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Old 08-22-2013, 09:33 PM   #21
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Comparing $40K now to $1M 43 years from now is a bit disingenuous in that inflation will seriously erode the purchasing power of $1M in 43 years.

That being said, I always informally advise people to save as much as possible in their initial earning years to take advantage of the compounding effect.

-gauss
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Old 08-22-2013, 09:40 PM   #22
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Originally Posted by modhatter View Post
I hate these brokerage firms using numbers from past where bonds were yielding decent returns (yield & appreciation) and company dividends were much stronger to show a retiree probable numbers during their withdrawal phase. That time period could enable a retiree to take money from their bonds and dividends to a much greater extent than it would be for retirees today.

Now that might change in the future, but that future will not help out current retirees. Such a draw of 4% today for that kind of time frame would be suicidal today for current new retirees, especially early retirees. So is this a new article or an old article? If it's new, Shame on them.

Which brings up a pet peeve I have. I hate pulling up articles on the web, only to "not find" the date it was written. When it comes to financial stuff, dates are very important.
This is a fantastic point. Today there simply is no yield (other than, perhaps, buying a rental property and working as a landlord which isn't really yield, it's a job). So you have no choice but to invade principal. Hopefully this changes sometime soon, but for the last four years or so a 4% withdrawal means that you're depleting the nest egg by 4% and there is no yield to fund the depletion.
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Old 08-22-2013, 11:43 PM   #23
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Heck, it's not just the investment industry encouraging you to work and spend more. The entire country's economy, the world economy, is based on economic growth....i.e spending more every year. Saving the $5000/yr or $40,000/yr for an earlier retirement only works if it's just a few of us who do it. If everyone does it, then the economy shrinks, jobs disappear, recession hits, deficits soar.

It is a little sobering to think about it that way. We need everyone else to spend freely to keep the economy growing so that we can save and enjoy an early escape from the working world. It feels a little selfish when I say it that way.
I am not buying it that big box stores, low savings rates and oversize house are the only way to keep an economy robust.

According to an article in Scientific American -

"Americans account for only five percent of the world’s population but create half of the globe’s solid waste."

Use It and Lose It: The Outsize Effect of U.S. Consumption on the Environment: Scientific American
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Old 08-23-2013, 01:25 AM   #24
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I am not buying it that big box stores, low savings rates and oversize house are the only way to keep an economy robust.
Me neither. Who said that it was the only way? I just said that that's the way it is today. Let's change it!
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Old 08-23-2013, 04:56 PM   #25
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Me neither. Who said that it was the only way? I just said that that's the way it is today. Let's change it!
Your original statement gave the impression that the small element of savers in our consumer society are somehow benefiting at the expense of non savers. All of the improvements we have today are because someone decided to make an investment for tomorrow. The more savers the merrier.
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Old 08-23-2013, 07:02 PM   #26
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It seems to me that I doesn't really add $1m to your retirement it adds $1m to your heir's inheritance. Thank you, but I would rather have an extra year of retirement.
IMHO this is the point to take from this 'article'.

Paul Merriman is a valuable resource because he professes planning. But he is a backtester. Backtesters are not bad, and they have excellent data acquisition and spreadsheets skills. They sometime lack the intangible foresight to understand WHY they are making their spreadsheets.

IMHO this article is not relevant unless your goal is to buy cocaine (or whatever they dig nowadays) for your heirs.
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Old 08-23-2013, 07:39 PM   #27
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Your original statement gave the impression that the small element of savers in our consumer society are somehow benefiting at the expense of non savers.
I'm saying that today's economy would take a huge hit if every US household decided to put an extra $10k in the bank next year. That would represent a >10% decrease in US personal consumption (over $1 trillion), and would have a hugely recessionary effect. It would make additional capital available for investment, and conceptually that is good, but with a personal consumption market that just contracted 10%, how much of that money would be borrowed and invested any time soon? And with all that new capital available, interest rates (i.e. rates of return for savers) would drop dramatically.

And then there's the demographic issue....if the average retirement age shifted down to 50 from its current 61, that would make 20 million fewer taxpayers (I know we're all taxpayers, I mean those with high incomes paying higher rates) supporting a government that has an additional 20 million non-workers to shepherd. That would have a huge impact to both the US federal budget/deficit and social security.

So the effect of everyone saving like you and I do and retiring at 50, would be a recession, decreased investment returns, a weaker social security system, and a larger federal deficit. Hence my statement that early retirement only works if a few of us do it.

That said, a slow shift to higher average savings rates and earlier retirement ages could result in a higher gross domestic happiness without having catastrophic economic effects. But I do think that there would still be negative economic impacts (at least the way we measure today) like those seen by the high savers in Japan in the 90's and 2000's....a sluggish economy despite readily available capital because of low domestic consumption. I don't know how Japan's gross domestic happiness fared during that time period, however. They may have been very successful on that front.
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Old 08-23-2013, 07:56 PM   #28
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Originally Posted by gauss View Post
Comparing $40K now to $1M 43 years from now is a bit disingenuous in that inflation will seriously erode the purchasing power of $1M in 43 years.

That being said, I always informally advise people to save as much as possible in their initial earning years to take advantage of the compounding effect.

-gauss
Good point. Forty-three years ago, $1 in 1970 had the same buying power as around $6 today. $1M in 43 years might only have the buying power of around $170K today.

Saving early is great. Dying from a heart attack working that extra year to save another $40K if you are already FI might be a stupid thing to do.
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Old 08-23-2013, 08:01 PM   #29
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Savings rates in the U.S. used to be higher in years past and the economy wasn't always sluggish during those years -

Personal Savings, 1950-2011 | pgpf.org
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Old 08-24-2013, 07:40 PM   #30
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As many have mentioned, one dollar in 1969 wasn't the same thing as one dollar today.

Here's another way of saying that. In 1969, the average annual wage was about $5,900. That extra $40,000 didn't represent one more year of work. For the average worker, it represented 6.5 more years of work.

Not a small thing.
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Old 08-25-2013, 08:10 AM   #31
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Saving early is great. Dying from a heart attack working that extra year to save another $40K if you are already FI might be a stupid thing to do.
Thanks for crystallizing this point. I see myself in its reflection.
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Old 08-25-2013, 08:11 AM   #32
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As many have mentioned, one dollar in 1969 wasn't the same thing as one dollar today.

Here's another way of saying that. In 1969, the average annual wage was about $5,900. That extra $40,000 didn't represent one more year of work. For the average worker, it represented 6.5 more years of work.

Not a small thing.
I think he had to use something "reasonable" in the minds of most readers. You can easily adjust this article to make it more historically appropriate. Instead of $40,000 use $10,000 which is still a great 1969 income. That would have you starting with a $250,000 portfolio. That amount was significant but possible for a good saver of the period. You could fast forward to the end of the portfolio and divide that by 4 also. You'd leave an estate a little over $1MM to your ungrateful heirs.
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Old 08-25-2013, 01:54 PM   #33
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I think he had to use something "reasonable" in the minds of most readers. You can easily adjust this article to make it more historically appropriate. Instead of $40,000 use $10,000 which is still a great 1969 income. That would have you starting with a $250,000 portfolio. That amount was significant but possible for a good saver of the period. You could fast forward to the end of the portfolio and divide that by 4 also. You'd leave an estate a little over $1MM to your ungrateful heirs.
Yep. There are multiple equivalent ways of saying this. If I'm reading the article right, an extra $40,000 grew to $1,000,000. So an extra $10,000 would grow to $250,000.

A 62 year old staying in the workforce an extra year and saving the wage equivalent of $65,000 back in 1969 would have it grow to $250,000 after 43 years, when he finally died at age 105.
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