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That's not how the calculation works at all. If you're saving 50% then your expenses are half of your income, so you need half your salary in retirement. Ignori
by kobeya 10y ago
That's not how the calculation works at all. If you're saving 50% then your expenses are half of your income, so you need half your salary in retirement. Ignoring investment gains is ignore the entire point of this exercise.
- uiri 10y agoTreating investment gains over a time period of under 10 years as negligible is a perfectly prudent thing to do when planning a retirement which is going to span multiple decades. I do agree it is somewhat less prudent at a time scale of 20-30 years or beyond. Your retirement goal is 25 * 12 * x. If you save 50% then each month you spend x and put x in the bank. At that rate, it will take you 25 * 12 months (25 years) to get to your goal. Counting 1/3 of 1% returns each month, it would take you 208 months (17 years is 204 months). So returns would shave 7-8 years or ~30% off your working life. If you save 75% then each month you spend x and put 3x in the bank. At that rate, it will take you 25 * 4 months (8 years is 96 months) to get to your goal. Counting 1/3 of 1% returns each month, it would take you 87 months (7 years is 84 months). So returns would shave off ~1 year or 13%.