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Or you can bank the excess cash and "retire" as soon as 4% of your savings equals your annual expenses. (Work hard to maximize your salary and minimize your exp
by Sukotto 14y ago
Or you can bank the excess cash and "retire" as soon as 4% of your savings equals your annual expenses. (Work hard to maximize your salary and minimize your expenses)
Between now and achieving that 4%, focus on excelling at the things you find the most interesting and building relationships in your industry so that once you cross the freedom line you can take on the occasional consulting gig to keep things interesting.
(I'm pushing 40 now and sincerely wish I had done the above when starting out in my twenties)
- throwaway1979 14y agoIf I knew where to get a risk free, consistent 4% return these days ...
- bryanlarsen 14y agoMore like 7%, because that should be 4% after inflation...
- marvin 14y agoYou won't get risk-free 4% return after inflation, but you can (probably) expect a 4% annual return on average if you put your money in the stock market. At least this is the assumption that the Norwegian Pension Fund, the world's largest stock market fund, operates with. Although it has been discussed to reduce this number to 3%.
- throwaway1979 14y agoThx for the pointer. I have to look into them. The issue I have is that history prior to 2000 is not valid going forward. You can say that I'm a disciple of Nasib Taleb's Fooled by Randomness.
- marvin 14y agoWhy isn't any history prior to 2000 still valid? We've had 10+ year secular bear markets before. I'm not arguing by authority here, but by Taleb's own arguments, it's just as likely that the pre-2000 history is still valid - there is just no way of knowing yet.
- throwaway1979 14y agoMy personal thesis is that financial market history prior to 2K isn't valid. The world prior to widespread adoption of the the Internet was a different place. The Y2K cut off is a useful demarkation point ... that's when the tech euphoria went away :) I think this has something to do with the speed of information flow in a post-PC, connected world. That's the short of it anyways.
- gwern 14y agoThe Norwegian fund also has a investment horizon better measured in centuries, not years, so it can afford to to wait out the huge stock market fluctuations in the expectation of that average return. A mere human, on the other hand...
- lutorm 14y agoIndeed. Tell me again why people say it's better to save for retirement as an individual...
- beambot 14y agoWow... I didn't know anything about the Norwegian Pension Fund. That's really cool. At a 2012 net worth of $654 Billion, it's greater than the country's debt ($548 Billion) and represents >$130k for each of Norway's 4.9 million people...
- jwatte 14y agoHalf high yield bond funds, half blue chip stock funds, bank all earnings, re-balance once a year, and take out 4% a year from total. On average you will do just fine! (Check against history if you want to verify)
- tatsuke95 14y ago>"On average you will do just fine! (Check against history if you want to verify)" Famous last words...
- deleted 14y ago[deleted]
- lotsofpulp 14y agoBesides the fact that the past does not predict the future, especially with something to do with human nature and economics, if everyone did the same thing, then there would be no return left (after inflation). Also, some historical data from the S&P 500: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://www.nytimes.com/interactive/2011/01/02/business/20110...
- brc 14y agoAustralian Government bonds will give you that. But you have to adopt the currency risk, so you'd have to forgo some return in order to hedge that away.
- hudibras 14y agoThe 4% figure you hear about (usually in the "early retirement" circles) includes drawing down your principal gradually over time. Don't remember the numbers exactly, but drawing 4% of your initial nest-egg each year is supposed to give a 95% chance that your savings will last 40 years. Add in Social Security benefits kicking in at age 67 and that percentage goes up to 100% in most cases (unless you have an insanely large nest egg).
- icefox 14y agoOn the opposite side you wouldn't say that your job is risk free either.
- cma 14y agoTax-wise it would be better to work less hours (20hr weeks for 2 years puts you in a lower bracket than 40hr weeks for one year). Focus-wise maybe not.