Author Topic: Another stupid article on % of income approach  (Read 2996 times)

MMMdude

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Another stupid article on % of income approach
« on: March 16, 2013, 01:26:45 PM »
Link is to an article on retirement and how it's cheaper than you may think.  It goes on to say that rather than the 80% of income replacement  you could get by on 50% or something lower.  I don't even understand why the % of income is relevant?  Who cares....figure out what your expenses are annually, apply a tax component to that and multiply by 25X.  Make sure you account for non recurring stuff like health care, auto and home repairs.  It's just that simple.  I also LOL that the author states 28K to 50K is comfortable income for most retirees.  Not sure about any other MMM's but I would have no idea how to spend 50K per year.  28K is more reasonable but I still intend on spending less than that when I get to FI

http://www.theglobeandmail.com/globe-investor/investment-ideas/retirement-is-cheaper-than-you-think/article9832786/

Kazimieras

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Re: Another stupid article on % of income approach
« Reply #1 on: March 17, 2013, 12:15:02 AM »
Most people spend the bulk of what they earn and don't tend to have the large mustaches as many of the members here. For those people the percent of income can make a huge amount of sense and is a good way for them to look at it. It is much harder to reduce your expenses once you're at one type of standard of living. This is why is it much easier to keep living like a student well after getting a good paying job, sine you never really notice what you never had. Remember this is in a paper and is geared for people who can easily burn through 100k a year (look at the G&M target audience). I don't think this article was meant for you or I, but it is a choice many people make. On the plus side, it does keep the economy humming ;)

dragoncar

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Re: Another stupid article on % of income approach
« Reply #2 on: March 17, 2013, 08:33:38 AM »
Regular people probably can't use the expenses*25 approach because they have no idea what their expenses are.

Although I don't know what I'd spend 50k on for goods and services, I could definitely see  spending it on housing in an expensive area.  Housing is the bulk of my Budget.

MooreBonds

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Re: Another stupid article on % of income approach
« Reply #3 on: March 17, 2013, 10:30:54 AM »
Regular people probably can't use the expenses*25 approach because they have no idea what their expenses are.

I think it might be partly this, but also another simpler reason: Most people spend nearly all of what they earn because their consumption is driven by their short-sighted 'needs'.

I feel hungry. Therefore, I will go out and buy myself a sandwich and soda for $8. That motorcycle looks cool. I want it. Therefore, I will buy it.

They don't look at the alternative to buying things and instead saving the money. Their minds are simply unable to understand the "either/or" decision process. As a result, just like how an animal standing in front of a bowl full of food will impulsively eat the entire bowl full of food even if it just ate 3 hours ago and shouldn't be that hungry, the human will see their check deposited into their checking account and spend all of the money in their checking account because they don't understand the concept of how saving larger amounts of money can snowball into a powerful retirement tool, and they simply can't stop themselves from gorging on what's in front of them.

Because of this, they end up spending just about all of their income. And because of this, it's a simple process of saying 'you'll need x% (usually 80%) of your income to retire", because a majority of people simply spend all of what they earn. Therefore, at that rate of consumption, they WILL need x% of their income when they retire.