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45 years ago, the median salary was not $97k. You need to adjust for inflation of the salary as well. Edit: You're also not accounting for taxes, which will t

45 years ago, the median salary was not $97k. You need to adjust for inflation of the salary as well. Edit: You're also not accounting for taxes, which will take a sizable chunk of dividends and capital gains.

prepend 8y ago
45 years ago the example was $1M. My scenario is for if you want to make $10M starting today. It’s a simple model that doesn’t take into account many factors. But it’s meant to demonstrate that getting $10M is certainly feasible and reliably predictable. If you’re wondering if taxes and inflation change the outcome of the example, they don’t. (Which is why I didn’t include them) So the fact that there are taxes doesn’t matter for purposes of this example. Neither does inflation as the example is about getting $10M, not in getting $10M in present day purchasing power. But certainly inflation is important in how $10M will be worth much less 45 years from now. But I don’t expect anyone to not know that. But maybe I missed how inflation would impact this illustration. Let me know if you think inflation would change the meaning or validity of the example. There are way better programs and calculators if you want to actually carry this out. They will factor in tax deferral, capital gains, inflation, etc etc. But the nice thing is that if you were 18 and thinking of what to do with your life. It’s pretty reliable that you could get an engineering degree and save for 45 years to get $10M. If you wanted to. I don’t think I would want to be in the “inner circle” because it’s quite a different lifestyle than I want.
- Simon_says 8y ago
  I'm sorry, but I think there's still something that your analysis is missing with respect to taking inflation into account. Either that, or we're talking past each other in some way. Today's hypothetical 18 year old doesn't want $10 million as a nominal amount. He wants 10 million present day dollars worth of value. In 45 years, this might be something closer to $25 million (as measured in 2063 dollars). That's actually a difference that you need to consider. Using your numbers of somebody who saves $50k per year and gets 6% annual returns, and assuming that their wage and savings increases with inflation, he'll end up with about $15MM. Certainly no small chunk of change, but equivalent today to about $6MM. Enough to retire comfortably and leave a legacy, but not a staggering sum. Also, the taxes do matter. Marginal changes in your post-tax rate of return have compounding effects due to the long investment timeline. Getting an effective annual return of 5% instead of 6% shaves off almost a full third from the final amount. Also, if the taxes didn't matter, the government wouldn't bother collecting them =P
  - joefourier 8y ago
    That's getting away from the point - which is that as an average American engineer, becoming wealthy enough to quality as a millionaire is not some impossible dream, but something easily achievable with discipline and frugality. This contradicts the argument that becoming wealthy is something only achievable to those who are incredibly lucky or already born in the right family, and that the masses are deludedly seeing themselves as "temporarily embarrassed millionaires" instead of poor victims requiring wealth redistribution. (Of course, a salary and careful investment will only get you so far - if you want to be staggeringly wealthy in a short amount of time, a high-risk but high-reward strategy such a startup is more appropriate.)
    - Simon_says 8y ago
      I agree completely. I have to, because I did it.
  - prepend 8y ago
    “Today's hypothetical 18 year old doesn't want $10 million as a nominal amount. He wants 10 million present day dollars worth of value.” This may or may not be true. OP was referring to a historical document that called out $1M and they remarked that today more like $10M is needed. For practical purposes I guess it depends on whose hypothetical 18 year old. If inflation is 2.5% then you need $3M in 2063 to have the purchasing power of $1M now. Having a million bucks in purchasing power at retirement is pretty good. So how much do you think an 18 year old wants? I didn’t mean that taxes don’t matter at all. It depends on what you want to measure. I was trying to show that it’s possible to end up with $10M after 45 years. I think you’re arguing that taxes will reduce that value and inflation will reduce that value. Yes, of course, so what. Arguing over how much is enough is a bit moot (or at least we should do it in person over drinks so it has some purpose and at least we can get drunk). For me, $10M in 2063 dollars that is worth $3.3M in 2018 dollars that gets taxed at 40% lump sum or 25% per year or whatever is perfectly suitable for comfort and for angel investing. As far as staggering sums, $15M isn’t staggering in 2018 or 2063 dollars. And yes, of course earning 5% is a huge differance than 6% over 45 years. So is earning 7%. What’s your point? Do you have a better arbitrary number for an average 45 year return? I think we have different points and are talking past each other. You may have a more specific need for a certain number. I just want to point out that “being rich” isn’t some elusive, unobtainable outcome.

prepend 8y ago

45 years ago the example was $1M. My scenario is for if you want to make $10M starting today. It’s a simple model that doesn’t take into account many factors. But it’s meant to demonstrate that getting $10M is certainly feasible and reliably predictable. If you’re wondering if taxes and inflation change the outcome of the example, they don’t. (Which is why I didn’t include them) So the fact that there are taxes doesn’t matter for purposes of this example. Neither does inflation as the example is about getting $10M, not in getting $10M in present day purchasing power. But certainly inflation is important in how $10M will be worth much less 45 years from now. But I don’t expect anyone to not know that. But maybe I missed how inflation would impact this illustration. Let me know if you think inflation would change the meaning or validity of the example. There are way better programs and calculators if you want to actually carry this out. They will factor in tax deferral, capital gains, inflation, etc etc. But the nice thing is that if you were 18 and thinking of what to do with your life. It’s pretty reliable that you could get an engineering degree and save for 45 years to get $10M. If you wanted to. I don’t think I would want to be in the “inner circle” because it’s quite a different lifestyle than I want.

Simon_says 8y ago
I'm sorry, but I think there's still something that your analysis is missing with respect to taking inflation into account. Either that, or we're talking past each other in some way. Today's hypothetical 18 year old doesn't want $10 million as a nominal amount. He wants 10 million present day dollars worth of value. In 45 years, this might be something closer to $25 million (as measured in 2063 dollars). That's actually a difference that you need to consider. Using your numbers of somebody who saves $50k per year and gets 6% annual returns, and assuming that their wage and savings increases with inflation, he'll end up with about $15MM. Certainly no small chunk of change, but equivalent today to about $6MM. Enough to retire comfortably and leave a legacy, but not a staggering sum. Also, the taxes do matter. Marginal changes in your post-tax rate of return have compounding effects due to the long investment timeline. Getting an effective annual return of 5% instead of 6% shaves off almost a full third from the final amount. Also, if the taxes didn't matter, the government wouldn't bother collecting them =P
- joefourier 8y ago
  That's getting away from the point - which is that as an average American engineer, becoming wealthy enough to quality as a millionaire is not some impossible dream, but something easily achievable with discipline and frugality. This contradicts the argument that becoming wealthy is something only achievable to those who are incredibly lucky or already born in the right family, and that the masses are deludedly seeing themselves as "temporarily embarrassed millionaires" instead of poor victims requiring wealth redistribution. (Of course, a salary and careful investment will only get you so far - if you want to be staggeringly wealthy in a short amount of time, a high-risk but high-reward strategy such a startup is more appropriate.)
  - Simon_says 8y ago
    I agree completely. I have to, because I did it.
- prepend 8y ago
  “Today's hypothetical 18 year old doesn't want $10 million as a nominal amount. He wants 10 million present day dollars worth of value.” This may or may not be true. OP was referring to a historical document that called out $1M and they remarked that today more like $10M is needed. For practical purposes I guess it depends on whose hypothetical 18 year old. If inflation is 2.5% then you need $3M in 2063 to have the purchasing power of $1M now. Having a million bucks in purchasing power at retirement is pretty good. So how much do you think an 18 year old wants? I didn’t mean that taxes don’t matter at all. It depends on what you want to measure. I was trying to show that it’s possible to end up with $10M after 45 years. I think you’re arguing that taxes will reduce that value and inflation will reduce that value. Yes, of course, so what. Arguing over how much is enough is a bit moot (or at least we should do it in person over drinks so it has some purpose and at least we can get drunk). For me, $10M in 2063 dollars that is worth $3.3M in 2018 dollars that gets taxed at 40% lump sum or 25% per year or whatever is perfectly suitable for comfort and for angel investing. As far as staggering sums, $15M isn’t staggering in 2018 or 2063 dollars. And yes, of course earning 5% is a huge differance than 6% over 45 years. So is earning 7%. What’s your point? Do you have a better arbitrary number for an average 45 year return? I think we have different points and are talking past each other. You may have a more specific need for a certain number. I just want to point out that “being rich” isn’t some elusive, unobtainable outcome.