Winnipesaukee Forum - View Single Post

jeffk · 01-07-2021, 08:27 AM

Here’s a scenario.
Assume a person has finished a 4-year college education at age 22 and starts a job at $35,000 a year.
Assume they were reasonably smart and didn’t go to a ridiculously expensive college and max out their student loans. Assume they probably got some state and federal aid. Assume they worked to offset their expenses. I.E. Assume any school loans are manageable.
Assume their salary increases 1% a year.
Assume they set aside 10% of their salary for retirement (beyond SS) in a tax sheltered account. (If their salary increases faster, so does their retirement savings.)
Assume the investment growth rate is 5% throughout their working and retirement lives. Hint: CDs will not work. You must go into the market. However a 5% average return is a reasonable expectation without excessive risk.

At age 68, retirement, they will have a salary of ~$54,000 and retirement savings of ~$650,000.
They could take out ~$42,000 a year (75% of their ending salary) for 30 years, till age 98. (Still 5% growth of their investment account balance.)
Note, they would also get SS.
Yes, inflation would nibble at the value of their retirement payouts but, besides medical expenses, your costs tend to decline as you age. You don’t have a mortgage, you aren’t traveling as much, you aren’t driving as much, etc. They may also get a higher rate of growth. All of this is unknowable.

The simple formula is to save 10% of your working earnings and expect 5% growth of your investments.
Is it easy? Of course not. It requires a discipline that most people lack.
If you are unhappy with your standard of living you have two basic options, work more hours/multiple jobs, OR advance your education and accept higher levels of job responsibility. The latter is best but, frankly, not everyone is capable of that.
In addition, the “I want it NOW” mentality is fatally toxic to disciplined savings. My neighbor just got a new car, put an addition on their house, got their yard landscaped, took the family for a European vacation, and my credit card is BURNING A HOLE IN MY POCKET can obliterate a savings plan. If you can earn well above your retirement planning and budget requirements, pay for it in cash, NOT credit. Otherwise, NOT now.

I know a lot of people can pick holes in these ideas and but, but, but it into pieces. Some people face special challenges that make it impossible to do do these things. However, if most people did this it would work for them. It’s not rocket science. It’s just hard and disciplined work. AND, even if it didn't work out exactly as planned, you would still be better off than if you did nothing.

01-07-2021, 08:27 AM	#68
jeffk Senior Member Join Date: Feb 2004 Location: Center Harbor Posts: 1,130 Thanks: 201 Thanked 421 Times in 239 Posts	Here’s a scenario. Assume a person has finished a 4-year college education at age 22 and starts a job at $35,000 a year. Assume they were reasonably smart and didn’t go to a ridiculously expensive college and max out their student loans. Assume they probably got some state and federal aid. Assume they worked to offset their expenses. I.E. Assume any school loans are manageable. Assume their salary increases 1% a year. Assume they set aside 10% of their salary for retirement (beyond SS) in a tax sheltered account. (If their salary increases faster, so does their retirement savings.) Assume the investment growth rate is 5% throughout their working and retirement lives. Hint: CDs will not work. You must go into the market. However a 5% average return is a reasonable expectation without excessive risk. At age 68, retirement, they will have a salary of ~$54,000 and retirement savings of ~$650,000. They could take out ~$42,000 a year (75% of their ending salary) for 30 years, till age 98. (Still 5% growth of their investment account balance.) Note, they would also get SS. Yes, inflation would nibble at the value of their retirement payouts but, besides medical expenses, your costs tend to decline as you age. You don’t have a mortgage, you aren’t traveling as much, you aren’t driving as much, etc. They may also get a higher rate of growth. All of this is unknowable. The simple formula is to save 10% of your working earnings and expect 5% growth of your investments. Is it easy? Of course not. It requires a discipline that most people lack. If you are unhappy with your standard of living you have two basic options, work more hours/multiple jobs, OR advance your education and accept higher levels of job responsibility. The latter is best but, frankly, not everyone is capable of that. In addition, the “I want it NOW” mentality is fatally toxic to disciplined savings. My neighbor just got a new car, put an addition on their house, got their yard landscaped, took the family for a European vacation, and my credit card is BURNING A HOLE IN MY POCKET can obliterate a savings plan. If you can earn well above your retirement planning and budget requirements, pay for it in cash, NOT credit. Otherwise, NOT now. I know a lot of people can pick holes in these ideas and but, but, but it into pieces. Some people face special challenges that make it impossible to do do these things. However, if most people did this it would work for them. It’s not rocket science. It’s just hard and disciplined work. AND, even if it didn't work out exactly as planned, you would still be better off than if you did nothing.