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About 50% of your retirement is your contributions.
Old 09-29-2019, 06:24 PM   #1
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About 50% of your retirement is your contributions.

Sounds like prudent information by JClements.
Great site to sign up to for monthly insights.

https://humbledollar.com/2019/09/show-me-the-money/

With LT returns predicted 4%-5% real, after decades of 7-9%real, this makes sense to me. Nothing lasts forever!

I saw this article cited on another FIRE centric board by a well respected member there.
Savers for the winnnnnnn!!!

My RMDs, when they start, will probably go to savings too.
I have no personal beneficial interest promoting JClements insights.
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Old 09-29-2019, 06:52 PM   #2
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Why not claim 2% to 3% real long term returns? Or any other number? An “analysis” that begins with a “guess” on a critical factor isn’t useful.

Projecting the average real rate of return of the last ten or more decades into the next 3 or 4 decades is more reasonable and defensible than some arbitrary guess.
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Old 09-29-2019, 06:55 PM   #3
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If we had another 2008 drop, would the experts still be predicting 4-5% real returns AFTER the drop?
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Old 09-29-2019, 07:33 PM   #4
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If we had another 2008 drop, would the experts still be predicting 4-5% real returns AFTER the drop?
I do not know. I know I try to stay as updated as I can and data suggests 4%/5% is accepted current consensus as I understand it,.. going forward.
It'd be better to be better of course.
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Old 09-29-2019, 07:34 PM   #5
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I read the article and I did the saving while working thing and so now it's time to...

Blow That Dough!
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Old 09-29-2019, 07:54 PM   #6
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The truth is younger savers have No Idea what their real rate of return will be. The best advice is to save early, and save as much as they can while keeping a sensible AA. Every few years they can tweak their plans based on savings and performance to date.
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Old 09-30-2019, 04:49 AM   #7
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Around RE time I figured out that about 1/3 of my investments were my contributions and 2/3 was return.
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Old 09-30-2019, 06:10 AM   #8
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I just did a quick check, and it looks like about 44% of my investable assets is principal, 56% interest/appreciation/capital gains/etc. So in my case at least, I guess that article isn't too far off.

However, my results are skewed a bit, because I received a fairly substantial inheritance in 2017-2018, and I counted that as principal. That money is also recent enough, that it hasn't had much time to grow.
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Old 09-30-2019, 06:22 AM   #9
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The thread was moved to the FIRE and Money forum.
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Old 09-30-2019, 06:26 AM   #10
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the article shows the importance of saving (and thus LBYM), and not just relying on market returns by themselves to fund ones retirement. DW and I certainly were better savers than investors.


I don't know about all of my investments, but for my 401K about 27% of its current value represents my contributions on a 35 year period.
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Old 09-30-2019, 07:18 AM   #11
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How would you classify company match dollars? Are they contributions or investment gains? For me this is not trivial because I would also include the value of the cashed-out company stock which was crucial to my being able to ER in late 2008.
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Old 09-30-2019, 07:19 AM   #12
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How would you classify company match dollars? Are they contributions or investment gains? For me this is not trivial because I would also include the value of the cashed-out company stock which was crucial to my being able to ER in late 2008.
The IRS treats it as a payroll cost, so that would be a contribution.
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Old 09-30-2019, 07:39 AM   #13
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The IRS treats it as a payroll cost, so that would be a contribution.
From the company's perspective, I can see it is a contribution. But from the employee's perspective, might it be an investment return? I contribute $1000, the company adds a 6% match ($60), and the overall pot gains 5% ($53). Now the account has $1113. From my perspective, the "gains" were $113. The fact that much of it came from my employer and not what the money was invested in makes no real difference. Furthermore, from a tax perspective, the matching funds and investment gains will be treated alike (not necessarily true for company stock due to NUA).
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Old 09-30-2019, 07:44 AM   #14
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I consider matching and even pensions, as a return. If it didn’t come out my salary, it is a return, IMHO. I mean, 10% of my portfolio is company match and its earnings, and then compare my pension on top of that, the pension is the far greater benefit.

Fairly “duh, what if article” that offers very little insight for this forum, except to depress those that are young and hoped to be FIRE based on the LBYM movement and experiences of those already FIRE on this forum. First, how many/what percentage of hard line serious LBYM savers work 40 years?? I know a few, and they all have the same trait.... the inability to spend and enjoy the money that they hoard. They worked because they loved getting paid for what they did, and saving became an almost obsession. I see no point in working 40 years & having a net worth of $10M, if you live like you have $50k/yr income in retirement. I would have zero incentive to live like that for 40 years of a career to retire in that mode. The point of FIRE is to not work for 40 years, and leave a ton of money to heirs, IMHO. It is to enjoy life as you want.

And then, did anyone really think they would reliably become wealthy because 2/3rds of their nest egg would be earnings & growth?

In my case, I did work almost 40 years, having never heard of FIRE, and the though of it, literally non existent. I belonged to a “work hard, save some, and it all works out” cohort, ut the important thing was to work at something you enjoy that happened to pay well. My first 15-20 were full of tunnel vision youthful financial stupidity and lack of understanding. I was almost 40 (1998) before I really even started grasping the enormity of what funding a healthy retirement meant, and came to the realization that workkng for just money and not fulfillment was a death march, and I considered myself a bright engineer. Which does not always translate to smart with money. I was never a spendthrift, but 2 divorces, and job changes had me with zero NW in 1996. BUt I lived what I considered well, after that realization, though, certainly not luxurious. I think many here may have had money centric educations, backgrounds and careers that gave them an early leg up, and maybe they got their fulfillment from just making a much as possible for investing?

In my case, (and DW’s) our comfortable final return is based on not chasing the earned dollar, with an investing saavy the basis core of growth, but the resultant pension and SS dollars, coupled with decent earnings (in our humble opinion). Our portfolio is about $1.4, but most of it was made by lucky return timing, compounding of that, and leveraged debt of our homes with lucky timed sales. The last 7 years of my career I started socking away $25-35k/year, entirely in 401k, (as per the article realizations, which I feel is fairly common place) which I bled in to IRAs once I became more educated, and invested with higher risk, which thanks to this bull, was profitable. My 12 year portfolio returns combined have been about 12-14%/yr, which is mainly from a few extremely great years of 30ish % and most around a more normal 7-8%. But IF I had to live entirely on savings returns vs working for a healthy wage, and then continue that in retirement, my life would be far poorer. I always considered my salary the combination of what I was paid, plus the equivalent of what the pension was adding to an imaginary investment. Our pensions were all non contributory, so I feel $60k income in added retirement income, from just working something you like plus pays well to live the lifestyle you want at the moment is a pretty smart gig. To me, I saw little difference between final retirement incomes from a NW generating income in retirement based on just portfolio size, (with all the risk on you) vs a combination of what my working would end me up with, income wise in a situation that I felt historically was very safe.
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Old 09-30-2019, 08:05 AM   #15
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I would count megacorp contributions to my retirement funds as part of my salary package, thus contributions not investment returns.
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Old 09-30-2019, 08:10 AM   #16
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I would like to know what is going to fundamentally change in the stock market that will result not only in historical returns significantly below average going forward but a sustained reduction in returns over several decades? Most of the time I read predictions of 4% or lower returns going forward indefinitely the prediction falls within one of the following categories:

1. Zero evidence to support significant reduction in average long term returns going forward.
2. An obvious biased forecast based on personal or institutional investment strategies already in place.
3. Politically related predictions.

I can understand a shorter period of below average returns. That happens all the time. But to say the stock market will return 4% on average for the next 40 years makes no sense to me. What could possibly happen that would sustain those kinds of muted returns compared to historical averages for several decades?
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Old 09-30-2019, 08:11 AM   #17
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Ok, but I haven't 'saved' (put aside) any extra money in the past 15 years since RE.

Yet, I've more than doubled my starting balance (despite '08 and yearly withdrawals) and I'd expect it to triple from that start balance in the next 15 years. Clearly the market has outpaced my ability to save.
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Old 09-30-2019, 09:14 AM   #18
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Exactly. Bing bing bing.
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Old 09-30-2019, 01:07 PM   #19
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I would like to know what is going to fundamentally change in the stock market that will result not only in historical returns significantly below average going forward but a sustained reduction in returns over several decades? Most of the time I read predictions of 4% or lower returns going forward indefinitely the prediction falls within one of the following categories:

1. Zero evidence to support significant reduction in average long term returns going forward.
2. An obvious biased forecast based on personal or institutional investment strategies already in place.
3. Politically related predictions.

I can understand a shorter period of below average returns. That happens all the time. But to say the stock market will return 4% on average for the next 40 years makes no sense to me. What could possibly happen that would sustain those kinds of muted returns compared to historical averages for several decades?
Great muse......
I myself might* suspect 'growth' possibilities & all FIAT currencies competing.
The USAs market indexes as new investment vehicles since say the 1800s to 2000s has had a growth premium that I suspect it'll never have again.

EM indexes on the other hand .........?? No one knows.

EM indexes "predictions" currently carry higher LT return premiums afaik.
Everyones speculating ..to a point/risk level.
jmho/Best wishes......
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Old 10-01-2019, 07:21 AM   #20
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Great muse......
I myself might* suspect 'growth' possibilities & all FIAT currencies competing.
The USAs market indexes as new investment vehicles since say the 1800s to 2000s has had a growth premium that I suspect it'll never have again.

EM indexes on the other hand .........?? No one knows.

EM indexes "predictions" currently carry higher LT return premiums afaik.
Everyones speculating ..to a point/risk level.
jmho/Best wishes......
Good points. Iím hoping technology will help spur itís own growth premium going forward. The rapid advancement of technology and the capacity to apply those advancements to a wide variety of different industries could create new opportunities for growth that would replace old ones. I guess itís all just a guessing game.
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