6 ms·

I would argue that this overlooks the factor of time and compound interest. Lets say I make 60k a year and am 25 years old. If I am living paycheck to paycheck

I would argue that this overlooks the factor of time and compound interest. Lets say I make 60k a year and am 25 years old. If I am living paycheck to paycheck due to bad choices (partying, eating out, etc.) and then I switch my spending habits and can now live comfortably on that 60k and I can save / invest. Lets say my take home after taxes and health insurance (32% reduction) is $3,400 a month. If I can invest $1,200 a month of that, and assume a safe 7.5% return by the time I retire at 67 I have ~$4 million which is considered wealthy, but not really wealthy. But yes in the short term the only way to gain wealth is to earn more money. Edit: This assumes a perfect scenario, 98% of the time, that person making 60k a year ends up on social security barely making it at 67.

auiya 7y ago
42 years in the future your $4 million has deflated in value to the equivalent ~$1.4 million worth of buying power today assuming 2.5% inflation rate. Which isn't really worth much in the U.S., certainly not enough to recover from a major medical disaster.
- pwinnski 7y ago
  GP was talking about saving $1200 out of $3400 take-home, which means living expenses are $2200/mo, or $26,400/year. Let's leave things in "today's dollar" terms for simplicity: A 4% annual withdrawal from $1.4M would be $56,000, or a big upgrade over $26,4000. A 4% annual withdrawal from $4M is $160k. But as you say, it's the equivalent of $56k today.