Author Topic: How to Save 50%?  (Read 53308 times)

grantmeaname

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Re: How to Save 50%?
« Reply #100 on: June 28, 2013, 11:47:28 AM »
Velocistar, is that in the ballpark of what you actually pay after credits and deductions?

mpbaker22

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Re: How to Save 50%?
« Reply #101 on: June 28, 2013, 12:29:01 PM »


I refer you to the Shockingly Simple Maths Behind Early Retirement:
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

The shockingly simple math is a blog marketing gimmick.

Huh?  Does 1+1=3 and MMM wasn't aware?  The fact of the matter is a 50% savings rate will get you to FI within 17 years assuming a 5% investment return.  5% real return is pretty typical for just about every 17 year period in the past 100+ years.  Where do you disagree?

Past performance of the market does not guarantee future results for one.  The last decade comes to mind.

"ASSUMING" is a pretty big word.

Does the last decade come to mind?  The S&P is up 65% in the past 10 years.  That's an average return of about 5.7%/year.  After inflation which totals to 33.49% over 10 years, we're looking at a 3.5% real return.  This is your best counter example - one where you have specifically chosen the data set to make the best point, and we're talking about a 3.5% pre-dividend real return.  Once we add any dividends on, we're getting pretty close to 5% for the worst decade you could find.

Math, it wins every time.


Edit - I found this after doing those calculations on my own - http://dqydj.net/sp-500-return-calculator/
The return after adjusting for inflation and dividends for the last 17 years is 4.84%.
« Last Edit: June 28, 2013, 12:31:31 PM by mpbaker22 »

Dynasty

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Re: How to Save 50%?
« Reply #102 on: June 28, 2013, 01:22:50 PM »

Does the last decade come to mind?  The S&P is up 65% in the past 10 years.  That's an average return of about 5.7%/year.  After inflation which totals to 33.49% over 10 years, we're looking at a 3.5% real return.  This is your best counter example - one where you have specifically chosen the data set to make the best point, and we're talking about a 3.5% pre-dividend real return.  Once we add any dividends on, we're getting pretty close to 5% for the worst decade you could find.

Math, it wins every time.


Edit - I found this after doing those calculations on my own - http://dqydj.net/sp-500-return-calculator/
The return after adjusting for inflation and dividends for the last 17 years is 4.84%.

That's a great link!

I picked starting point December 1998, ending point December 2008.

Total annual return after inflation, dividends reinvested was an average of.... Negative 3.318%....

Running the same calculation except putting the end date at June of 2013 gives an annual average of 1.595%.

Math. It wins again!.

grantmeaname

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Re: How to Save 50%?
« Reply #103 on: June 28, 2013, 01:25:18 PM »
You have a strange definition of a decade. Is that like a Babylonian decade or something? 14.5 years?

Dynasty

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Re: How to Save 50%?
« Reply #104 on: June 28, 2013, 01:29:40 PM »
You have a strange definition of a decade. Is that like a Babylonian decade or something? 14.5 years?

Attack the message, not the messenger.

I made my first IRA deposit in December of 1998. As I'm sure many other thousands of people have. Since December 1998, there has been far from an annual 5% growth rate adjusted for inflation .

Or should we just cherry pick starting and end points?

velocistar237

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Re: How to Save 50%?
« Reply #105 on: June 28, 2013, 01:32:15 PM »
Or should we just cherry pick starting and end points?

No, use firecalc.com.

grantmeaname

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Re: How to Save 50%?
« Reply #106 on: June 28, 2013, 01:35:08 PM »
Or should we just cherry pick starting and end points?
You said "the last decade". That means the ten years ending at yesterday's market close. I'm not the one who's arbitrarily selecting data, I'm the one that's providing data for your arbitrarily selected endpoints.

velocistar237

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Re: How to Save 50%?
« Reply #107 on: June 28, 2013, 01:45:29 PM »
Why are you and others continuing to push the "50% of gross" false angle? MMM uses net income in his "shockingly simple math" calculations, not gross. Anyone saving 50% of gross is going to hit FI a lot sooner than 17 years, let alone find some ugly surprise down the line as you've suggested.

The only reason we're talking about percentage of gross is because the OP asked about it that way. We should have cleared up the misunderstanding more clearly before this point. Thanks for finally doing that.

Velocistar, is that in the ballpark of what you actually pay after credits and deductions?

Good question. I have access to my paycheck right now but not my tax return. We got decent refunds last year, so I set my exemptions sky-high in February or March, after the withholding was already high for a while. So, we pay a bit less than what I just posted, especially in federal, but the numbers are in the ballpark. Maybe 1.5% for federal, making it 10% overall. The state number should be pretty accurate, and obviously the FICA number, too.


As for the topic of whether savings rate is a reliable predictor for time to retirement, many of the things we've discussed are things like increasing expenses, changes in tax law, etc., which are just changes in the expense side of the savings rate. That's not the model itself, it's just an input to the model. Once you make that adjustment, the model still holds as a useful prediction given your best information. No one is saying that if your initial savings rate is 50%, then your time to retirement is 17 years no matter what happens after that. As others have pointed out, this can work in your favor as well, since you do have a large degree of control over your expenses.

There's one element of the model that I think is extremely reliable, and that is the effect we're discussing about changes in savings rate. For a person starting out with nothing, with a 4% real return, going from a 10% savings rate to 20% will bring retirement about 17 years sooner, from 20% to 30% about 10 years sooner, 30% to 40% about 7.5 years, 40% to 50% 5.7 years, and 50% to 60% 4.7 years. That's about 46 years total going from 10% to 60%. These are differential effects that would propagate, within a factor of 2 or so, through any set of market returns. The differential effect is greater the worse market conditions are, so the advantage of higher savings rate over lower savings rate is even greater when returns are low. It's quite a powerful model, both financially and mentally.

For those who are not just starting out, we've heard several stories of people who come to realize that after they reduced their expenses, they could already retire. Brave New Life comes to mind.

You know, this whole discussion is just a variation of the unending 4% vs 3% SWR argument, except it's about the accumulation phase. If you're really concerned about it, be conservative and work the 2 extra years to go from 4% to 3%. FIREcalc shows us that a 3% SWR is quite conservative. SWR is actually an input to this time-to-retirement model, just one that MMM freezes at 4% in his blog post for simplicity (and because he believes that it's already conservative). Choose different values if you want, here's the model:

T = ln(1+ROI*(1-SR)/(SR*SWR))/ln(1+ROI)

T = time to retirement
ROI = return on investment during accumulation, in real terms
SR = savings rate
SWR = safe withdrawal rate

To sum up the effect of an uncertain future on time to retirement vs. savings rate, I have only one other thing to say.

YMMV.

mpbaker22

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Re: How to Save 50%?
« Reply #108 on: June 28, 2013, 01:49:34 PM »

Does the last decade come to mind?  The S&P is up 65% in the past 10 years.  That's an average return of about 5.7%/year.  After inflation which totals to 33.49% over 10 years, we're looking at a 3.5% real return.  This is your best counter example - one where you have specifically chosen the data set to make the best point, and we're talking about a 3.5% pre-dividend real return.  Once we add any dividends on, we're getting pretty close to 5% for the worst decade you could find.

Math, it wins every time.


Edit - I found this after doing those calculations on my own - http://dqydj.net/sp-500-return-calculator/
The return after adjusting for inflation and dividends for the last 17 years is 4.84%.

That's a great link!

I picked starting point December 1998, ending point December 2008.

Total annual return after inflation, dividends reinvested was an average of.... Negative 3.318%....

Running the same calculation except putting the end date at June of 2013 gives an annual average of 1.595%.

Math. It wins again!.

Ok, so you found one decade with negative returns - congratulations.
Since we were originally looking at 17 years, before you asked about the last decade (which was nearly 5%), we can look at june 1996 to june 2013.  Again, 4.7%.  Care to find the worst 17 year period?
The worst I could think of would be March 1992 to March 2009 - 3.14% real average return.

Of course if we pick and choose our dates to start at a market top and end at a market bottom, we're going to find some negative returns - so thank you for looking at just that ridiculous scenario.

Dynasty

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Re: How to Save 50%?
« Reply #109 on: June 28, 2013, 02:01:30 PM »
Or should we just cherry pick starting and end points?
You said "the last decade". That means the ten years ending at yesterday's market close. I'm not the one who's arbitrarily selecting data, I'm the one that's providing data for your arbitrarily selected endpoints.

The "last" decade according to this paper was end of 2010.  http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/

S&P had real returns of -2.39% starting Jan 2001 ending Jan 2010.

The point is believing the stock market is going to return an annualized 5% above and beyond inflation for your specific investing timeline is naive.  If one's investing timeline is long enough, 5% is a safe number. Someone wise once said, the market can stay irrational far longer than you can stay solvent.

Maybe the next 10 year period ending June 28, 2023 it will provide 10% real returns. Maybe it will provide 12% real returns. Or maybe it will be a negative 2%. 

Banking on 5% during your investment career and retiring at the wrong time will be disastrous.




velocistar237

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Re: How to Save 50%?
« Reply #110 on: June 28, 2013, 02:07:55 PM »
The "last" decade according to this paper was end of 2010.  http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/

Oh, you mean the Lost Decade. Things picked up after that. What matters here is the long-term trend, and the SWR idea captures that.

Banking on 5% during your investment career and retiring at the wrong time will be disastrous.

Not disastrous, that's what the safety margins are for. In the unlikely event you describe, you get a side job or reduce your expenses further until it passes over. Historically very unlikely, though.

Overall, the odds are for you, and the backup plan is good.

mpbaker22

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Re: How to Save 50%?
« Reply #111 on: June 28, 2013, 02:11:44 PM »
Or should we just cherry pick starting and end points?
You said "the last decade". That means the ten years ending at yesterday's market close. I'm not the one who's arbitrarily selecting data, I'm the one that's providing data for your arbitrarily selected endpoints.

The "last" decade according to this paper was end of 2010.  http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/

S&P had real returns of -2.39% starting Jan 2001 ending Jan 2010.

The point is believing the stock market is going to return an annualized 5% above and beyond inflation for your specific investing timeline is naive.  If one's investing timeline is long enough, 5% is a safe number. Someone wise once said, the market can stay irrational far longer than you can stay solvent.

Maybe the next 10 year period ending June 28, 2023 it will provide 10% real returns. Maybe it will provide 12% real returns. Or maybe it will be a negative 2%. 

Banking on 5% during your investment career and retiring at the wrong time will be disastrous.

What Velocistar said is pretty good.

The bigger point is that it could happen, but it's just as likely that you'll get far better than 5% returns. 
You earlier complained that your 15 year investing timeline has only yielded 1.595%/year.  So, let's assume there are 0% real returns for the next 30 months.  That makes it a 17 year period.  If you want a 4% withdrawal rate, at 1.595%/year, it would only take 4 extra years to get to FI.  And that's a historically terrible investing return.

Or should we just cherry pick starting and end points?
You said "the last decade". That means the ten years ending at yesterday's market close. I'm not the one who's arbitrarily selecting data, I'm the one that's providing data for your arbitrarily selected endpoints.

The "last" decade according to this paper was end of 2010.  http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/

S&P had real returns of -2.39% starting Jan 2001 ending Jan 2010.

The point is believing the stock market is going to return an annualized 5% above and beyond inflation for your specific investing timeline is naive.  If one's investing timeline is long enough, 5% is a safe number. Someone wise once said, the market can stay irrational far longer than you can stay solvent.

Maybe the next 10 year period ending June 28, 2023 it will provide 10% real returns. Maybe it will provide 12% real returns. Or maybe it will be a negative 2%. 

Banking on 5% during your investment career and retiring at the wrong time will be disastrous.
That's why you look at your situation individually, but there is a very high probability it will work out if you do it for 17 years.  I think the problem is you're sitting here saying "it didn't work for me, it didn't work for me!!!!"  But you haven't let it go 17 years!
 A more ridiculous version of this would be me buying today, selling at a loss on Monday, then complaining that I had a -10000% annualized return, and MMMs numbers are horribly off.
« Last Edit: June 28, 2013, 02:14:46 PM by mpbaker22 »

Dynasty

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Re: How to Save 50%?
« Reply #112 on: June 28, 2013, 02:12:04 PM »


Not disastrous, that's what the safety margins are for. In the unlikely event you describe, you get a side job or reduce your expenses further until it passes over. Historically very unlikely, though.

Overall, the odds are for you, and the backup plan is good.

Hopefully the backup plan doesn't consist of eating cat food, and living in a van down by the river.

matchewed

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Re: How to Save 50%?
« Reply #113 on: June 28, 2013, 02:13:34 PM »
So your point is that the savings rate concept is bullshit because when you get at the end of the anticipated time and specific circumstances which you couldn't control but made some assumptions on when running the initial calculation made is so you can't retire at that time. So it's bullshit because it can't predict the future and will have to adjust your plan by a small amount. /head desk

Our point is that even if you start at that time or wait few years to feel safe the long term trend of 5% will kick in over your retirement lifetime. Run FIRECALC and see. It's historical calculations will run scenarios starting at the peak of the Great Depression. And guess what? All this still works out.

Dynasty

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Re: How to Save 50%?
« Reply #114 on: June 28, 2013, 02:13:49 PM »


The bigger point is that it could happen, but it's just as likely that you'll get far better than 5% returns. 
You earlier complained that your 15 year investing timeline has only yielded 1.595%/year. 

No. Not complaining. Pointing out my particular scenario.

matchewed

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Re: How to Save 50%?
« Reply #115 on: June 28, 2013, 02:16:39 PM »

mpbaker22

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Re: How to Save 50%?
« Reply #116 on: June 28, 2013, 02:17:48 PM »


The bigger point is that it could happen, but it's just as likely that you'll get far better than 5% returns. 
You earlier complained that your 15 year investing timeline has only yielded 1.595%/year. 

No. Not complaining. Pointing out my particular scenario.

added this as an edit earlier - That's why you look at your situation individually, but there is a very high probability it will work out if you do it for 17 years.  I think the problem is you're sitting here saying "it didn't work for me, it didn't work for me!!!!"  But you haven't let it go 17 years!
 A more ridiculous version of this would be me buying today, selling at a loss on Monday, then complaining that I had a -10000% annualized return, and MMMs numbers are horribly off.

grantmeaname

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Re: How to Save 50%?
« Reply #117 on: June 28, 2013, 02:20:40 PM »
You still haven't said anything substantial! You took a shit all over the conversation by calling a tangentially-related post a gimmick, and since then you've been nit-picking at totally irrelevant statements that still don't relate to the discussion at hand. As four other people have pointed out, even if they did, it's not significant because of flexibility and other factors not accounted for in the admittedly simplistic model!

So where's the point, if you have one?

arebelspy

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Re: How to Save 50%?
« Reply #118 on: June 28, 2013, 02:21:39 PM »
It's funny to come back to this thread a few hours later, find 20 responses all trying to convince this guy that the world is not ending.

It looks to me like a complainypants needs to be shot... with an optimism gun.

Or, you know, you'll never be able to retire so fuck it it's all a stupid gimmick anyways.

/shrug

Whatever works for you.

To sum up the effect of an uncertain future on time to retirement vs. savings rate, I have only one other thing to say.

YMMV.

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Dynasty

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Re: How to Save 50%?
« Reply #119 on: June 28, 2013, 02:27:57 PM »


The bigger point is that it could happen, but it's just as likely that you'll get far better than 5% returns. 
You earlier complained that your 15 year investing timeline has only yielded 1.595%/year. 

No. Not complaining. Pointing out my particular scenario.

added this as an edit earlier - That's why you look at your situation individually, but there is a very high probability it will work out if you do it for 17 years.  I think the problem is you're sitting here saying "it didn't work for me, it didn't work for me!!!!"  But you haven't let it go 17 years!
 A more ridiculous version of this would be me buying today, selling at a loss on Monday, then complaining that I had a -10000% annualized return, and MMMs numbers are horribly off.

I'm hoping for 12 more years. It's really only been the last few years I've really started saving. During the crash in the early 2000s I didn't have much to lose. In 2008, and most of 09 I was heavy in cash. And a lot of that cash was deployed into the market in late 2009. So I've seen some sizable gains. But not enough to retire in December of 2015.

I'm currently investing more a month than I used to a year back in 1999...

Listen, I hope as much as anybody here that the market returns far greater than 5% annual real returns. Unfortunately, during my investment career so far I've seen something far different. And I'm hoping the worst is behind us. But we really don't know. So I'll withdraw my gimmick statement and replace it with "take it with a grain of salt, YMMV."


DoubleDown

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Re: How to Save 50%?
« Reply #120 on: June 28, 2013, 02:44:53 PM »
Here's a wacky thing I've always done: In my spreadsheets where I keep track of my investment returns, I have an "estimated" growth projection (where I coincidentally chose 5% returns way back when), and then each year I track the "actual" returns. With this amazing tactic I invented on my own, I can then see how my actual growth in net worth compares to projections, and adjust accordingly (e.g., moving FIRE date back or forward depending on how things things are going compared to my projections).

Despite the "lost decade" plus losing more than half my net worth and future earnings in a divorce (the ultimate black swan event), I'm pleased to say I'm still 7 years ahead of schedule, and 20 years ahead of traditional retirement schedule. Technically I hit FI probably a year or two ago, and am now working on the cushion part. So YMMV but the "spend substantially less than you earn" is just f'ing rock solid and will get you there quickly, period.

matchewed

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Re: How to Save 50%?
« Reply #121 on: June 28, 2013, 02:46:49 PM »
Here's a wacky thing I've always done: In my spreadsheets where I keep track of my investment returns, I have an "estimated" growth projection (where I coincidentally chose 5% returns way back when), and then each year I track the "actual" returns. With this amazing tactic I invented on my own, I can then see how my actual growth in net worth compares to projections, and adjust accordingly (e.g., moving FIRE date back or forward depending on how things things are going compared to my projections).

Despite the "lost decade" plus losing more than half my net worth and future earnings in a divorce (the ultimate black swan event), I'm pleased to say I'm still 7 years ahead of schedule, and 20 years ahead of traditional retirement schedule. Technically I hit FI probably a year or two ago, and am now working on the cushion part. So YMMV but the "spend substantially less than you earn" is just f'ing rock solid and will get you there quickly, period.
+1 and a cookie

lhamo

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Re: How to Save 50%?
« Reply #122 on: June 28, 2013, 02:54:55 PM »
I know I've seen posts on ways to get money out of 401k/ROTH without penalties too, but I'd rather not include close-able legal loopholes in long-term planning.


To each their own, but I think this is just plain silly.  The 72(t) rule has been a part of the tax code for a long time, and I think the chances of it being written out as a "loophole" are slim to none. There are no penalties for withdrawing contributions to a Roth, so that is another totally viable, tax-free bridging strategy that will help in this situation. 

If you are so concerned about not being able to access your money in tax-deferred or tax-free accounts, just switch to investing in taxable accounts.  Might slow you down a bit, but you'll still get there, especially if you keep savings rates high and costs low.

Russ

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Re: How to Save 50%?
« Reply #123 on: June 28, 2013, 03:04:47 PM »
Hopefully the backup plan doesn't consist of eating cat food, and living in a van down by the river.

Hey now, the second half of that is my regular not-backup plan

skyrefuge

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Re: How to Save 50%?
« Reply #124 on: June 29, 2013, 08:59:43 AM »
No. Not complaining. Pointing out my particular scenario.

Ok, just be aware that your lack of returns is not due to the market, it's due to your lack of investing in that market.

Coincidentally, I started investing right near when you did, 15 years ago, July 2nd 1998. Unlike you, I added to my stash on a monthly basis over that entire time, and never spent any time "heavy in cash". With the magic of dollar-cost averaging, my personal rate of return (IRR) to date is 7.2% (that includes reinvested dividends, but not inflation). Inflation was 2.4% annualized over that period. I'm not sure if it's mathematically correct to simply subtract the annualized inflation rate from an IRR value, but it's probably close enough. That leaves me with a 4.8% annualized inflation-adjusted return. Awfully close to the assumed 5%.

On top of that, I technically hit FI a year or so ago, so I'd say the "shockingly simple math" is about the exact opposite of a gimmick.

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Re: How to Save 50%?
« Reply #125 on: June 30, 2013, 03:36:01 AM »
OMG This thread is like a compilation of the commonest negative comments on FIRE except we haven't debated the 4% SWR rate yet. (don't even think about it)

Look the biggest determinant of FIRE is how long you are going to live... and although we can do some mathematical modelling on life expectancy, we could all be hit by a bus tomorrow or get cancer and die prematurely.

So we all make assumptions about the future. The shockingly simple math is based on some pretty conservative assumptions.

All any of can do is learn to be happy whilst living on less and thus control expenses, and improve our income if we can. Living frugally is the best insurance against poor returns, job insecurity and many other sorts of life insecurity. The bigger the gap between expenses and income the better.

And shoot that goddamn optimism gun, because surprise, surprise things just may turn out better than you expect. Especially if you are financially stable and ready to take up opportunities when they arise.


nktokyo

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Re: How to Save 50%?
« Reply #126 on: June 30, 2013, 04:42:04 AM »
FIRE means Financially Independent Retiring Early?

I just assumed that I would need to create an income higher than my living costs if I really wanted to retire early. That way it doesn't matter how long I live.... or am I misunderstanding what FIRE means?

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Re: How to Save 50%?
« Reply #127 on: June 30, 2013, 07:25:50 AM »
"FIRE" yes thats what I meant.

You are correct nktokyo :  if you want to retire the safest way to do it is to be able to create an income higher than your living costs, such that you keep up with CPI and  don't eat into your capital...or have a means of producing passive income that keeps up with CPI and doesn't reduce over time. And then it doesn't matter how long you live.

Hehe when I re-read my post I didn't word that too well!

I was aiming at the various posters deriding the various assumptions behind "the shockingly simple math". Many people build in an assumption they are going to live a long time and base their calculations on reducing capital over time.... but if you are only going to live 2 years then you only need to save up 2 years living costs. Being less pessimistic,  whether you live to 40, 50, 60, 70, 80, 90 or 100 is quite different math.  I was just playing devil's advocate, since we spend a lot of time debating returns, or lifestyle or % saved or SWR and other variables.... and life expectancy is a key variable rarely gets acknowledged. Also whilst we can argue historically for returns, its hard to make  quite such a strong argument for life expectancy. (although if you get to 99 your average life expectancy is another 3 years!).

mpbaker22

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Re: How to Save 50%?
« Reply #128 on: June 30, 2013, 08:30:42 AM »
"FIRE" yes thats what I meant.

You are correct nktokyo :  if you want to retire the safest way to do it is to be able to create an income higher than your living costs, such that you keep up with CPI and  don't eat into your capital...or have a means of producing passive income that keeps up with CPI and doesn't reduce over time. And then it doesn't matter how long you live.

With accounting for higher/lower expenses at other points in life.  For example, a child might grow up, or healthcare costs might increase.  Or, in my case, you might go from being single to having a family.

ModernIncantations

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Re: How to Save 50%?
« Reply #129 on: June 30, 2013, 09:36:31 AM »
So... the worst case scenario is that the market doesn't return what you expected. Then all you're left with is: a measly $X00,000 dollars in savings, a dramatically more fulfilling lifestyle, a lower cost of living, and an exceedingly positive attitude.

Hold on... that was the worst cast scenario?

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Re: How to Save 50%?
« Reply #130 on: June 30, 2013, 09:41:15 AM »
So... the worst case scenario is that the market doesn't return what you expected. Then all you're left with is: a measly $X00,000 dollars in savings, a dramatically more fulfilling lifestyle, a lower cost of living, and an exceedingly positive attitude.

Hold on... that was the worst cast scenario?

BOOM.

I like you.  Welcome to the forums.
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tooqk4u22

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Re: How to Save 50%?
« Reply #131 on: July 01, 2013, 12:30:07 PM »
"FIRE" yes thats what I meant.

You are correct nktokyo :  if you want to retire the safest way to do it is to be able to create an income higher than your living costs, such that you keep up with CPI and  don't eat into your capital...or have a means of producing passive income that keeps up with CPI and doesn't reduce over time. And then it doesn't matter how long you live.

With accounting for higher/lower expenses at other points in life.  For example, a child might grow up, or healthcare costs might increase.  Or, in my case, you might go from being single to having a family.

Yeah, but those things don't make the math wrong or gimmicky....those are examples of changing your life materially so then the math should change too (but maybe not dollar for dollar) result in up or down.  An example for me is that my SWR nut needed now is larger than it will be when my three kids are out on their own as kid costs (activities, clothes, healthcare, and all those other expenses that seem to be related to them including having a larger house than would be needed otherwise) - to me that is part of my cushion for things that may change such as healthcare - mine might rise but then I won't be paying for theirs.

mpbaker22

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Re: How to Save 50%?
« Reply #132 on: July 01, 2013, 01:31:57 PM »
"FIRE" yes thats what I meant.

You are correct nktokyo :  if you want to retire the safest way to do it is to be able to create an income higher than your living costs, such that you keep up with CPI and  don't eat into your capital...or have a means of producing passive income that keeps up with CPI and doesn't reduce over time. And then it doesn't matter how long you live.

With accounting for higher/lower expenses at other points in life.  For example, a child might grow up, or healthcare costs might increase.  Or, in my case, you might go from being single to having a family.

Yeah, but those things don't make the math wrong or gimmicky....those are examples of changing your life materially so then the math should change too (but maybe not dollar for dollar) result in up or down.  An example for me is that my SWR nut needed now is larger than it will be when my three kids are out on their own as kid costs (activities, clothes, healthcare, and all those other expenses that seem to be related to them including having a larger house than would be needed otherwise) - to me that is part of my cushion for things that may change such as healthcare - mine might rise but then I won't be paying for theirs.

Perhaps we could call it a personal COLA instead of a CPI

"... a passive income that keeps up with your personal COLA ..."

Fletch

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Re: How to Save 50%?
« Reply #133 on: July 01, 2013, 04:31:23 PM »
I know I've seen posts on ways to get money out of 401k/ROTH without penalties too, but I'd rather not include close-able legal loopholes in long-term planning.


To each their own, but I think this is just plain silly.  The 72(t) rule has been a part of the tax code for a long time, and I think the chances of it being written out as a "loophole" are slim to none. There are no penalties for withdrawing contributions to a Roth, so that is another totally viable, tax-free bridging strategy that will help in this situation. 

If you are so concerned about not being able to access your money in tax-deferred or tax-free accounts, just switch to investing in taxable accounts.  Might slow you down a bit, but you'll still get there, especially if you keep savings rates high and costs low.

I am too young to feel confident that there won't be any substantial change in tax laws that affect this issue over the next 20-40 years, whether potential changes remove or add complexity to this issue is anyone's guess.
I'm sticking to tax deferred or tax free accounts for now, because I'm still on the fence about if ER is the real goal or if the goal is the freedom of financial independence; as I earn more money in the future I will branch out to more taxable accounts to cover either possibility. I only intended to comment on some of the complicated details buried in the simple math, but as I said earlier a high savings rate is certainly the correct path to be on while I figure out the details.

minimalist

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Re: How to Save 50%?
« Reply #134 on: July 01, 2013, 10:43:22 PM »
My gross savings rate is (gross pay-taxes-medical insurance+401k match-all other expenses)/gross pay = 64%. I'm also saving non-work income such as investment returns, bank interest, credit card cash back, etc., which aren't reflected in that calculation.

mikefixac

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Re: How to Save 50%?
« Reply #135 on: July 01, 2013, 11:14:49 PM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved. 

Man, that's hard core. You're talking about 50% of gross income. Wow. That's 67% after taxes. Or almost 70% of take home pay.

arebelspy

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Re: How to Save 50%?
« Reply #136 on: July 01, 2013, 11:43:56 PM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved. 

Man, that's hard core. You're talking about 50% of gross income. Wow. That's 67% after taxes. Or almost 70% of take home pay.

That's right.  I wouldn't call it hardcore.. Over one quarter of MMM forum users save at least 60%.  Hardcore is the top few percentile: 90% savings rate (maybe 80-85% is approaching that).

Making over 100k (say 150-200) it should be quite easy to save 70%+ of net, and 50%+ of gross, unless you're wrapped up in keeping up with the Jonses.

That's really all it is.  You can live a nice, wonderful life on around 25k (or 30 or 35 even) with all kinds of luxuries.  Plenty of people do it.  You just don't want to be spending any of that on interest.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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mpbaker22

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Re: How to Save 50%?
« Reply #137 on: July 02, 2013, 07:39:34 AM »
Marginal tax rate of 25%, effective tax rate is probably closer to 15%.  But hell, I'll use 25% just for funsies and nice round numbers.

100k income. 25k taxes. 25k expenses. 50k (50%) saved. 

Man, that's hard core. You're talking about 50% of gross income. Wow. That's 67% after taxes. Or almost 70% of take home pay.

That's right.  I wouldn't call it hardcore.. Over one quarter of MMM forum users save at least 60%.  Hardcore is the top few percentile: 90% savings rate (maybe 80-85% is approaching that).

Making over 100k (say 150-200) it should be quite easy to save 70%+ of net, and 50%+ of gross, unless you're wrapped up in keeping up with the Jonses.

That's really all it is.  You can live a nice, wonderful life on around 25k (or 30 or 35 even) with all kinds of luxuries.  Plenty of people do it.  You just don't want to be spending any of that on interest.

50K gross salary
~$3000 bonus
$53K total
I save ~$18000 plus the full bonus and tax return for about $23000.
That's about 44% gross plus another 8% to retirement accounts (recently changed to 25%, but other expenses will be the same).

Just giving another example.

arebelspy

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Re: How to Save 50%?
« Reply #138 on: July 02, 2013, 09:34:40 AM »
50K gross salary
~$3000 bonus
$53K total
I save ~$18000 plus the full bonus and tax return for about $23000.
That's about 44% gross plus another 8% to retirement accounts (recently changed to 25%, but other expenses will be the same).

Just giving another example.

Great example!  It's harder at lower earning levels, but certainly still doable, especially because most of the tax part is taken away (so your spending isn't all that much lower, as discussed earlier in the thread).

Thanks for sharing some real life numbers.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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mpbaker22

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Re: How to Save 50%?
« Reply #139 on: July 05, 2013, 07:02:39 AM »
Question for you arebelspy, or anyone.

I donate about 10% of my salary to various charities.  This came up because I did part of it last week, so I have to question how to record it again.  I've been tossing it out of both gross income (just subtracting it from gross salary) and expenses (I track in mint, so I exclude these transactions), resulting in a modified savings rate.  Does that sound legit enough?  These "expenses" won't necessarily be around when I retire.

Zamboni

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Re: How to Save 50%?
« Reply #140 on: July 05, 2013, 08:10:14 AM »
Another data point:  I've been tracking this for 3 years, and I currently save 68% of net. 

Next year I'm planning some "native garden" landscaping for the homestead, so the forecast is my saving rate will drop to only 66%.  It's possible, though, that the time I spend on the landscaping will compensate for time I would have used spending money on something else, so it might stay at 68% savings or even go up!

And I lead what I considered a pretty posh life.  No deprivation here!  In fact, I just ate a delicious cupcake that I baked and decorated with my daughter.

arebelspy

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Re: How to Save 50%?
« Reply #141 on: July 05, 2013, 08:27:25 AM »
Question for you arebelspy, or anyone.

I donate about 10% of my salary to various charities.  This came up because I did part of it last week, so I have to question how to record it again.  I've been tossing it out of both gross income (just subtracting it from gross salary) and expenses (I track in mint, so I exclude these transactions), resulting in a modified savings rate.  Does that sound legit enough?  These "expenses" won't necessarily be around when I retire.

Depends two things:

1) On the person, like many of these calculations (gross vs. net, count principal debt payment or no, how do you count 401k money, pre tax or what it would be worth post, etc.), and
2) On what you're counting.

If you're asking me personally, I do it the same as you - I toss my charitable giving out of my calculations of savings rate, because I don't want to question cutting it to improve my savings rate, so I target a savings rate independent of that money.

My wife and I have questioned if it is worth the delay to FIRE and decided it is.

I do count it, however, when targeting final spending level for FIRE, as we intend to keep on giving (even increase it, depending on surplusses in FIRE).

So I count it sometimes, not others.

YMMV, and hope that helps!
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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velocistar237

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Re: How to Save 50%?
« Reply #142 on: July 05, 2013, 09:49:52 AM »
Question for you arebelspy, or anyone.

I donate about 10% of my salary to various charities.  This came up because I did part of it last week, so I have to question how to record it again.  I've been tossing it out of both gross income (just subtracting it from gross salary) and expenses (I track in mint, so I exclude these transactions), resulting in a modified savings rate.  Does that sound legit enough?  These "expenses" won't necessarily be around when I retire.

My wife and I want to sustain our level of giving after FI, and we don't know whether we'll cover that through interest earnings or very-part-time work. My thought is, because of that uncertainty, I'll just track the values that get us to the earliest FI waypoint, even if it's not true FI, so I exclude giving from both earnings and retirement budget. Besides, it gives us the most encouraging number.

To be honest, I haven't been all that careful calculating my savings rate. I usually just look at the net income numbers from Mint. If I calculate savings rate for the past 6 months, I get ... wait, Mint mis-categorized a bunch of these transactions ... 63% excluding giving, 56% with giving. That's a little higher than I expected.

MakingSenseofCents

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Re: How to Save 50%?
« Reply #143 on: July 05, 2013, 01:42:06 PM »
For us, a lot of it is about making more money. Our expenses are relatively low thanks to a low cost of living city we are in, and our income is pretty high. We are about to switch to a freelancing life though, which will cut our income in half. We will still be saving more than 50% though surprisingly.

This is much different from just a couple of years ago when we were really struggling and our bills were more than our income.

oldtoyota

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Re: How to Save 50%?
« Reply #144 on: July 05, 2013, 07:12:19 PM »
Hey all--

Update: We'll be saving 61% of our net income. I am excited!!

If we can still swing the extra money I've been putting aside, that will go up to 64%. It is a tiny bit tight when I add in the extra 3%, but I am going to see if we can do it.

I am VERY happy.


footenote

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Re: How to Save 50%?
« Reply #145 on: July 06, 2013, 06:25:38 AM »
Congratulations oldtoyota!

oldtoyota

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Re: How to Save 50%?
« Reply #146 on: July 06, 2013, 06:52:57 AM »
Congratulations oldtoyota!

Thank you, footnote!

mpbaker22

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Re: How to Save 50%?
« Reply #147 on: July 07, 2013, 06:51:46 AM »
Hey all--

Update: We'll be saving 61% of our net income. I am excited!!

If we can still swing the extra money I've been putting aside, that will go up to 64%. It is a tiny bit tight when I add in the extra 3%, but I am going to see if we can do it.

I am VERY happy.

Great numbers buddy.  Good Job!

Zamboni

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Re: How to Save 50%?
« Reply #148 on: July 07, 2013, 08:08:49 AM »
Spectacular!  Well done, oldtoyota!

Most of the battle for saving 50+% is just making the commitment to doing it.  One might not be able to achieve it this month or even this year, but just deciding that it will happen is critical.

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Re: How to Save 50%?
« Reply #149 on: July 07, 2013, 08:53:00 AM »
Just throwing my hat into the ring to make myself feel better.

Instead of a 50% savings rate, I'm currently contributing 61% of my net income to my student loans
(72% after my bonus is taken into account, but it's not something I like to rely on getting)