6 ms·

The absolute value of your salary doesn't tell you anything about how long it takes to get to retirement (or more accurately, financial independence). That's ex

The absolute value of your salary doesn't tell you anything about how long it takes to get to retirement (or more accurately, financial independence). That's exclusively a function of your spending and saving rates. https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...

dnissley 5y ago
The absolute value of your salary does highly correlate with cost of living, unfortunately. Which may have an effect on your savings rate.
- anonporridge 5y ago
  Yes it does. If you have a high salary, you are probably living in a HCOL area. If you have a low salary for the same kind of work, then you are probably living in a LCOL area. The savings rates of these different individuals could be the same if the salary difference is proportional to the cost of living difference.
  - lolinder 5y ago
    But 20% of $200k/yr is $40k/yr, while 20% of $100k/yr is $20k/yr. If you make twice as much while saving the same rate (i.e. cost of living goes up proportionally), you'll still end up saving twice as fast. Then move to a LCOL area, and you've got twice as much saved as the people who've lived there all their lives.
    - p1necone 5y ago
      Yep - this is what a lot of people who suggest moving to a cheaper area as a solution for not being able to buy a house don't seem to think about. Earning (made up numbers because I don't even live in the USA and I don't know what is reasonable) $100k and spending half of it on rent with no hope of buying a house is still better than earning $50k in an area with much cheaper housing. Of course if you can score a remote job then you can have the best of both worlds, but that isn't always possible (and some companies seem to pay differently based on your COL now).
    - kelnos 5y ago
      I think it's a pretty big unsourced assumption that savings rates are similar between LCOL and HCOL areas. I'm curious if that's really true; I wonder if there's any research/polling done on this.
  - deleted 5y ago
    [deleted]
  - seanmcdirmid 5y ago
    Even if the saving rates are the same, the higher salary in a higher COL wins because you can always move before retirement. However, today’s high inflation rates make all these computations iffy, and if you rely too much on inflation beating stock market returns, you won’t be able to ratchet down on risk as you get closer to your preferred early retirement date (a crash can dump you back in the workforce at a bad time). Also, many people in HCOLs don’t want to downgrade to LCOLs after they retire. Too bad Medicare doesn’t transfer to low cost but nice southeast Asian countries.
    - jiggunjer 5y ago
      Why do you assume a LCOL area is a downgrade. Those asian countries have still have pretty cheap private healthcare.
      - seanmcdirmid 5y ago
        Many people in HCOL areas think LCOL areas are a downgrade, and…they are cheap for a reason. If it’s just lack of jobs, for a retiree that’s fine, but high crime bad weather poor infrastructure bad schools bad scenery are also possible. You don’t want to stop living in retirement, especially if you retire early. Desirable places to retire like Santa Fe are already getting expensive. Cheap private healthcare works for small things, but you are paying out of pocket for everything and if something big comes up you might not even be able to access the care you need. Guam might work instead, but they aren’t cheap and are pretty far away from anything.
        jiggunjer 5y ago
        I still don't see you mention a reason for the (rather US centric) assumption. Fact is many LCOL areas are upgrades if you don't need to work.
        seanmcdirmid 5y ago
        > Fact is many LCOL areas are upgrades if you don't need to work. Sorry, having lived in Mississippi for 4 years, that is not really true. Or I guess it depends on what you mean by "many", because there are many bad cheap places out there (e.g. Gary Indiana, Port Gibson Mississippi, Monroe Louisiana, ...). It also depends on what you mean by upgrade: many people like big city amenities (food and cultural options) and would see moving to the sticks as depressing, just like many would see the opposite (they love the country side, hate big cities). Internationally, LCOL areas are generally in developing countries, and even a city like Bangkok will get expensive after awhile (though big cities in the west might get more expensive faster). It is still a trade off, many can't make (and many can, good for them).
oblio 5y ago
Simple is not easy. The vast majority of people like to spend. Who can blame them? You can take your money to your grave, but what use is it then?
- leetcrew 5y ago
  you might as well ask what's the point of insurance if you never wreck your car. I have some nice things, but none of them bring me as much peace as having a deep buffer for unexpected problems. if I learned that I would die in a month, I wouldn't be sad that I hadn't managed to burn all my money.
  - throwawayboise 5y ago
    I am in the same mindset. I take deep satisfaction that I have something substantial to leave to my kids. I don't want to spend it on me. I don't like to travel, and I don't like "stuff." I have a few hobbies but they are not expensive.
  - grog454 5y ago
    >if I learned that I would die in a month, I wouldn't be sad that I hadn't managed to burn all my money. I'd probably feel that way too. But I have to ask - how much thought have you really given it? I vaguely remember reading a surprising number of posts from HNW people that regretted not trying certain hobbies / activities when they were young enough fully enjoy them. That saying that no one on their deathbed says their biggest regret is that they didn't work harder, is probably a trope for a reason.
- giantg2 5y ago
  There's also the fact that most people have to spend. Build your own house? Grow your on food? Most people are buying those.
- anonporridge 5y ago
  Never said it's easy. But spending much below your means is the only reasonable path to financial independence and wealth. I for one don't want to live in a society that exclusively prioritizes now and doesn't sacrifice anything to plan for the future. "A society grows great when old men plant trees in whose shade they know they shall never sit."
giantg2 5y ago
Salary is the absolute ceiling for savings rate, so I'd say it's a big factor.
- anonporridge 5y ago
  You clearly didn't even skim the link I posted.
  - giantg2 5y ago
    Yes I did. Your comment indicates that you don't understand ceiling. The article is overly simplistic in regards to things like cost of living, inflation, and returns on the savings. Do you really think you can save 90% of your income and retire after 3 years? This is terrible financial advice and completely ignores functions and changes in spending due to life events. Not to mention, I don't believe that function is legitimate depending on retirement age and current age combinations.
    - robotresearcher 5y ago
      > Do you really think you can save 90% of your income and retire after 3 years? You certainly can if you make 5 million a year! Which means that absolute income is absolutely relevant.
      - kelnos 5y ago
        Hell, in many places you can retire under those conditions if you "only" make $500k a year. The trick is to move to a much lower cost-of-living area after you retire, often abroad. If that kind of thing floats your boat, anyway.
    - 88913527 5y ago
      If your income is $100k and you save $90k, spending $10k, after 3 years, you will have saved $270k. With growth, you might have $300k. To support your ongoing $10k annual expenses, you'd only be spending 3% of your portfolio. The math checks out. Of course with taxes, a savings rate of 90% is more than likely to be possible.
tharkun__ 5y ago
I don't think that is accurate. I would say it is a combination of both. The article you link to obviously makes it sound like it's an exclusive function. But it simply dismisses the fact that not everyone can reasonably sustain the savings rates mentioned. Sure, there's reports of very motivated people that live on next to nothing and have a huge savings rate for the first 10 years of their working life, abstaining from everything including having a family and such. For the vast majority of people this is not something they can achieve and that is not taken into account by the 'simple math'. I would agree with the author that having Starbucks coffee twice a day is not worth retiring later. I'd even give him Cable TV. But I'm not going to live like a hermit. Different people are on different places of this gradient. If I increase my take home pay, I can stay on the same savings rate as before and retire earlier (assuming that I don't want to make a certain percentage of my last pay during retirement and instead have a fixed goal for my retirement income).
- anonporridge 5y ago
  We all have to make the choice between prioritizing creature comforts and freedom. I chose freedom. While my colleagues were living in fancy high rise apartments, buying new gaming rigs and cars, taking extravagant international vacations, and getting married and having kids, I was living in a basement studio with my college mattress on the floor and no car for several years while biking to work. I'm retired and they're still slaving away with no end in sight. No risk and sacrifice, no reward.
  - leeoniya 5y ago
    > getting married and having kids i have not met anyone yet who is married with kids but would have preferred an earlier retirement instead. kids are more expensive than all the other things combined that you listed - no amount of living in the basement or saving 30k on having no car is going to make up for that.
    - anonporridge 5y ago
      People regret having kids all the time. It's just not socially acceptable to talk about openly. https://www.reddit.com/r/AskReddit/comments/m9vh8a/serious_parents_who_regret_having_kids_why/ https://www.reddit.com/r/AskReddit/comments/m9vh8a/serious_p... https://www.reddit.com/r/Parenting/comments/1wvx04/serious_do_you_regret_having_children/ https://www.reddit.com/r/Parenting/comments/1wvx04/serious_d... https://www.reddit.com/r/regretfulparents/ https://www.reddit.com/r/regretfulparents/
FabHK 5y ago
Yes, trivially. But the achievable savings rate depends very much on the absolute value of your salary, for any level of target creature comforts.
rr808 5y ago
> You can earn 5% investment returns after inflation during your saving years This is very unlikely long term. Right now treasuries are 5% less then inflation. Lots of FIRE people are going to get shafted.
- anonporridge 5y ago
  S&P 500 returned ~25% this last year, and 110% over 5 years. That's excluding dividends.
  - voidfunc 5y ago
    To be fair we are living in a crazy unprecedented strong bull market. It will be interesting to see how this holds.
  - SCHiM 5y ago
    That is actually, quite literally, inflation. It's money depreciating in value relative to stocks and financial products. Just like a burger at the golden arches shooting up in price is inflation, so is the price of a stock. It's probably not _only_ inflation, supply and demand will have caused the majority of this shift, since savers saw their money start evaporating. But that is of itself of course a second order effect of inflation, so I think the point stands.
    - UncleMeat 5y ago
      Sure, but the only kind of inflation that really crushes people living off their investments is stagflation, where increasing prices of goods is not reflected in portfolio sizes. If your investments are growing way faster than the price of goods, there is no problem.
- kelnos 5y ago
  Not sure I agree. Trinity study suggests that if you retire 30 years before death, you can safely withdraw 4% every year during retirement, regardless of economic fluctuations. If you retire super early and need 50 or 60 years, your safe withdrawal rate is probably closer to 3% or even 2%, though. Your point may be that we should expect significant economic turmoil in the near- and medium-term, much more than "fluctuations", which may be true, or may not be. Impossible to predict the future. Consider that the 2021 inflation rate is likely a symptom of COVID. Monthly inflation rates for the last few months of 2021 were trending downward. Hopefully we can expect inflation to get back to something approaching normal by the end of 2022. Even if it takes a couple more years, there's no reason to expect that 7% inflation is the norm going forward. (Also consider that people who are doing FIRE certainly don't have much in treasuries. It's going to be mostly in stocks. That certainly carries other risks, of course.)
robotresearcher 5y ago
> That's exclusively a function of your spending and saving rates. Saving rate is bounded above by your income. It's relevant.
- deleted 5y ago
  [deleted]
__MatrixMan__ 5y ago
Forecasting your spending rate far enough into the future, however, is a very tricky problem if you're trying to retire at 30, especially if you're living through turbulent times. I'd rather work 3 days a week until I'm dead then let my skills start deteriorating now and live the next 60 years in fear that my fixed income won't be able to sustain me.
- wiz21c 5y ago
  spot on. Energy prices are going to rise in Europe for the years ahead so will inflation and then your savings will dwindle... In my country inflation is already around 2.5% years on years.
- janandonly 5y ago
  As someone who's been working for +10 years now for 3 day's a week I can say: spot on! I've got savings enough for fun projects or holiday's, and my 3 day job simply pays the rent/gas/electricity bills.
  - codethief 5y ago
    If I may ask, what work do you do / what company do you work for that allows you to only work 3 days a week?
  - deleted 5y ago
    [deleted]
- SuchAnonMuchWow 5y ago
  When you forecast your spending rate, you naturally take some security margin, for example by retiring when your passive earnings gets 1.5x times larger than your targeted spending. And that security margin (which won't be spend most years) will compound. Sure, you might encounter a black swan event which force you out of retirement only 3 years after you started, and at that point your security margin won't have increased your stash by much, but at the same time your skill won't have deteriorated much in 3 years. It also work even if the black swan even happens 20 years after your retirement. You just need to take a security margin your are comfortable with, and project how much you will have after 3, 10, 25 years to see how much you have for unforeseen events.

dnissley 5y ago

The absolute value of your salary does highly correlate with cost of living, unfortunately. Which may have an effect on your savings rate.

anonporridge 5y ago
Yes it does. If you have a high salary, you are probably living in a HCOL area. If you have a low salary for the same kind of work, then you are probably living in a LCOL area. The savings rates of these different individuals could be the same if the salary difference is proportional to the cost of living difference.
- lolinder 5y ago
  But 20% of $200k/yr is $40k/yr, while 20% of $100k/yr is $20k/yr. If you make twice as much while saving the same rate (i.e. cost of living goes up proportionally), you'll still end up saving twice as fast. Then move to a LCOL area, and you've got twice as much saved as the people who've lived there all their lives.
  - p1necone 5y ago
    Yep - this is what a lot of people who suggest moving to a cheaper area as a solution for not being able to buy a house don't seem to think about. Earning (made up numbers because I don't even live in the USA and I don't know what is reasonable) $100k and spending half of it on rent with no hope of buying a house is still better than earning $50k in an area with much cheaper housing. Of course if you can score a remote job then you can have the best of both worlds, but that isn't always possible (and some companies seem to pay differently based on your COL now).
  - kelnos 5y ago
    I think it's a pretty big unsourced assumption that savings rates are similar between LCOL and HCOL areas. I'm curious if that's really true; I wonder if there's any research/polling done on this.
- deleted 5y ago
  [deleted]
- seanmcdirmid 5y ago
  Even if the saving rates are the same, the higher salary in a higher COL wins because you can always move before retirement. However, today’s high inflation rates make all these computations iffy, and if you rely too much on inflation beating stock market returns, you won’t be able to ratchet down on risk as you get closer to your preferred early retirement date (a crash can dump you back in the workforce at a bad time). Also, many people in HCOLs don’t want to downgrade to LCOLs after they retire. Too bad Medicare doesn’t transfer to low cost but nice southeast Asian countries.
  - jiggunjer 5y ago
    Why do you assume a LCOL area is a downgrade. Those asian countries have still have pretty cheap private healthcare.
    - seanmcdirmid 5y ago
      Many people in HCOL areas think LCOL areas are a downgrade, and…they are cheap for a reason. If it’s just lack of jobs, for a retiree that’s fine, but high crime bad weather poor infrastructure bad schools bad scenery are also possible. You don’t want to stop living in retirement, especially if you retire early. Desirable places to retire like Santa Fe are already getting expensive. Cheap private healthcare works for small things, but you are paying out of pocket for everything and if something big comes up you might not even be able to access the care you need. Guam might work instead, but they aren’t cheap and are pretty far away from anything.
      - jiggunjer 5y ago
        I still don't see you mention a reason for the (rather US centric) assumption. Fact is many LCOL areas are upgrades if you don't need to work.
        seanmcdirmid 5y ago
        > Fact is many LCOL areas are upgrades if you don't need to work. Sorry, having lived in Mississippi for 4 years, that is not really true. Or I guess it depends on what you mean by "many", because there are many bad cheap places out there (e.g. Gary Indiana, Port Gibson Mississippi, Monroe Louisiana, ...). It also depends on what you mean by upgrade: many people like big city amenities (food and cultural options) and would see moving to the sticks as depressing, just like many would see the opposite (they love the country side, hate big cities). Internationally, LCOL areas are generally in developing countries, and even a city like Bangkok will get expensive after awhile (though big cities in the west might get more expensive faster). It is still a trade off, many can't make (and many can, good for them).

oblio 5y ago

Simple is not easy. The vast majority of people like to spend. Who can blame them? You can take your money to your grave, but what use is it then?

leetcrew 5y ago
you might as well ask what's the point of insurance if you never wreck your car. I have some nice things, but none of them bring me as much peace as having a deep buffer for unexpected problems. if I learned that I would die in a month, I wouldn't be sad that I hadn't managed to burn all my money.
- throwawayboise 5y ago
  I am in the same mindset. I take deep satisfaction that I have something substantial to leave to my kids. I don't want to spend it on me. I don't like to travel, and I don't like "stuff." I have a few hobbies but they are not expensive.
- grog454 5y ago
  >if I learned that I would die in a month, I wouldn't be sad that I hadn't managed to burn all my money. I'd probably feel that way too. But I have to ask - how much thought have you really given it? I vaguely remember reading a surprising number of posts from HNW people that regretted not trying certain hobbies / activities when they were young enough fully enjoy them. That saying that no one on their deathbed says their biggest regret is that they didn't work harder, is probably a trope for a reason.
giantg2 5y ago
There's also the fact that most people have to spend. Build your own house? Grow your on food? Most people are buying those.
anonporridge 5y ago
Never said it's easy. But spending much below your means is the only reasonable path to financial independence and wealth. I for one don't want to live in a society that exclusively prioritizes now and doesn't sacrifice anything to plan for the future. "A society grows great when old men plant trees in whose shade they know they shall never sit."

giantg2 5y ago

Salary is the absolute ceiling for savings rate, so I'd say it's a big factor.

anonporridge 5y ago
You clearly didn't even skim the link I posted.
- giantg2 5y ago
  Yes I did. Your comment indicates that you don't understand ceiling. The article is overly simplistic in regards to things like cost of living, inflation, and returns on the savings. Do you really think you can save 90% of your income and retire after 3 years? This is terrible financial advice and completely ignores functions and changes in spending due to life events. Not to mention, I don't believe that function is legitimate depending on retirement age and current age combinations.
  - robotresearcher 5y ago
    > Do you really think you can save 90% of your income and retire after 3 years? You certainly can if you make 5 million a year! Which means that absolute income is absolutely relevant.
    - kelnos 5y ago
      Hell, in many places you can retire under those conditions if you "only" make $500k a year. The trick is to move to a much lower cost-of-living area after you retire, often abroad. If that kind of thing floats your boat, anyway.
  - 88913527 5y ago
    If your income is $100k and you save $90k, spending $10k, after 3 years, you will have saved $270k. With growth, you might have $300k. To support your ongoing $10k annual expenses, you'd only be spending 3% of your portfolio. The math checks out. Of course with taxes, a savings rate of 90% is more than likely to be possible.

tharkun__ 5y ago

I don't think that is accurate. I would say it is a combination of both. The article you link to obviously makes it sound like it's an exclusive function. But it simply dismisses the fact that not everyone can reasonably sustain the savings rates mentioned. Sure, there's reports of very motivated people that live on next to nothing and have a huge savings rate for the first 10 years of their working life, abstaining from everything including having a family and such. For the vast majority of people this is not something they can achieve and that is not taken into account by the 'simple math'. I would agree with the author that having Starbucks coffee twice a day is not worth retiring later. I'd even give him Cable TV. But I'm not going to live like a hermit. Different people are on different places of this gradient. If I increase my take home pay, I can stay on the same savings rate as before and retire earlier (assuming that I don't want to make a certain percentage of my last pay during retirement and instead have a fixed goal for my retirement income).

anonporridge 5y ago
We all have to make the choice between prioritizing creature comforts and freedom. I chose freedom. While my colleagues were living in fancy high rise apartments, buying new gaming rigs and cars, taking extravagant international vacations, and getting married and having kids, I was living in a basement studio with my college mattress on the floor and no car for several years while biking to work. I'm retired and they're still slaving away with no end in sight. No risk and sacrifice, no reward.
- leeoniya 5y ago
  > getting married and having kids i have not met anyone yet who is married with kids but would have preferred an earlier retirement instead. kids are more expensive than all the other things combined that you listed - no amount of living in the basement or saving 30k on having no car is going to make up for that.
  - anonporridge 5y ago
    People regret having kids all the time. It's just not socially acceptable to talk about openly. https://www.reddit.com/r/AskReddit/comments/m9vh8a/serious_parents_who_regret_having_kids_why/ https://www.reddit.com/r/AskReddit/comments/m9vh8a/serious_p... https://www.reddit.com/r/Parenting/comments/1wvx04/serious_do_you_regret_having_children/ https://www.reddit.com/r/Parenting/comments/1wvx04/serious_d... https://www.reddit.com/r/regretfulparents/ https://www.reddit.com/r/regretfulparents/

FabHK 5y ago

Yes, trivially. But the achievable savings rate depends very much on the absolute value of your salary, for any level of target creature comforts.

rr808 5y ago

> You can earn 5% investment returns after inflation during your saving years This is very unlikely long term. Right now treasuries are 5% less then inflation. Lots of FIRE people are going to get shafted.

anonporridge 5y ago
S&P 500 returned ~25% this last year, and 110% over 5 years. That's excluding dividends.
- voidfunc 5y ago
  To be fair we are living in a crazy unprecedented strong bull market. It will be interesting to see how this holds.
- SCHiM 5y ago
  That is actually, quite literally, inflation. It's money depreciating in value relative to stocks and financial products. Just like a burger at the golden arches shooting up in price is inflation, so is the price of a stock. It's probably not _only_ inflation, supply and demand will have caused the majority of this shift, since savers saw their money start evaporating. But that is of itself of course a second order effect of inflation, so I think the point stands.
  - UncleMeat 5y ago
    Sure, but the only kind of inflation that really crushes people living off their investments is stagflation, where increasing prices of goods is not reflected in portfolio sizes. If your investments are growing way faster than the price of goods, there is no problem.
kelnos 5y ago
Not sure I agree. Trinity study suggests that if you retire 30 years before death, you can safely withdraw 4% every year during retirement, regardless of economic fluctuations. If you retire super early and need 50 or 60 years, your safe withdrawal rate is probably closer to 3% or even 2%, though. Your point may be that we should expect significant economic turmoil in the near- and medium-term, much more than "fluctuations", which may be true, or may not be. Impossible to predict the future. Consider that the 2021 inflation rate is likely a symptom of COVID. Monthly inflation rates for the last few months of 2021 were trending downward. Hopefully we can expect inflation to get back to something approaching normal by the end of 2022. Even if it takes a couple more years, there's no reason to expect that 7% inflation is the norm going forward. (Also consider that people who are doing FIRE certainly don't have much in treasuries. It's going to be mostly in stocks. That certainly carries other risks, of course.)

robotresearcher 5y ago

> That's exclusively a function of your spending and saving rates. Saving rate is bounded above by your income. It's relevant.

deleted 5y ago
[deleted]

__MatrixMan__ 5y ago

Forecasting your spending rate far enough into the future, however, is a very tricky problem if you're trying to retire at 30, especially if you're living through turbulent times. I'd rather work 3 days a week until I'm dead then let my skills start deteriorating now and live the next 60 years in fear that my fixed income won't be able to sustain me.

wiz21c 5y ago
spot on. Energy prices are going to rise in Europe for the years ahead so will inflation and then your savings will dwindle... In my country inflation is already around 2.5% years on years.
janandonly 5y ago
As someone who's been working for +10 years now for 3 day's a week I can say: spot on! I've got savings enough for fun projects or holiday's, and my 3 day job simply pays the rent/gas/electricity bills.
- codethief 5y ago
  If I may ask, what work do you do / what company do you work for that allows you to only work 3 days a week?
- deleted 5y ago
  [deleted]
SuchAnonMuchWow 5y ago
When you forecast your spending rate, you naturally take some security margin, for example by retiring when your passive earnings gets 1.5x times larger than your targeted spending. And that security margin (which won't be spend most years) will compound. Sure, you might encounter a black swan event which force you out of retirement only 3 years after you started, and at that point your security margin won't have increased your stash by much, but at the same time your skill won't have deteriorated much in 3 years. It also work even if the black swan even happens 20 years after your retirement. You just need to take a security margin your are comfortable with, and project how much you will have after 3, 10, 25 years to see how much you have for unforeseen events.