Author Topic: How to Save 50%?  (Read 53327 times)

NWstubble

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Re: How to Save 50%?
« Reply #50 on: June 27, 2013, 12:00:11 AM »
savings rate is a useful guideline, nothing more. Saving 50% of 25k for 20 years doesn't really get you very far, imo

It does get you very far if you are happy with the lifestyle 12.5k buys you. That is the point. If you can comfortably live on 50% of your income and your needs are met, then reaching FI and continuing to live at that level is fine.  Each individual defines their needed stash based on the standard of living they are most comfortable with.

gooki

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Re: How to Save 50%?
« Reply #51 on: June 27, 2013, 02:24:50 AM »
savings rate is a useful guideline, nothing more. Saving 50% of 25k for 20 years doesn't really get you very far, imo

Wrong! Saving 50% of just 25k gets you financially independent in just 17 years. Which considering most people will have a 45 year working life you've just free'd up 28 years of you life to pursue your passions.

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/

matchewed

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Re: How to Save 50%?
« Reply #52 on: June 27, 2013, 04:57:06 AM »
right, if you are a villager living in say indonesia somewhere existing only in a barter economy you're probably already FI and need to save almost precisely 0% of income, or crops, or fish, or baskets or whatever, just make sure you have 6-10 kids and you're good

agree to disagree I'm good with that :)

I think amount of actual savings is far more relevant than savings rate, especially in the van-down-by-the-river crowd.

savings rate is a useful guideline, nothing more. Saving 50% of 25k for 20 years doesn't really get you very far, imo

Strawman argument.

And just as everyone pointed out about your last line - wrong is wrong. The math doesn't lie. Regardless of income your savings rate determines your spending rate. Therefore regardless of income your savings rate determines how quickly you can FIRE given a consistent lifestyle.

marty998

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Re: How to Save 50%?
« Reply #53 on: June 27, 2013, 05:20:05 AM »

If they can be happy at half of what you have, why can't you?  Simply because you're accustomed to more, and that will be true no matter how much you make.


I think that is a very healthy attitude. Run your own race, because comparing yourself to others is not the key to happiness.

ender

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Re: How to Save 50%?
« Reply #54 on: June 27, 2013, 05:35:47 AM »
My monthly expenses are in the $1200-$1400 range.

I'll let you figure out how I can save 50% :)

velocistar237

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Re: How to Save 50%?
« Reply #55 on: June 27, 2013, 06:07:29 AM »
I guess I could try my hand at finance in NYC, but I think I could save $100K/year of earnings in Dallas or Houston.

A higher amount of savings with a lower savings rate works only if you move to a lower cost-of-living area after your earning period. Otherwise, your expenses stay high, and it takes longer to FI because of the lower savings rate. It's (savedAmount/(savedAmount+retirementExpenses)) that determines time to FI.

On the other hand, Bakari lives in the Bay Area because he can get a higher savings rate there, in a job that wouldn't pay very well in a non-yuppie area, while living in an RV. It's all about what you're willing to do.

mpbaker22

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Re: How to Save 50%?
« Reply #56 on: June 27, 2013, 08:36:47 AM »
2M or so = probably a decent apartment/house with tons of travel, easy healthcare, still have to control spending a bit

Good joke, thanks for that.
My monthly expenses are in the $1200-$1400 range.

I'll let you figure out how I can save 50% :)
Not sure what you mean?  You spend all your income, so you're challenging  us to get you to cut that to $600-$700 expenses.  Or do you want to know how to make $2400-$2800/month?

Strawman argument.

And just as everyone pointed out about your last line - wrong is wrong. The math doesn't lie. Regardless of income your savings rate determines your spending rate. Therefore regardless of income your savings rate determines how quickly you can FIRE given a consistent lifestyle.
Exactly.  If you save 100%, it will take 1 year (technically 0 years).  If you save 50% it will take 17 years.  If you save 10% it takes 45 years.  Those numbers don't change.  The difference is people want to think in terms of "how much XXXK do I need to retire?"   Well, you could calculate that out based on savings rates if you wanted, but then some people on here seem to want to increase spending in retirement.

ender

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Re: How to Save 50%?
« Reply #57 on: June 27, 2013, 05:32:11 PM »
Quote
My monthly expenses are in the $1200-$1400 range.

I'll let you figure out how I can save 50% :)
Not sure what you mean?  You spend all your income, so you're challenging  us to get you to cut that to $600-$700 expenses.  Or do you want to know how to make $2400-$2800/month?

Sorry, I guess my point was when you reduce your expenses to $1200-1400 a month, it is fairly easy to get to a 50% savings rate with even a modest salary.
« Last Edit: June 27, 2013, 07:51:43 PM by enderland »

oldtoyota

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Re: How to Save 50%?
« Reply #58 on: June 27, 2013, 05:58:30 PM »
I guess I could try my hand at finance in NYC, but I think I could save $100K/year of earnings in Dallas or Houston.

A higher amount of savings with a lower savings rate works only if you move to a lower cost-of-living area after your earning period. Otherwise, your expenses stay high, and it takes longer to FI because of the lower savings rate. It's (savedAmount/(savedAmount+retirementExpenses)) that determines time to FI.

On the other hand, Bakari lives in the Bay Area because he can get a higher savings rate there, in a job that wouldn't pay very well in a non-yuppie area, while living in an RV. It's all about what you're willing to do.

This raises a question I've had. MMM mentions moving to a lower COL area. Sounds good. What I've seen, though, is that jobs are fewer there. As a result, I've stayed in a more expensive area with more jobs--sort of as an insurance policy against unemployment.

So, there's risk associated with moving to say, Charlottesville, VA. I could move there and be very happy, but the job prospects are few.

Self-employment is a possibility, yet I'm not set up at present to do that.

The ideal for me would be to have a really cool business and live in a low COL area. I will have to give this more thought.

arebelspy

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Re: How to Save 50%?
« Reply #59 on: June 27, 2013, 06:09:32 PM »
This raises a question I've had. MMM mentions moving to a lower COL area. Sounds good. What I've seen, though, is that jobs are fewer there. As a result, I've stayed in a more expensive area with more jobs--sort of as an insurance policy against unemployment.

So, there's risk associated with moving to say, Charlottesville, VA. I could move there and be very happy, but the job prospects are few.

Self-employment is a possibility, yet I'm not set up at present to do that.

The ideal for me would be to have a really cool business and live in a low COL area. I will have to give this more thought.

There's plenty of places with decent COL and jobs.

NYC and SF are not the only places with jobs.
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oldtoyota

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Re: How to Save 50%?
« Reply #60 on: June 27, 2013, 06:13:37 PM »
This raises a question I've had. MMM mentions moving to a lower COL area. Sounds good. What I've seen, though, is that jobs are fewer there. As a result, I've stayed in a more expensive area with more jobs--sort of as an insurance policy against unemployment.

So, there's risk associated with moving to say, Charlottesville, VA. I could move there and be very happy, but the job prospects are few.

Self-employment is a possibility, yet I'm not set up at present to do that.

The ideal for me would be to have a really cool business and live in a low COL area. I will have to give this more thought.

There's plenty of places with decent COL and jobs.

NYC and SF are not the only places with jobs.

True. I live in neither place and have a job!

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Re: How to Save 50%?
« Reply #61 on: June 27, 2013, 06:53:34 PM »
I apologize in advance (and in arrears) for continual sub grading-curve performance on these topics. :)

Dynasty

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Re: How to Save 50%?
« Reply #62 on: June 27, 2013, 07:25:54 PM »
Getting to a 50% savings rate is as easy as realizing that you need to live on less than you make.  Whatever you perceive your "necessary" expenses as being, someone else is getting by just fine without them and you could too.

Just doing in my head calculations, I'm around a 35 to 40% of gross into retirement + mortgage principle. In addition to that, I'm putting money aside for home improvements. Hopefully, once I'm mainly satisfied with the house I should theoretically be able to get up to a 50% true savings rate because I won't be putting money aside to spend short term.

All that being said.. I have no children, make well above the median, and my mortgage/insurance/property tax is only a hair above $1000/month.

And my gf is low maintenance when it comes to money.

What I'm saying is a 50% savings rate for most people is gonna be pretty hard. In the area I live in, rent for a decent 1 bedroom apartment is not going to be much less than I pay for my house. Throw a kid or three into the mix, and saving 50% gets to be abysmally impossible.

Another thing to consider is there is going to come a point when you're in your late 20s early thirties, definitely mid thirties that being the guy or gal living with roomates is not going to work any longer to save money. Firstly, finding people your age to rent is going to be slim pickings. And younger people looking for room mates are going to be creeped out by a 43 year old guy looking for roommates...




Dynasty

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Re: How to Save 50%?
« Reply #63 on: June 27, 2013, 07:27:50 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.

limeandpepper

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Re: How to Save 50%?
« Reply #64 on: June 27, 2013, 07:29:46 PM »
Another thing to consider is there is going to come a point when you're in your late 20s early thirties, definitely mid thirties that being the guy or gal living with roomates is not going to work any longer to save money. Firstly, finding people your age to rent is going to be slim pickings. And younger people looking for room mates are going to be creeped out by a 43 year old guy looking for roommates...

I think it's more common these days to find people of all ages doing the sharehouse thing. I myself share an apartment with a middle-aged couple.

Dynasty

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Re: How to Save 50%?
« Reply #65 on: June 27, 2013, 07:31:16 PM »
I apologize in advance (and in arrears) for continual sub grading-curve performance on these topics. :)

No reason to apologize. You have an intelligent perspective that people should consider.

grantmeaname

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Re: How to Save 50%?
« Reply #66 on: June 27, 2013, 07:47:00 PM »
The shockingly simple math is a blog marketing gimmick.
I'll bite. What part of it do you disagree with?

arebelspy

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Re: How to Save 50%?
« Reply #67 on: June 27, 2013, 10:31:21 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.

...really?  It's math.
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oldtoyota

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Re: How to Save 50%?
« Reply #68 on: June 28, 2013, 05:55:04 AM »
Hey all--

I calculated our take-home pay, which will go down soon when SO ramps up 401K contribution and my transportation starts to get taken out pre-tax.

If I understood arebelspy correctly, I should count the contributions taken out pre-tax as savings (of course/makes sense) and then use the take-home pay to calculate the percentage.

If I do the above, we appear to be saving more than 50%.

I re-read The Shockingly Simple Math, and I was reminded that MMM shares calculations based on take-home (not gross).

This seems like GREAT news to me, yet I still want to triple check the numbers to be sure I have this right.

« Last Edit: June 28, 2013, 05:57:23 AM by oldtoyota »

matchewed

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Re: How to Save 50%?
« Reply #69 on: June 28, 2013, 06:25:16 AM »
Congratulations :)

Remember this is just a basic calculation. Knowing your number and your savings rate can give you a concept of how far away you are. Plug that information into something like FIRECALC and you can get an closer idea to your odds of success.

velocistar237

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Re: How to Save 50%?
« Reply #70 on: June 28, 2013, 06:33:04 AM »
The shockingly simple math is a blog marketing gimmick.
I'll bite. What part of it do you disagree with?

I'll bite. It takes something that depends on a whole host of factors and oversimplifies it. Yes, it's true that reducing your expenses has the double effect of increasing what you save while at the same time reducing what you need to save, but to then say that a 50% savings rate equals 17 years to retirement? The actual time is highly sensitive to rate of return, what sort of buffer you want in your retirement savings, future tax rates, future health care, and even what college your kids go to (or some similar expense if this one doesn't apply). It's reductive enough that it becomes a gimmick.

tooqk4u22

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Re: How to Save 50%?
« Reply #71 on: June 28, 2013, 07:00:55 AM »
Getting to a 50% savings rate is as easy as realizing that you need to live on less than you make.  Whatever you perceive your "necessary" expenses as being, someone else is getting by just fine without them and you could too.

Just doing in my head calculations, I'm around a 35 to 40% of gross into retirement + mortgage principle. In addition to that, I'm putting money aside for home improvements. Hopefully, once I'm mainly satisfied with the house I should theoretically be able to get up to a 50% true savings rate because I won't be putting money aside to spend short term.

All that being said.. I have no children, make well above the median, and my mortgage/insurance/property tax is only a hair above $1000/month.

And my gf is low maintenance when it comes to money.

What I'm saying is a 50% savings rate for most people is gonna be pretty hard. In the area I live in, rent for a decent 1 bedroom apartment is not going to be much less than I pay for my house. Throw a kid or three into the mix, and saving 50% gets to be abysmally impossible.

Another thing to consider is there is going to come a point when you're in your late 20s early thirties, definitely mid thirties that being the guy or gal living with roomates is not going to work any longer to save money. Firstly, finding people your age to rent is going to be slim pickings. And younger people looking for room mates are going to be creeped out by a 43 year old guy looking for roommates...

I agree with this, 50% of gross is virtually impossible because after after adding back 401k deductions is net is like 60-65% of gross.  So for my family to have 50% savings rate that would meaning living on 10-15% of gross income.  This is the peril of living in a higher, not high, COL are but a very high tax area.....taxes matter when you are working. 


tooqk4u22

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Re: How to Save 50%?
« Reply #72 on: June 28, 2013, 07:03:49 AM »
The shockingly simple math is a blog marketing gimmick.
I'll bite. What part of it do you disagree with?

I'll bite. It takes something that depends on a whole host of factors and oversimplifies it. Yes, it's true that reducing your expenses has the double effect of increasing what you save while at the same time reducing what you need to save, but to then say that a 50% savings rate equals 17 years to retirement? The actual time is highly sensitive to rate of return, what sort of buffer you want in your retirement savings, future tax rates, future health care, and even what college your kids go to (or some similar expense if this one doesn't apply). It's reductive enough that it becomes a gimmick.

The only falsehood that might be inferred is that if you save as stated you will get there.....there are no guarantees in life because shit happens, that is the only thing I can see wrong with the idea, otherwise its just math.  Even though there are no guarantees, saving as contemplated signifcantly improves the likelihood that it will work out....afterall 90% of is just showing up.

matchewed

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Re: How to Save 50%?
« Reply #73 on: June 28, 2013, 07:05:47 AM »
The shockingly simple math is a blog marketing gimmick.
I'll bite. What part of it do you disagree with?

I'll bite. It takes something that depends on a whole host of factors and oversimplifies it. Yes, it's true that reducing your expenses has the double effect of increasing what you save while at the same time reducing what you need to save, but to then say that a 50% savings rate equals 17 years to retirement? The actual time is highly sensitive to rate of return, what sort of buffer you want in your retirement savings, future tax rates, future health care, and even what college your kids go to (or some similar expense if this one doesn't apply). It's reductive enough that it becomes a gimmick.

So you disagree with generic information because it is generic? Or are you calling it a gimmick because it is generic? Is the assumption of 5% returns after inflation so unrealistic that it puts the 17 years @ a 50% savings rate into question? All the other aspects such as future tax rates and future health care are valid but now you're just trying to tear down a generic statement of advice with granularity. And any generic statement starts to crumble under that.

Within the context of the generic advice about savings rates I think it still stands up. If the actual results end up being 20 years instead of 17, or that you end up needing to work part time for a few years due to unforeseen circumstances, well I don't think the original generic advice was suggesting otherwise. The generic advice is saying the most simple measurement of your ability and time to FIRE is your savings rate. Of course you will have to get more granular but it is a powerful way to demonstrate the impact of the savings rate.

matchewed

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Re: How to Save 50%?
« Reply #74 on: June 28, 2013, 07:20:01 AM »
Also if it helps Nords did a post a few years ago where he discusses those assumptions you're speaking of.

http://the-military-guide.com/2011/01/03/how-many-years-does-it-take-to-become-financially-independent-2/

Fletch

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Re: How to Save 50%?
« Reply #75 on: June 28, 2013, 07:39:10 AM »
My only issue with the shockingly simple math is that a big portion of my savings are currently going into 401ks, ROTHs, etc, which are designed to only be accessed/used for income after a certain age. So for example if my savings and investments might be theoretically big enough to live off of at age 40, if I can't access them, or if it incurs tax penalties to access them for 20 years from 40-60, then I'm not really financially independent.

I've tried a few different scenarios of ignoring 401k and ROTH contributions entirely (numerator and denominator of savings rate), and running separate FIREcalc simulations for pre-age 65 and post-age 65 (haven't quite figured out the details on what to include in the post-65 savings yet). It hasn't been amazingly helpful at this stage because I don't save enough outside tax-advantaged vehicles, but maybe in a few years. 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.

I agree with the overall message of the "shockingly simple math" though, and I think it puts most people on the right path and heading the right direction and they can figure out the details as they go along. 

Gerard

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Re: How to Save 50%?
« Reply #76 on: June 28, 2013, 07:52:25 AM »
My monthly expenses are in the $1200-$1400 range.
I'll let you figure out how I can save 50% :)

Oh! Me! Me! I know! You... earn in the $2400-$2800 range!

On a slightly more serious note, one thing that gets us all closer to our 50% (or whatever) target is that we've stopped digging ourselves into deeper holes. Over the next five years, most of us will earn more money, through raises and promotions, especially if we bother to improve our qualifications. If we own our homes, we'll build up our equity and reduce our mortgage interest payments. We won't be buying any more dumb shit, or paying any credit card interest. We'll pay off any vehicles we own. We'll learn more and more DIY skills, and get better at almost everything we do (shopping, cooking, growing things, making things, repairing things, understanding people). We'll mature, and realize we no longer need some things that we currently pay for. Our current (and growing) savings will pay us returns (interest, dividends, rent, whatever). And we'll run into options that we can't predict (a swell new work colleague who offers carpooling, a sweetie that we can share our home with, a big transfer or promotion, a side hustle, a neighbour who shares tools or skills). So many of us can turn a current savings rate of (say) 25% into 50% or more, just by Not Fucking Up.

Edit: Did some simple NFU math on my own situation, and over the past five years my pay's gone up about a thousand bucks a month, and my expenses have gone down by a little more, just through shit happening (basic mortgage payments and renegotiation, child support reduction due to kids growing up, better cooking and shopping and fixing things, realizing I like staying in hostels). As a result, I've gone from saving about 22% of take home to about 39%, with another 10% of my gross going into the company DB pension. And the only really mustachian choice I had to make in there was to avoid lifestyle inflation.
« Last Edit: June 28, 2013, 08:28:13 AM by Gerard »

dcheesi

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Re: How to Save 50%?
« Reply #77 on: June 28, 2013, 09:03:18 AM »
Here's one for making 50k. Effective tax rate 3.2%:
Quote
If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates.
Source: money.cnn.com

Gross 50k. 1600 federal taxes. 2435 state taxes*. $20,965 spending. $25,000 savings.  50% savings rate of gross.

(*I live in Nevada, a state with no personal income tax.  Florida is similar.  Idk what you guys pay in state taxes, but googled and found the HIGHEST one is 4.87%, so I used that.  You very well may spend less, meaning you can up that spending level and still hit 50% savings rate.)

Umm, whaaaa!?!? My Taxes are nearly 25% of gross, including FICA etc. Even just Federal income is way more than you are quoting. I do get a refund, but not nearly enough to give me numbers anywhere close to yours...?!

(EDIT: I accidentally a word. Also, for the purposes of the article, my effective fed income tax rate is around 13%)
« Last Edit: June 28, 2013, 09:20:16 AM by dcheesi »

mpbaker22

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Re: How to Save 50%?
« Reply #78 on: June 28, 2013, 09:07:00 AM »


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?

velocistar237

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Re: How to Save 50%?
« Reply #79 on: June 28, 2013, 09:34:04 AM »
Excellent point, Gerard. There's an interview over here where MMM says, "For a young person, I would advise: find a way to save at least 50% of what you earn, and eventually 75%. Do as much optimization as it takes to get there." The other day, I checked my savings rate for the past 6 months and was surprised to see that it had gone up by 5% to 55%. If that's permanent, then that just brought retirement 2 years closer. For all the reasons you describe, it will likely continue that trend.

if I can't access them, or if it incurs tax penalties to access them for 20 years from 40-60, then I'm not really financially independent.

If your retirement savings are big enough to cover both the penalty and your expenses, then you are FI. Worst case, you can just incur the early withdrawal penalty. You'd probably still come out ahead compared to a non-retirement account.

As for the chance of Congress changing the law so that you can't access your retirement accounts at all before some age, I would put that probability at approximately zero.

Dynasty

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Re: How to Save 50%?
« Reply #80 on: June 28, 2013, 09:50:00 AM »


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.

grantmeaname

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Re: How to Save 50%?
« Reply #81 on: June 28, 2013, 09:59:19 AM »
VTSMX has returned 5.9% annually for the last decade.

Fletch

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Re: How to Save 50%?
« Reply #82 on: June 28, 2013, 10:00:51 AM »

If your retirement savings are big enough to cover both the penalty and your expenses, then you are FI. Worst case, you can just incur the early withdrawal penalty. You'd probably still come out ahead compared to a non-retirement account.

As for the chance of Congress changing the law so that you can't access your retirement accounts at all before some age, I would put that probability at approximately zero.

Well I'm hesitant to view anything as probability zero, but I agree it's unlikely. I haven't done enough research to have anything to say about whether it is or is not more efficient to invest in tax-advantaged accounts and just pay the penalty, or invest outside them.

In the context of saving 50% as a guaranteed way to retire in 17 years though, I was attempting to say that the details get hairy when you start estimating taxes and penalties 20-40 years in the future.
So, no I don't think the shockingly simple math is a gimmick, I just think it's like the first chapter in a book that deals with increasingly complicated and constantly changing math. But if you never read past the first chapter and just assume that 50% for 17 years is the only metric to decide your retirement rate, then sure it seems pretty gimmicky.

arebelspy

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Re: How to Save 50%?
« Reply #83 on: June 28, 2013, 10:03:25 AM »
Past performance of the market does not guarantee future results for one.

It may not guarantee, but saying that it turns pure math based on a reasonable (but not guaranteed) assumption into a gimmick is ludicrous.

EDIT: The thing is, it's all fuzzy math anyways, and if you don't get the 5% return, you'll probably still hit it early due to the raises people mentioned earlier in the thread, or learning to be more efficient with your money, or whatever.  Errors on either side will cancel each other out.  Sure, there's other factors, and it's overly simplified a bit, but it ends up being pretty dead on balls accurate, IMO.
« Last Edit: June 28, 2013, 10:04:59 AM by arebelspy »
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matchewed

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Re: How to Save 50%?
« Reply #84 on: June 28, 2013, 10:06:15 AM »


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.

It may be a big word but it is what you do when you deal with modeling. And that is all the % of savings is, a model. If you want to somehow simulate real life go for it. Use assumptions you're comfortable with and see what it gets. That's the power of those pretty big words.

Dynasty

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Re: How to Save 50%?
« Reply #85 on: June 28, 2013, 10:10:58 AM »
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.

...really?  It's math.


Yep, its math and numbers don't lie.

But people who use numbers to generate web page clicks bend the truth, and simplify reality.

One thing we know is the only thing constant, (Which the assumption of a 50% savings rate @ 5% for 17 years = FI), is change.

A 4% withdrawal rate has been in the past deemed as safe for a period of 30 years. If someone started working a mere mortals job at age 20 paying 50k/year, saved and invested half of every penny they made until age 37, and had X amount of dollars, withdrawing 4% of yearly. He or she is gonna go broke.

So they say, well you get a part time job. Then I say, if you need a part time job, you're really not FI.

The point I'm making is, I have no beef whatsoever with saving 50% of gross. I'm striving for it myself. But I think there are going to be a lot of disappointed people at year 17 when they realize they are not quite FI yet... However, they will be far better off than the average joe and jane who have barely saved 10% a year if even that much.



Dynasty

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Re: How to Save 50%?
« Reply #86 on: June 28, 2013, 10:12:12 AM »
VTSMX has returned 5.9% annually for the last decade.

Inflation adjusted?

matchewed

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Re: How to Save 50%?
« Reply #87 on: June 28, 2013, 10:15:50 AM »
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.

...really?  It's math.


Yep, its math and numbers don't lie.

But people who use numbers to generate web page clicks bend the truth, and simplify reality.

One thing we know is the only thing constant, (Which the assumption of a 50% savings rate @ 5% for 17 years = FI), is change.

A 4% withdrawal rate has been in the past deemed as safe for a period of 30 years. If someone started working a mere mortals job at age 20 paying 50k/year, saved and invested half of every penny they made until age 37, and had X amount of dollars, withdrawing 4% of yearly. He or she is gonna go broke.

So they say, well you get a part time job. Then I say, if you need a part time job, you're really not FI.

The point I'm making is, I have no beef whatsoever with saving 50% of gross. I'm striving for it myself. But I think there are going to be a lot of disappointed people at year 17 when they realize they are not quite FI yet... However, they will be far better off than the average joe and jane who have barely saved 10% a year if even that much.

Do you even know what the findings were on the Trinity study which was the foundation of that 30 year timeframe? Check out this post to have more information. http://wpfau.blogspot.com/2012/02/trinity-study-and-portfolio-success.html It's not that the failure rate hit 100% at thirty years like you're suggesting.

VTSMX has returned 5.9% annually for the last decade.

Inflation adjusted?

Yes look up VTSMX.

*Edit* As an aside why is the burden of proof on us to prove it can work? Why don't you start giving some numbers on how it doesn't work?
« Last Edit: June 28, 2013, 10:20:04 AM by matchewed »

grantmeaname

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Re: How to Save 50%?
« Reply #88 on: June 28, 2013, 10:22:06 AM »
VTSMX has returned 5.9% annually for the last decade.

Inflation adjusted?
No, but inflation was 2.3% over the period. So even in the oft-bitched-about "lost decade", you got 3.6% annual returns. For being such a bad decade, it got awfully close to the 4% the SWR assumes will happen over 30-year periods. And that's excluding dividends, because I just pulled the two prices from google finance. It looks like nearly any single quarter's dividend in a given year would be enough to push it up over that 4% number.

So 5% isn't that unrealistic, no. For a first order/ballpark approximation, it really looks pretty good.

arebelspy

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Re: How to Save 50%?
« Reply #89 on: June 28, 2013, 10:23:45 AM »
But I think there are going to be a lot of disappointed people at year 17 when they realize they are not quite FI yet...

I would actually guess most would hit it early.

If they start with 50%, I see almost no way they wouldn't end up with a much higher savings rate percent (due to raises and expense cutting, side gigs for extra income, more efficient investing strategies, etc.).

My FI date keeps moving closer and closer, and I'd place large sums of money on people who read MMM for 17 years and save 50%+ for that whole time being FI sooner, rather than later..
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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DoubleDown

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Re: How to Save 50%?
« Reply #90 on: June 28, 2013, 10:26:01 AM »

The point I'm making is, I have no beef whatsoever with saving 50% of gross. I'm striving for it myself. But I think there are going to be a lot of disappointed people at year 17 when they realize they are not quite FI yet...

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.

And if you stop to think about it, using gross income really is pointless. You never see the money lost to taxes and such, so whatever percentage of your overall pay you save is pretty meaningless. Using net income relative to your living expenses provides an apples-to-apples comparison, since when you reach FI you can (at least theoretically) have an income of $0, where income taxes and other payroll deductions will not apply.

Dynasty

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Re: How to Save 50%?
« Reply #91 on: June 28, 2013, 10:37:46 AM »

*Edit* As an aside why is the burden of proof on us to prove it can work? Why don't you start giving some numbers on how it doesn't work?

My "numbers" are there are way too many variables in the unforeseeable future to 100% bank on this.  Things happen.

arebelspy

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Re: How to Save 50%?
« Reply #92 on: June 28, 2013, 10:39:42 AM »

*Edit* As an aside why is the burden of proof on us to prove it can work? Why don't you start giving some numbers on how it doesn't work?

My "numbers" are there are way too many variables in the unforeseeable future to 100% bank on this.  Things happen.

Who the hell ever argued that one should bank 100% on it?

Maybe this guy:


Just because it's not 100% guaranteed it's a "gimmick"?  Come on.
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DCUrbanMM

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Re: How to Save 50%?
« Reply #93 on: June 28, 2013, 10:40:17 AM »
Make 100K gross. 
Put 50K into tax advantaged accounts (2 401Ks maxed, 2 IRAs maxed, HSA). 
50K agi. 
Pay 20% in average taxes/fica. 
Live on 40K. 


Dynasty

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Re: How to Save 50%?
« Reply #94 on: June 28, 2013, 10:42:31 AM »

*Edit* As an aside why is the burden of proof on us to prove it can work? Why don't you start giving some numbers on how it doesn't work?

My "numbers" are there are way too many variables in the unforeseeable future to 100% bank on this.  Things happen.

Who the hell ever argued that one should bank 100% on it?

Maybe this guy:


Just because it's not 100% guaranteed it's a "gimmick"?  Come on.

I sort of think you are actually...

matchewed

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Re: How to Save 50%?
« Reply #95 on: June 28, 2013, 10:43:59 AM »

*Edit* As an aside why is the burden of proof on us to prove it can work? Why don't you start giving some numbers on how it doesn't work?

My "numbers" are there are way too many variables in the unforeseeable future to 100% bank on this.  Things happen.

Who the hell ever argued that one should bank 100% on it?

Maybe this guy:


Just because it's not 100% guaranteed it's a "gimmick"?  Come on.

I sort of think you are actually...


You're making...

/takes off glasses

an ASSUMPTION. And that's a big word.

grantmeaname

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Re: How to Save 50%?
« Reply #96 on: June 28, 2013, 10:47:35 AM »
You've failed to raise a single substantive criticism at this point. I'm gonna say gimmick was a bit strong of a word choice.

Mozactly

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Re: How to Save 50%?
« Reply #97 on: June 28, 2013, 10:55:10 AM »


It's okay to value other things more, but it's helpful for your decision making to realize that it's often more a matter of priority than capability. Then it goes from "I can't" to "I don't want to right now because of my priorities, but if I think carefully, over time I'll be able to cut expenses and raise income while still honoring my priorities, which may themselves change."



This is a very important way of thinking I'm still trying to master.

Sure I can afford this. But I value my money going somewhere else instead. I think that if you can really embrace that way of thinking, it will help you cut out expenses you might otherwise feel resentful about later.

Great post. I've had some of the same questions. It is taking time to learn, but I'm moving in that direction.

velocistar237

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Re: How to Save 50%?
« Reply #98 on: June 28, 2013, 11:38:55 AM »
Here's one for making 50k. Effective tax rate 3.2%:
Quote
If you consider income tax liability alone, the average effective federal tax rate for people with incomes between $40,000 and $50,000, for instance, is just 3.2%, according to Tax Policy Center estimates.
Source: money.cnn.com

Gross 50k. 1600 federal taxes. 2435 state taxes*. $20,965 spending. $25,000 savings.  50% savings rate of gross.

(*I live in Nevada, a state with no personal income tax.  Florida is similar.  Idk what you guys pay in state taxes, but googled and found the HIGHEST one is 4.87%, so I used that.  You very well may spend less, meaning you can up that spending level and still hit 50% savings rate.)

Umm, whaaaa!?!? My Taxes are nearly 25% of gross, including FICA etc. Even just Federal income is way more than you are quoting. I do get a refund, but not nearly enough to give me numbers anywhere close to yours...?!

(EDIT: I accidentally a word. Also, for the purposes of the article, my effective fed income tax rate is around 13%)

Greetings from Taxachusetts. If I use (gross salary + all employer benefits) as my income, I get 2.5% for federal income tax, 5.9% for FICA, and 2.6% for state, for a total of 11%.

For the 50k example, take out 7.65% for FICA. That leaves $17140 for spending. That's pretty extreme.

jrhampt

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Re: How to Save 50%?
« Reply #99 on: June 28, 2013, 11:45:56 AM »
But I think there are going to be a lot of disappointed people at year 17 when they realize they are not quite FI yet...

I would actually guess most would hit it early.

If they start with 50%, I see almost no way they wouldn't end up with a much higher savings rate percent (due to raises and expense cutting, side gigs for extra income, more efficient investing strategies, etc.).

My FI date keeps moving closer and closer, and I'd place large sums of money on people who read MMM for 17 years and save 50%+ for that whole time being FI sooner, rather than later..

Agreed.  I'm up to about 60% of gross now including principal reductions on the house.  More of net, but I am too lazy to figure that out.  Combination of eliminating expenses and yearly raises keeps improving the savings rate.