit will make a difference later on.

You might consider using the excess now to take care of some capital expenses so you don't have large out-of-pocket expenses arising when you start retirement. Go into retirement with new cars and a well maintained house and the odds of having large unexpected expenses goes down dramatically. Also, if you want some "toy" to enjoy, it's probably easier to afford it mentally while you're still working and have outside income instead of having to pay for it out of your savings that have to last you the rest of your life.
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Old 01-02-2008, 03:02 PM   #8
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As others have said, I don't really see a problem with easing up on the purse strings once you have reached critical mass and the portfolio is essentially powering you to ER. The problem becomes that you get sucked into a higher consumption lifestyle as a result of the looser spending. Unless you can be sure that you can dial back the spending, this could be a problem.

But I think its reasonable that you could use the extra loot for "one-time" expenses, like a big trip you always wanted to go on, but wouldn't repeat every year. Or I suppose splurging on a fancy car or other doodad that will last a long time and could be replaced with something less elaborate when it wears out would be OK.

As an incentive to delever as the opportunity presents itself, I have mentally promised myself that I can use part of the monthly mortgage payment for guilt-free consumption once it is paid off. Of course, by that point I will probably start sweating funding two college educations and many years of Catholic school, but for now the motivation is helpful.
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Old 01-02-2008, 03:12 PM   #9
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Originally Posted by kombat View Post
If your portfolio is growing by $200k/year on its own, just through compounding, does it really matter if I throw another $30k into it, if that new money isn't going to be in there long enough to really take advantage of compound interest? What did the rest of you do? Do you direct that money elsewhere? Splurge with it? Loosen the purse strings and enhance your lifestyle? Or did you continue socking it away out of pure habit, or a desire to maximize retirement savings as much as possible?
If my egg was growing at $200K/year just before I RE'd then I might feel differently, but I am concentrating on controlling spending as mentioned earlier and putting the rest into my egg. If I don't understand spending requirements after ER then I could be disappointed.

(I am 26 months away from RE)
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Old 01-02-2008, 03:45 PM   #10
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Kombat,

I basically did what you're considering my last 3 years. (99-01). I didn't change my lifestyle much. (actually tightened the belt, al little) All the rest went to paying off any debt, getting the house in tiptop shape for retirement, vehicle replacement, etc.
As it turned out, if I had invested it, I would have lost big in the dot.com bust. In fact, I retired earlier than I expected to when my company downsized bigtime. (but with a nice fat severance and a consulting contract)
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Old 01-02-2008, 04:23 PM   #11
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DW is retiring next year. I have been retired three years. We continue to save but less than before. We diverted money we would have previously have saved to pay off the mortgage, paint, replace windows, replace a heat pump and an AC, replace furniture, etc. We want to limit unexpected expenses in the early years of withdrawal - to the extent that we can.
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Old 01-02-2008, 06:06 PM   #12
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I retired in 2006 at 48. I started ramping up spending around 2002 with a trip to France, and stopped
after-tax savings (although I kept maxing the 401k). When I pre-paid off the last $50k of mortgage
2 years later to celebrate reaching my FI number, I ramped it up some more (to replace the mortgage
payment). The growth of my investments was dwarfing my contributions by that time (as your
planning shows is probable), so I started matching my spending to my expected after-retirement
levels. So far, everything is going smoothly.
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Old 01-02-2008, 06:51 PM   #13
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If your portfolio is growing by $200k/year on its own, just through compounding, does it really matter if I throw another $30k into it....
Assuming that "growing" in above is after-inflation (inflation growth doesn't count - that's just replacing existing purchasing power), and assuming an after-inflation portfolio return of 4%, then it would take a $5MM portfolio to grow by $200K/year.

If you have $5MM already - then you're right - you don't need to save an additional $30K each year.

But I would still save it anyhow....
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Old 01-02-2008, 08:04 PM   #14
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I thinjk that my current per year saving is greater than my current or expected ER spending.

From that point of view, every year that I continue to save is like pre-paying for a year of ER that I will not have to draw down on my nest egg.
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Old 01-02-2008, 08:45 PM   #15
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Like others have said, I would advise not to splurge near retirement since pre-retirement spending habits may be tough to break once you retire.
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Old 01-02-2008, 09:49 PM   #16
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I think that my current per year saving is greater than my current or expected ER spending.

From that point of view, every year that I continue to save is like pre-paying for a year of ER that I will not have to draw down on my nest egg.
excellent point - I am fortunately in the same situation that I can still save more in one year than I spend.
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Old 01-02-2008, 10:08 PM   #17
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I'm 32 now and am investing aggressively. In running the numbers, I've noticed that the amount of "new" money invested in, say, the last 5 years before retirement, really doesn't matter.
You're making the common mistake of thinking that the money won't continue to be invested after retirement.

If you retire at 50, your money needs to work for you for 30 to 40 years, so those last few years of investments DO have time to help.

Now, if you have already met a certain goal $$ amount for retirement, then just go ahead and retire earlier!

Another option is to use excess money earned in your last couple of years to pad your checking account so that you don't have to withdraw from your retirement fund for the first year after retiring.

But really, IMO the best way to think about it is meeting that retirement goal in $$ to meet your desired lifestyle after retiring as opposed to the concept of working XX years.

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Old 01-02-2008, 10:28 PM   #18
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Keep stuffing the socks until you are through w*rking. I agree with the comments about the long term affects. It's true that the 30K might not seem to make any difference in the next few years, but remember we all started with much less than 30K in our kittys ... and hopefully they are much bigger now. If you pay attention to the nickels and dimes, they turn into dollars. Or as a rich guy once said ... a million here, a million there ... and pretty soon it becomes real money
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Old 01-02-2008, 10:42 PM   #19
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If your portfolio is growing by $200k/year on its own, just through compounding, does it really matter if I throw another $30k into it.
The growth can also be negative.
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Old 01-02-2008, 10:56 PM   #20
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What everyone else said....I would also make a point that you dont nec. need to spend more, you can ease into less work (less income)...esp. for folks that have side businesses....
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