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The New Retirement Plan: Save Almost Everything, Spend Virtually Nothing
- Gibbon1 8y agoThe paradox of thrift https://en.wikipedia.org/wiki/Paradox_of_thrift https://en.wikipedia.org/wiki/Paradox_of_thrift
- woolvalley 8y agoIf your putting it in the stock market or loans, doesn't it increase the supply of such things, thus making the return less and making people have to work harder as a result if 'everyone' did this? As far as I can see, it only applies if the cash is inert in a bank account not being loaned out.
- sjg007 8y agoLoan out is fine. The issue is that aggregate consumption and thus demand goes down. People decide not to take vacation etc... not buy the iPhone or not upgrade their car.. things like that. Lower demand means higher prices too.
- Gibbon1 8y ago> not being loaned out. The $64,000 Question is what is the money being loaned out for. If it's bidding up the price of stocks, bonds, and real estate then it takes a leap of faith to assume that will lead to actual productivity improvements.
- simonh 8y agoIt depends on the demand for investment. If there are loads of potentially successful companies starved for resources, more spending on stocks and loans could increase total returns linearly, or perhaps even more. If there’s a glut of money for investment, then that’s a different story.
- opportune 8y agoThis is solved by a well-functioning pension system (although that may also be an oxymoron/paradox of sorts)
- roenxi 8y agoThis paradox is caused by confusing numbers with reality. I have two major criticisms that the Wikipedia article does not list: 1) Firstly, the paradox assumes that maximising total output is an unmitigated good. This is clearly not so - imagine a world where everyone saved outrageously and pared down their lifestyle so much that we needed to move from a from 2 day standard weekend to a 3 day standard weekend. This would have "catastrophic" consequences economically because you lose 20% (1 day in 5) of your economic output, but now everyone has increased their leisure time by 50% (2 days to 3 days per weekend). This is not an objectively bad outcome. I mean, empirically most people don't choose it, but if most people did choose it is not like suffering increases. 2) Someone has defined it such that savings means spending on things that don't cause demand. I don't buy that, because to me "savings" would include, say, investing for retirement by building capital. Eg, maybe a massive great research and development lab for old-people-drugs. That is going to set me up for the future, so I call it savings, but if savings reduces output I assume to an economist it is classified as normal economic consumption.
- claydavisss 8y agoEven if they don't retire early, good on these folks. They will at least be able to take time off when they want, or self-fund an opportunity to be their own boss (which, at 48, I am convinced should be everyone's goal). Another alternative is what I call the "slow burn"...work at brutal competitive jobs to build up a nest egg, then just "peace-out" and go work something mindless to keep a little income or maybe secure health insurance, while using your nest egg for life's big expenses
- prolikewh0a 8y agoIsn't this really bad for a capitalistic system? You need people to spend money and buy things that aren't just rent and basic food.
- claydavisss 8y agoNo - they are ahering to the first principle of capitalism - take care of yourself!
- prolikewh0a 8y agoOk, but you still need people to buy things. If they're only saving, there's no demand for products. Capitalism requires people to consume.
- claydavisss 8y agoYou as an individual are not responsible for saving capitalism You are responsible for your own welfare though, particularly in the US What are these people supposed to do - stay broke to make some soundbite economist happy? It is perfectly rational for people living in a society without safety nets to weave their own
- prolikewh0a 8y agoThat doesn't answer my question. People have always weaved their own safety nets and saved, but if this is becoming common in USA to spend almost nothing and live frugal, how can this system stay afloat? Another point that's pretty unrelated, why would you live decades of your life doing nothing, living extremely frugally? Sounds like a pretty garbage life to me.
- claydavisss 8y agoAs long as my boat is afloat, I care not about yours. If the US fails, I will sail my boat elsewhere. We created the scenario these people are reacting to Worry not, we will not run out of people willing to impoverish themselves buying baubles
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- modzu 8y agoa lawyer making 150k could stick to the "old" retirement plan just fine. can your average millennial stuff 2 million away in 5 years just by saving??
- nawitus 8y agoMaybe not 2 million, but early retirement can be based on savings rate, not any specific number of millions. http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
- skookum 8y agoThis reply is somewhat disingenuous. Read the question instead as "can your average millennial stuff away 64% of their income?" To achieve the "shockingly simple" 11 year FIRE goal in that blog post, someone working 40 hour weeks at $15 an hour would need to indefinitely keep their annual expenses below an inflation-adjusted $12K to build the required savings prior to their early retirement and to live off those savings afterwards. In reality, the math is only shockingly simple if you can control all the inputs.
- nawitus 8y agoThe math is simple, but saving is hard.
- ckdarby 8y agoThose of you who are a developer take note of the article. Many of us in the IT space underestimate the harm & impact of working in our industry. You are the exception to not burn out, you are the norm to not be able to sustain the demand and you should plan for an early retirement.
- closeparen 8y agoTo invest in something is to provide it with capital. If you’re drawing the equivalent of a wage as investment income, corporate America finds your capital at least as valuable as your labor.
- esotericn 8y agoI prefer the term "financial independence" to "retirement" because retirement implies some sort of withdrawal from work.
- eswat 8y agoPlenty just stick with the Financial Independence without getting into Retiring Early. But the latter does imply that you withdraw yourself from work, at least from being a sole contributor to a business you don’t own.
- esotericn 8y agoRetirement implies a sort of finality that I think can only be present in older (or young but disabled) individuals that can no longer meaningfully work. I don't think a 30 year old can 'retire'. From a specific field (e.g. professional football)? Sure. In general? Money isn't the thing that makes successful people work. It's really hard to spend 50 years on pure leisure. I can't think of any examples.
- sgt101 8y ago>It's really hard to spend 50 years on pure leisure. I can't think of any examples. Honey, you ain't getting out enough.
- astura 8y agoMost people would consider me fairly successful and money is the only thing that makes me work. People retire while they can still meaningfully work all the time, really weird to say otherwise. Some people love working, some love not working. Shrug. Retirement doesn't really have to mean pure leisure, lots of people do meaningful unpaid work in retirement.
- esotericn 8y agoI think we just have different definitions of retirement. I don't consider myself 'retired' despite not having a 9-5. It evokes pipe and slippers imagery to me.
- et-al 8y agoObligatory non-paywall mirror: https://outline.com/HyGdqf https://outline.com/HyGdqf
- znpy 8y agoThank you. Mods should alter the link of this post and make it point to the url you posted. Mods, are you there ?
- drankula3 8y agoI'm hitting a paywall. Does anyone know a workaround for the wsj?
- ews 8y agoOpen an incognito window and google for the article's title. It works every time.
- psergeant 8y agoThere is a “web” link on this article. If you click it, you’ll find a search engine link to the article which will give you access
- dgreensp 8y agoThis doesn’t work anymore.
- RhysU 8y agoPay them.
- naasking 8y agoInstall the "just read" addons for Chrome or FF. Bypasses this evey time for me.
- pkaye 8y agoPaste link into news.google.com.
- kooshball 8y agoshare the article to yourself on fb messenger
- thstart 8y agoThe plan to destroy the middle class was very successful. But no more.
- ambicapter 8y ago> One complaint from readers was that the 33-year-old author and her husband still earn sizable incomes. Nate Thames works for a nonprofit and was paid about $270,000 in 2016, according to his employer’s most recent tax forms. Ms. Thames makes an undisclosed amount from her blog and a recently published book. “Now I understand why even with cutting everything to the bone, that we haven’t been able to save like they do,” a reader posted in an online review of the book. Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through Frugalwoods.com.” > Mr. Sabatier, 33, says his Millennial Money website made $401,000 last year. Blogger Joe Udo, 44, recently disclosed he has made almost $350,000 since starting “Retire by 40” in 2010. > Tanja Hester, author of a blog called Our Next Life, called for FIRE bloggers to be more transparent about their financial lives in a post this year. She said she makes less than $1,000 a year on the blog, but declines to disclose her income from a book advance, saying “there’s no need to share your actual numbers if you are honest with readers about your general financial situation.” Like much of the self-help ecosystem, seems the key to living that superior lifestyle is having other people pay for it.
- vibrato 8y agoAll monetary success requires having people pay for it. That is the definition of money.
- astura 8y agoThere is a lot of, for lack of a better word, fraud in the financial stories posted on the internet, and if you call it out on the financial forums, you get accused of just being jealous. Like people who got wealthy from getting a job through family connections, borrowing tens of thousands of dollars from family members to start a business, large inheritance, parents pay for college, stuff like that, then pretend they lifted themselves up by their bootstraps and anyone can do the same. There was an article a bit ago like "how I paid off $150,000 in student loans in a year" where the woman said that her aunt or something gave her a high paying job, her grandma gave her a condo, and she lived rent free with her parents while renting out the condo, then used the money she wasn't spending on rent to buy a second condo. Anyone can do it! I really don't understand why that is the way it is, but whatever.
- Tiktaalik 8y agoI think given longer lifetimes, increased costs and flat wages, "save almost everything, spend virtually nothing" is going to need to be the rule for life in general not just for early retirement.
- closeparen 8y agoIncreasing costs and flat wages mean somebody gets to be less frugal.
- neogodless 8y agoHere are the useful ideas: - spend (much) less than you earn (by working) - figure out your risk tolerance and long-term goals, develop an Investment Policy Statement (including desired asset allocation and re-balancing strategy, if any) - stick to this plan until you're super comfortable with your plan, your back up plan, and your SHTF emergency plan - enjoy your freedom to control your time before you turn 67 It's probably not useful to: - take painful steps to reduce your spending - risk your health - do anything you don't want to continue doing after you stop working (except work!) - assume or rely on BLOG / BOOK / WRITING income like those that stopped the "usual" sources of income, but gained celebrity by writing about (the otherwise useful) ideas
- theandrewbailey 8y ago> Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through Frugalwoods.com.” > Ms. Pattee, who married in 2015, says she and her husband, Andrew Hanna, 33, live off the rental income and save his salary in medical administration. This doesn't sound like retirement. It sounds like being a housewife.
- esotericn 8y agoI think that talking about financial independence requires a sort of implicit elitism which is difficult to avoid. Basically, it's obviously the case that _everyone_ can't do this in an instantaneous fashion. Consider - if everyone works for 10 years in total, then in the stable state (no pop growth) at any point in time roughly 15% of people are serving the other 85%. The claim, is more like "if you try, you can do it". As in, a randomly selected individual is likely to be able to push themselves into a higher income group and cut their budget, if they focus on it. I think this sort of problem plays out all over. An individual can be paid well if they study computer science and get a job at a decent company. The nation can't. It's a logical impossibility.
- commandlinefan 8y agoI tried that when I was younger - but then I found out how much money it costs to attract and keep a girlfriend. Now I know how much money it costs to raise kids.
- simonsarris 8y agoI truly don't know why this part isn't discussed more. Attracting and keeping a mate has to be 95% of the rat race existence in itself.
- astura 8y agoOnly if you want to attract certain types of mates. If you want to attract a mate that has the same values as you, it makes saving for retirement much, much, much easier, not more difficult. When I got married I more than doubled my savings.
- HissingMachine 8y agoSaving for retirement is a wise move whoever you are. I live in Finland where we have mandatory retirement saving system, but more and more people have started to find out that it's not really that good for everyone. Just now there was a story in a major newspaper that an university researcher didn't have that much retirement savings because research grants don't add to your retirement savings (tho this has changed recently) so she will be seeing near minimum retirement which isn't that much in a very expensive country. I'm in my mid 30s and I save for retirement and most of my friends do also, it's just that it ain't easy because after taxes and mandatory retirement payments and social security payments, money left usually goes to daily living, so you have to downscale and minimize expenses now that you have enough when you have to retire. The system is not optimal, and we do have mandatory minimum retirement after all if you can't afford to save, but you don't want to be that person who finds out couple of years before retirement that you are going to live near poverty line when retiring, it's harsh. so saving for retirement is a good move who ever you are and where ever you live.