5 ms·

Well, given compounding interest and inflation, is this so out of the question? At least I keep hearing I need a net worth > 1 million to retire. If one puts a

Well, given compounding interest and inflation, is this so out of the question? At least I keep hearing I need a net worth > 1 million to retire. If one puts away 10-15k a year for just 30 years, plus interest that would get you there comfortably.

varjag 8y ago
A million in 2050 wouldn't take you nearly as far as today.
- ivalm 8y ago
  10k/year contribution inflation adjusted with 2% inflation and 9% return (pre inflation) over 30 years is 1.78mil, or 984k in today's dollars. 15k/year contribution inflation adjusted results in 2.675mil, or 1.477mil in today's dollars. If we reduce pre-inflation return to 7%, while maintaining 2% inflation target, we get $0.685m and $1m. The 2% inflation makes it that over 30 years your total contribution is $405k at 10k/year and $608k at 15k/year.
  - varjag 8y ago
    Thanks for laying it out.
  - nopriorarrests 8y ago
    >with 2% inflation and 9% return (pre inflation) 9% pre inflation is insane, and 7% is too. If you can do that consistenly, you will be a billionaire hedge fund manager. Ten year treasury bond yields 2.59% per year, anything above it is risky. Sure, you can stuff 100% of your savings into S&P500, but then you will have to deal with unpredictable 20-40% drawbacks, which take years and years to correct. Last recession S&P500 basically halved.
    - ivalm 8y ago
      Retirement accounts are not usually risk free, nor should they be invested in risk-free assets. 5-7% inflation adjusted return is typical or worse than most current target date funds. Average annualized return from s&p over past 90 years is 9.8%. Both 9% and 7% were chosen to be below average to account for some amount of lower risk assets in the portfolio. Even with the "great recession" the peak value from 2008 was recovered by 2011 (for spx). When you retire you should have a few years worth expenses in low risk assets, which will be the source of early withdrawals in case of stock market crashes at retirement.
loblollyboy 8y ago
30 years in this box so I can be rich and decrepit. The American dream!
Glyptodon 8y ago
Around 50% of the US working population earns $30,000 or less a year. Good luck saving 10k or 15k a year at that income level. Tangentially, at the typically suggested 4% yearly withdrawal level you'd need more like $1.5 million to retire at the ~$60k median income level. Also sort of unrelated I thinks it's interesting that about 50% of people can earn under $30k, but median income is still twice that.
- hoopleheaded 8y ago
  Median household income is nearly twice median individual income (approx 31k vs approx 57k). Households frequently have two earners.

varjag 8y ago

A million in 2050 wouldn't take you nearly as far as today.

ivalm 8y ago
10k/year contribution inflation adjusted with 2% inflation and 9% return (pre inflation) over 30 years is 1.78mil, or 984k in today's dollars. 15k/year contribution inflation adjusted results in 2.675mil, or 1.477mil in today's dollars. If we reduce pre-inflation return to 7%, while maintaining 2% inflation target, we get $0.685m and $1m. The 2% inflation makes it that over 30 years your total contribution is $405k at 10k/year and $608k at 15k/year.
- varjag 8y ago
  Thanks for laying it out.
- nopriorarrests 8y ago
  >with 2% inflation and 9% return (pre inflation) 9% pre inflation is insane, and 7% is too. If you can do that consistenly, you will be a billionaire hedge fund manager. Ten year treasury bond yields 2.59% per year, anything above it is risky. Sure, you can stuff 100% of your savings into S&P500, but then you will have to deal with unpredictable 20-40% drawbacks, which take years and years to correct. Last recession S&P500 basically halved.
  - ivalm 8y ago
    Retirement accounts are not usually risk free, nor should they be invested in risk-free assets. 5-7% inflation adjusted return is typical or worse than most current target date funds. Average annualized return from s&p over past 90 years is 9.8%. Both 9% and 7% were chosen to be below average to account for some amount of lower risk assets in the portfolio. Even with the "great recession" the peak value from 2008 was recovered by 2011 (for spx). When you retire you should have a few years worth expenses in low risk assets, which will be the source of early withdrawals in case of stock market crashes at retirement.

loblollyboy 8y ago

30 years in this box so I can be rich and decrepit. The American dream!

Glyptodon 8y ago

Around 50% of the US working population earns $30,000 or less a year. Good luck saving 10k or 15k a year at that income level. Tangentially, at the typically suggested 4% yearly withdrawal level you'd need more like $1.5 million to retire at the ~$60k median income level. Also sort of unrelated I thinks it's interesting that about 50% of people can earn under $30k, but median income is still twice that.

hoopleheaded 8y ago
Median household income is nearly twice median individual income (approx 31k vs approx 57k). Households frequently have two earners.