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How You Can Retire A Millionaire
Old 07-12-2010, 10:49 AM   #1
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How You Can Retire A Millionaire

Here's one person's prescription. I wonder if anyone ever really does it this way.

How You Can Retire A Millionaire - KTVI
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Old 07-12-2010, 11:15 AM   #2
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Sounds depressing. Glad I didn't have to go to 65.
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Old 07-12-2010, 11:23 AM   #3
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Well, I suppose if you ignore inflation and are fortunate enough to live in an era with 7% average returns, then what he says is true: 40 years of 10% savings can fund a retirement with about a 4% WR.

I didn't check his math though.
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Old 07-12-2010, 11:31 AM   #4
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The whole thing is full of, um, LOLs.

Quote:
Have you ever considered early retirement? If you had a million dollars in the bank, it might be an option.
Fine. Except that they then show us how to accumulate a million by the age of... 65. How early is early?
Quote:
Shane Cox with STL Financialhelp.com explains the easy steps you can take to make your dreams come true.
Really, Shane? So, you didn't just copy and paste it from this blog post made 12 days ago, embellishing the numbers a little?

Oh, and the numbers assume CAGR of around 8% throughout the lifetime. And the whole thing is predicated of 40 years of corporate slavery with kiss-ass pay raises at regular intervals. Just the kind of thing Fox News seems to believe its viewers want, apparently...
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Old 07-12-2010, 01:05 PM   #5
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This is sort of how I see most of my generation securing a retirement. Those born starting around 1980 is who I'm referring to. There will obviously be plenty who don't save much, but many will also be saving the proverbial 10% from a fairly early age. That plus SS will provide a retirement. For companies that have 4-6% matches, it really doesn't take much out of your take home pay to save 10% (say 6% employee and 4% employer).

Most won't be saving the 20-30% that is required to ER if you don't have a pension. But 10% is fairly doable for most. Most young folks with that I know with careers are saving roughly that amount.
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Old 07-12-2010, 01:15 PM   #6
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Reminds me of the great story a Ferrari dealer once told me in all seriousness:

Dealer: "You know how to make one millon dollars selling Ferraris?"

Me: "Do tell."

Dealer: "Start with ten million."
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Old 07-12-2010, 01:18 PM   #7
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I like to emphasize success is more predicated on savings rate than the returns of your investments.

A person saving 5% will have to work 19 years to accumulate 1 year of expenses.
A person saving 6% will have to work 16 years to accumulate 1 year of expenses
A person saving 10% will have to work 9 years to accumulate 1 year of expenses
A person saving 15% will have to work 6 years to accumulate 1 year of expenses
A person saving 20% will have to work 4 years to accumulate 1 year of expenses
A person saving 25% will have to work 3 years to accumulate 1 year of expenses
A person saving 33% will have to work 2 years to accumulate 1 year of expenses
a person saving 50% can work 1 year and save 1 year of expenses at same time.

You could use that same math then figure out if you work 25 years and save 50% then you have 25X expenses of when you started... if you can pay off mortgage by 25th year (and therefore cut expenses) retirement can be predicted better than if you saved 6%, received a 4% match and spent 94% of what you earned. The #1 factor every investor has to their own success is their savings rate. As individual investors we have little control over performance, and even if we change our risk profile, we still have less control over our returns than we probably want.
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Old 07-12-2010, 01:22 PM   #8
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Quote:
Originally Posted by LARS View Post
Reminds me of the great story a Ferrari dealer once told me in all seriousness:

Dealer: "You know how to make one millon dollars selling Ferraris?"

Me: "Do tell."

Dealer: "Start with ten million."
Or the old Steve Martin gag about how to become a millionaire:

"First, you get a million dollars."
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Old 07-12-2010, 02:00 PM   #9
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We have the makings of a new gag, though it's a bit subtle, and I'm not clever enough to phrase it. Basically it's not good enough any more to retire a millionaire. You have to stay a millionaire (not outlive your assets). A million net worth isn't what it used to be, especially without health coverage.
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Old 07-12-2010, 03:06 PM   #10
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Well, how many years of expenses you can save is really based on the both your savings rate AND your income. If your income happens to be fairly high, saving 50% in one year won't just net 1 year, it can net you 3-6 years of living expenses.
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Old 07-12-2010, 03:34 PM   #11
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Originally Posted by plex View Post
Well, how many years of expenses you can save is really based on the both your savings rate AND your income. If your income happens to be fairly high, saving 50% in one year won't just net 1 year, it can net you 3-6 years of living expenses.
LOL I thought savings rate was a percentage of income

so if you save 75% (and spend 25%) that means for every 1 year of work you get 3 years expenses

or if you save 90%, (and spend 10%) that means for every 1 year of work you get 9 years expenses.

The point is savings rate is the single most important variable a saver has control over, so increasing it is the single biggest thing you can do to assure success.
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Old 07-12-2010, 03:56 PM   #12
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LOL I thought savings rate was a percentage of income

so if you save 75% (and spend 25%) that means for every 1 year of work you get 3 years expenses

or if you save 90%, (and spend 10%) that means for every 1 year of work you get 9 years expenses.

The point is savings rate is the single most important variable a saver has control over, so increasing it is the single biggest thing you can do to assure success.
I think you are missing the tax effect, unless you look at savings post tax. If you save 50% of 100K and pay 20K in taxes you know your expense are 30 K but now you need to know how much tax will need to be added to your total retirement spending, most likely not 20K. But I think your table is still very valuable in showing the effect of increasing the savings percentage.
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Old 07-12-2010, 06:05 PM   #13
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Originally Posted by headingout View Post
We have the makings of a new gag, though it's a bit subtle, and I'm not clever enough to phrase it. Basically it's not good enough any more to retire a millionaire. You have to stay a millionaire (not outlive your assets). A million net worth isn't what it used to be, especially without health coverage.
But just think, now that we are entering a deflationary era, your money just makes money (figuratively speaking of course) just sitting there - why it's almost as good as interest!
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Old 07-12-2010, 09:18 PM   #14
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I guess it makes sense if the definition of "early retirement" is any time before you drop dead in yoru cubicle.
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Old 07-12-2010, 09:53 PM   #15
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I like to emphasize success is more predicated on savings rate than the returns of your investments.

A person saving 5% will have to work 19 years to accumulate 1 year of expenses.
A person saving 6% will have to work 16 years to accumulate 1 year of expenses
A person saving 10% will have to work 9 years to accumulate 1 year of expenses
A person saving 15% will have to work 6 years to accumulate 1 year of expenses
A person saving 20% will have to work 4 years to accumulate 1 year of expenses
A person saving 25% will have to work 3 years to accumulate 1 year of expenses
A person saving 33% will have to work 2 years to accumulate 1 year of expenses
a person saving 50% can work 1 year and save 1 year of expenses at same time.

You could use that same math then figure out if you work 25 years and save 50% then you have 25X expenses of when you started... if you can pay off mortgage by 25th year (and therefore cut expenses) retirement can be predicted better than if you saved 6%, received a 4% match and spent 94% of what you earned. The #1 factor every investor has to their own success is their savings rate. As individual investors we have little control over performance, and even if we change our risk profile, we still have less control over our returns than we probably want.
I love this and I realized this early on in my career. All this nonsense about saving x% of your salary is just that. It is ALL ABOUT REDUCING EXPENSES. The lower the expenses, the easier it is to save a higher "x". At the moment, each year I work I save 3 years living expenses.
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Old 07-12-2010, 11:01 PM   #16
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Yes, LBYM is the way to ER or to ESR, short of working for a start-up that goes on to a successful IPO, or winning the grand prize in the lottery.

My two younger brothers make good money. Yet, as they spend most of it (after maxing out their 401k), they do not save as much as I did back when I was still working full-time. Because their expenses are high, they have lamented that there would be no way they could save enough money to retire early, hence the more reason to spend as it would not help to save anyway. Talk about chicken and the eggs.

My brothers once expressed surprise when hearing of someone having $100K sitting in CD in a bank. I had to bite my lips to not volunteer that my portfolio went up or down that much in a few days in this volatile market.

I will add here that I never advise my brothers on how to spend their money. It is their life and they are entitled to spend their income as they see fit.
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Old 07-12-2010, 11:22 PM   #17
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Millionaire, schmillionaire!
A million ain't what it used to be. Remember the Lira? You'ld go to Italy on vacation and be an instant millionaire.
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Old 07-14-2010, 01:21 PM   #18
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Someone once said, "A man who has one million dollars is as well off as if he were rich."
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Old 07-15-2010, 11:03 AM   #19
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At the moment, each year I work I save 3 years living expenses.
That's a lovely ratio. Really. I even get tingly thinking about it. Am I a sicko, or what?
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