Starbucks Retirement Plan

[chinaco]

I heard an interesting comment. Of course, it depends on the assumptions one makes on the calculations.

The comment was: Stop drinking that daily Latte' you pickup while going to work and retire a millionaire.

If the extra large latte is $5 x 250 work days invested in a mutual fund that earns an average of about 8% for age 20 to 65 and you are almost there.



I have heard other similar descriptions to make the point that savings can add up. Even a person of modest means can acquire a sizable nest egg if they work, watch their pennies, and stay out of debt.

[Rambler]

Yup, and pack a brownbag lunch instead of visiting a restaurant or the roach coach, and you double your RE fund!

R

[kombat]

While I strongly concur with the sentiment, I think it does a disservice to people to not be completely honest with them.

$5/day, 250 days per year (which assumes only 11 days per year for vacation and statutory holidays) is $1,250/year, or $104/month. At 8%, from age 20 till 65, that gives you around $521,000. That's certainly a respectable amount for simply foregoing your daily overpriced coffee, but it's nowhere near the magic $1 million mark.

Furthermore, you've taken an enormously long time period. Is it realistic to assume the person will start as early as age 20?

Finally, you've ignored inflation. Assuming 3% inflation, that $521,000 would only be worth $137,700 in today's dollars. At a 4% SWR, it would only produce $5,508 per year in inflation-adjusted income.

Certainly, "start early" and "every little bit helps" are a good messages. But "all you have to do is skip your coffee" is not.

I think the "Save 10%" advice is a better rule of thumb.

[oma]

Quote:

Originally Posted by chinaco I heard an interesting comment. Of course, it depends on the assumptions one makes on the calculations. The comment was: Stop drinking that daily Latte' you pickup while going to work and retire a millionaire. If the extra large latte is $5 x 250 work days invested in a mutual fund that earns an average of about 8% for age 20 to 65 and you are almost there. I have heard other similar descriptions to make the point that savings can add up. Even a person of modest means can acquire a sizable nest egg if they work, watch their pennies, and stay out of debt.

Its the whole concept of LBYM. I stopped buying the newpaper (on a regular basis), contributing to Starbucks (on a regular basis), buying from coke machines and vending machines. I bring lunch (nuke it) and a thermos of coffee to work (or use a coffee pot at work). I don't feel like I'm missing anything - losing weight because of rare fast food visits. I even consolidate car trips- to save gas. Read more library books/magazines and rent movies instead of going to the theater. No big inconvenience, really. I don't feel frugal in my ways. Not sure how much $$$ I save, but it makes sense not to just throw away $$$$ at unnecessary purchases.

[sarahsays]

Quote:

Originally Posted by kombat While I strongly concur with the sentiment, I think it does a disservice to people to not be completely honest with them. $5/day, 250 days per year (which assumes only 11 days per year for vacation and statutory holidays) is $1,250/year, or $104/month. At 8%, from age 20 till 65, that gives you around $521,000. That's certainly a respectable amount for simply foregoing your daily overpriced coffee, but it's nowhere near the magic $1 million mark. Furthermore, you've taken an enormously long time period. Is it realistic to assume the person will start as early as age 20? Finally, you've ignored inflation. Assuming 3% inflation, that $521,000 would only be worth $137,700 in today's dollars. At a 4% SWR, it would only produce $5,508 per year in inflation-adjusted income.

True, but for those people that always say they don't have enough to save and are putting more and more debt onto credit cards, even $137,700 would be better than nothing!

[Caroline]

Thanks very much, kombat.

I've heard this coffee example many times now and I, too am on board with the sentiment. But I always enjoy watching someone examine the assumptions to come up with the real bottom line.

PS: I've cut Starbuck's back to Sunday's only -- it actually makes it more of a treat when I do go.

[tuixiu]

I like kombat's post too... the cup o'joe analogy is thrown around a lot and while it's message is great the raw numbers don't tell quite agree with the implied result.

I believe the only modern personal finance cliche I hear more than the daily latte is where Sue starts at 25 and Mike starts at 35 both saving $100 per month, with the various permutations of Sue stopping at 45 or both going until 65 or how much more Mike must add to be equal at 55 etc.

Eating lunch out during the week is probably that which I'm guiltiest of among the commonly referenced no-nos. I probably bring 1-2 times depending on leftovers situation but to me getting out of the office and enjoying a prepared meal while socializing really is one of the high points of my workday. Hell sometimes "the gang" is already debating and planning options lunch by 9:00 am.

The worst is when I've been a good boy and brought leftovers and suddenly everyone has plans to go somewhere we've not been in a while that sounds really freakin good... I cave every time. I'd say at least 1/3 of the times I walk out my front door with a plastic container of food I carry it back in that evening.

[Walt34]

That was one of the animated conversations with the ex-wife. I pointed out that brown-bagging lunch would pay for a trip to Bermuda once a year. Nope, she wanted both. Some people just gotta have their cake and eat it too.

In my case since I only had 30 minutes for lunch, bringing it was almost a necessity.

[kombat]

Quote:

Originally Posted by Walt34 I pointed out that brown-bagging lunch would pay for a trip to Bermuda once a year. Nope, she wanted both. Some people just gotta have their cake and eat it too.

Ha! My wife and I brown bag our lunches and don't go someplace exotic each year (unless you count her family cottage in PEI "exotic"). What does that make us?

[tuixiu]

kombat you should just brown bag Bermudan food and call it square

[Arc]

Isn 't it a better idea to simply give your savings the same priority as your mortgage payment - i.e. make it a bill - then with your left over $ - have a latte if you want?

[Midpack]

Quote:

Originally Posted by oma Its the whole concept of LBYM. I stopped buying the newpaper (on a regular basis), contributing to Starbucks (on a regular basis), buying from coke machines and vending machines. I bring lunch (nuke it) and a thermos of coffee to work (or use a coffee pot at work). I don't feel like I'm missing anything - losing weight because of rare fast food visits. I even consolidate car trips- to save gas. Read more library books/magazines and rent movies instead of going to the theater. No big inconvenience, really. I don't feel frugal in my ways. Not sure how much $$$ I save, but it makes sense not to just throw away $$$$ at unnecessary purchases.

Like oma and many others here, I'm much the same and I don't feel the least bit deprived, actually quite the opposite. I'm thankful the impulse to spend money to impress others (mostly strangers) became a hollow pursuit for me about when Your Money or Your Life first came out (1992?). I'm preaching to the choir but the irony is; it's far more rewarding to live the LBYM life than it ever was to live the (the) 'yuppie' lifestyle - who was I trying to impress?

But most people I know are still spending beyond their means trying to buy happiness, friendship, social status, etc. even though it's clearly to no avail. But I know they have to come to the LBYM realization on their own, no point in trying to sell others on the idea until it starts to dawn on them. For now, many of them think I'm just a tightwad, and I love it. Not that I'll much care when it happens, but when I walk out the door FIRE'd 10-20 years before they do --- despite what they say to rationalize their life choices, I'm sure they will have some thoughts of 'how the heck can he do that?'

[W2R]

My thinking on this is as follows.

You like birthday cake, but probably you wouldn't eat it every day.

You like pumpkin pie, but probably wouldn't eat that every day, either.

Similarly, to me a rich, special coffee is a treat and I don't need that every day. Sure, I love it when Frank takes me to Morning Call for cafe au lait and beignets. But every day, day in and day out? To me that would be childishly self-indulgent and would not be good for my health. It would not be a special treat any more, either.

The effect on ER savings is secondary, for me. Boy, does this sound old-fashioned! Oh well. There you have it.

[Meadbh]

My bank did a whole promotional campaign around this last year.

Scotiabank - Be a Savvy Day-to-Day Shopper

[packrat44]

Quote:

Originally Posted by kombat While I strongly concur with the sentiment, I think it does a disservice to people to not be completely honest with them. $5/day, 250 days per year (which assumes only 11 days per year for vacation and statutory holidays) is $1,250/year, or $104/month. At 8%, from age 20 till 65, that gives you around $521,000. That's certainly a respectable amount for simply foregoing your daily overpriced coffee, but it's nowhere near the magic $1 million mark. Furthermore, you've taken an enormously long time period. Is it realistic to assume the person will start as early as age 20? Finally, you've ignored inflation. Assuming 3% inflation, that $521,000 would only be worth $137,700 in today's dollars. At a 4% SWR, it would only produce $5,508 per year in inflation-adjusted income. Certainly, "start early" and "every little bit helps" are a good messages. But "all you have to do is skip your coffee" is not. I think the "Save 10%" advice is a better rule of thumb.

Agree with you totally. I get annoyed by people referring to face value of the $ many years down the road rather the actual buying power. Similar to politicians with half truths.

As the saying goes - "Figures don't lie, but liars do figure".

[maddythebeagle]

I always find the "latte factor" amusing....considering that there is a subset of folks dont build wealth because they spend money on cigarettes and scratch off lottery tickets...to point out a group that spends on starbucks and have comfortable jobs that might not be maxing out their 401ks seems kinda silly...

[bubba]

I like the way the Want2Retire expressed herself. If you go everyday, where's the treat factor? I don't want to deny myself all the treats; I just want to make good choices. If Starbucks was that important to me (I bring my own coffee from home in a big travel mug thing), I would stop once in a while. I bring my lunch everyday, but it isn't just to be thrifty - it's because going out to eat everyday isn't important to me. Also, I'd weigh a ton if I ate lunch out each day. Making good choices with what's left over after savings, etc is the key as I see it.

[barbarus]

Quote:

Originally Posted by chinaco invested in a mutual fund that earns an average of about 8% for age 20 to 65

Screw the coffee, (never touch it), where can I get 8%??

[rs0460a]

Quote:

Originally Posted by maddythebeagle I always find the "latte factor" amusing....considering that there is a subset of folks dont build wealth because they spend money on cigarettes and scratch off lottery tickets...to point out a group that spends on starbucks and have comfortable jobs that might not be maxing out their 401ks seems kinda silly...

I thought buying lottery tickets was the path to a secure retirement

- Ron

[DblDoc]

Don't like Starbucks coffee so no sacrifice there for me. We did find that if I brownbagged my meals it went a long way towards DS college fund.

DD