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Even if you follow all that advice, it isn't necessarily sufficient. Probably not even close. If you figure you need roughly $1.5 million to retire without draw

Even if you follow all that advice, it isn't necessarily sufficient. Probably not even close. If you figure you need roughly $1.5 million to retire without drawing down principle, then that means you're by definition in the top 5% of the United States by wealth. And in order to get $1.5 million from $0 by age 65, well there are a lot of ways to get there assuming unrealistic stock market returns. But over twenty years, the S&P 500's returns vary wildly [1]. If you start at age 25 and aim for retirement at 65 then that's 40 years. If median return after inflation is 4%, you still have to save over $1000 / month, and that's banking you'd hit median returns. If you figure 3%, then that's around $1500 / month. If it dips into negative returns like it did for a few 20-year periods in the S&P-500 history, then good luck, you'd need to save over $4000 / month. (Rough numbers based off of monthly interest) [1] http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...

Retric 11y ago
Over 40 years you get quote a bit of dollar cost averaging going on which helps returns significantly. Including dividends 4.5% after inflation. Though fees may easily reduce that to under 4% for many people. https://en.m.wikipedia.org/wiki/Dollar_cost_averaging https://en.m.wikipedia.org/wiki/Dollar_cost_averaging The real issue is you need solid returns the first few years of retirement or your going to draw down a lot of capital.
- tunesmith 11y ago
  I honestly believe dollar cost averaging is somewhat of a crock, because it assumes that you have a slush pile of money set aside that you invest on a set schedule. I just thought of a way to test my thought: For instance, I ran a study on my own finances. I have a complete record of dates and amounts of every sum I've put into retirement. I'm able to "pretend" I bought the S&P-500 (VFINX) on those dates (rather than the investing choices I actually made), and am able to calculate an APY from that date until today. (I do this by looking up dividend-adjusted historical prices.) Given that, my all-time APY would have been 6.69%. Meanwhile, using an S&P 500 Return Calculator [1], the Annualized Inflation Adjusted Reinvested Dividend performance is 6.67%. So, almost exactly the same - maybe dollar cost averaging isn't a crock, but in my case, not the advantage it is usually purported to be. And this is a 20-year period that has been reasonably strong. I believe the reason this happens is that people (me included) will tend to have more money to invest when times are good (and prices are high), and less to invest when times are bad (and prices are low) - so this basically eliminates any dollar-cost-averaging advantage. I'm just one data point so I might be an unlucky outlier, but the theory makes sense to me. [1] http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/
  - Retric 11y ago
    It's less about maximizing returns as it is a reversion to the mean, there are clearly better times to get into the market, but the point is it minimizes the risk of starting in a bad year. Granted, as you say people often have less money to invest in bad years. However, even in the great depression ~50% of workers had a job. EX: Rerun those numbers and start in 1999. Or consider "By mid 1932, the Dow had lost 89 percent of its pre-crash value" Few people are going to have 10 times what they need for retirement saved up. On the other end retirees are probably not selling all there stock at the bottom either even if people generally need to sell more in a dip than in good times. Granted, 1970 was still a terrible year to get into the market.
deleted 11y ago
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Retric 11y ago

Over 40 years you get quote a bit of dollar cost averaging going on which helps returns significantly. Including dividends 4.5% after inflation. Though fees may easily reduce that to under 4% for many people. https://en.m.wikipedia.org/wiki/Dollar_cost_averaging https://en.m.wikipedia.org/wiki/Dollar_cost_averaging The real issue is you need solid returns the first few years of retirement or your going to draw down a lot of capital.

tunesmith 11y ago
I honestly believe dollar cost averaging is somewhat of a crock, because it assumes that you have a slush pile of money set aside that you invest on a set schedule. I just thought of a way to test my thought: For instance, I ran a study on my own finances. I have a complete record of dates and amounts of every sum I've put into retirement. I'm able to "pretend" I bought the S&P-500 (VFINX) on those dates (rather than the investing choices I actually made), and am able to calculate an APY from that date until today. (I do this by looking up dividend-adjusted historical prices.) Given that, my all-time APY would have been 6.69%. Meanwhile, using an S&P 500 Return Calculator [1], the Annualized Inflation Adjusted Reinvested Dividend performance is 6.67%. So, almost exactly the same - maybe dollar cost averaging isn't a crock, but in my case, not the advantage it is usually purported to be. And this is a 20-year period that has been reasonably strong. I believe the reason this happens is that people (me included) will tend to have more money to invest when times are good (and prices are high), and less to invest when times are bad (and prices are low) - so this basically eliminates any dollar-cost-averaging advantage. I'm just one data point so I might be an unlucky outlier, but the theory makes sense to me. [1] http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/
- Retric 11y ago
  It's less about maximizing returns as it is a reversion to the mean, there are clearly better times to get into the market, but the point is it minimizes the risk of starting in a bad year. Granted, as you say people often have less money to invest in bad years. However, even in the great depression ~50% of workers had a job. EX: Rerun those numbers and start in 1999. Or consider "By mid 1932, the Dow had lost 89 percent of its pre-crash value" Few people are going to have 10 times what they need for retirement saved up. On the other end retirees are probably not selling all there stock at the bottom either even if people generally need to sell more in a dip than in good times. Granted, 1970 was still a terrible year to get into the market.

deleted 11y ago

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