4 ms·

Seems to me the most difficult is saving 5x between 30-40, especially at that age when a lot of folks get married, have kids and purchase property. How do you s

Seems to me the most difficult is saving 5x between 30-40, especially at that age when a lot of folks get married, have kids and purchase property. How do you save up to 5x - which for a household income of $100,000/yr is half a million dollar; do you really get a lot of tax breaks on mortgages, kids and filing jointly? Also, at the current rate of US inflation; by the time I retire which is in about 40 years, $30K/year purchasing power will become $110K/year. Social security will not exist when I retire and a net worth of 1 million dollar, drawing down on principal will last me less than 10 years. For folks in your mid to early 40's, how are you guys planning for your retirement?

svachalek 14y ago
All of the classic planning advice is based on about a century of economic history, most of that time period having little resemblance to today and things are only getting weirder, faster. Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck, social safety nets are falling apart, and we're expected to work for much longer in a world where age and experience don't count for much anymore. In short I don't think retirement is something you can "plan" for if it's more than 20 years out or so. It's more like disaster preparation. Save as much as possible, live as far below your means as you can handle, keep your skills valuable. Keep your money diversified and expect your returns to just about keep up with the real and honest cost of living increases until the world economy feels like taking a dramatic shift for the better. We're still "unwinding" from all the previous crises so I don't foresee that happening anytime soon.
- Wilduck 14y ago
  > Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck. This is nearly a self contradictory statement. That is, if inflation were getting out of control, we would see high interest rates accompanying that change. I'm not saying your advice it bad (savings are a good idea), although maybe a little extreme sounding (too much doomsday feel for my taste). I do, however, wish people would stop it with the "inflation is scary" rhetoric.
  - noname123 14y ago
    The issue is USD is losing its status as the reserve currency and declining exchange rate with BRIC countries are making consumer goods more expensive. Chinese RMB used to be 8:1 in the late 90's, now it's 6:1 and declining. Also due to several rounds of quantitative easing, the Fed injected a lot of money into the money supply. However, banks are not lending as much money to stimulate the economy which doesn't trickle down to ordinary folks; part of the reason being big banks such as BoA and Citi needed to bolster their capital reserve against their illiquid toxic assets from the real estate speculation bubble. As a result, QE1/2/3 caused real inflation to money supply while the stock market and personal savings account returns have remained anemic. I remember I was excited when I got a six-figure job, then I realized that 80K in 1998 amounted to 110K in 2011 and realized that inflation was real.
    - cynicalkane 14y ago
      "real inflation to the money supply" Inflation is what happens to prices, by definition. "Inflation to the money supply" is nonsense, like if you said int x = "foo" or talked about installing new RAM to store your photo album. Also, the notion that banks can cause inflation by not spending reserves is baffling.
      - nradov 14y ago
        Not at all. There are several different definitions for inflation, each of which is equally valid depending on the context. Consumer price inflation is one type. Other types include producer prices or money supply (including debt marked to market).
      - tsotha 14y ago
        This is wrong. CPI is not "inflation" except by common mis-usage. Inflation is defined to be an expansion in the money supply. You can have inflation and falling prices at the same time.
- sutterbomb 14y ago
  Do you have links to evidence that inflation is increasing, and over what time period? I thought medium term inflation estimates were still under 2%, which is historically rather low.
- fennecfoxen 14y ago
  This statement about inflation contradicts a variety of recent economic studies suggesting that the CPI understates inflation by a percentage point or so (thus inflating the cost of inflation-linked things like Social Security). Any particular source for your sentiment that it's "increasingly under-reported"? http://goo.gl/wbnUu http://goo.gl/wbnUu
munificent 14y ago
Caveat: I know next to nothing about finance. Things that come to mind that help you save more as you get older: 1. Your previous savings will be compounding. 2. If you're lucky, you'll finish paying off a house which frees up a good chunk. 3. If your career is going well, your salary will keep going up, hopefully faster than inflation.
- noname123 14y ago
  Lesson I will take is: 1) Save like mad. 2) If buy a house, buy with 10%-20% down-payment and financed with aggressive mortgage payback timeline. 3) Climb the ladder and take the money.
  - jessedhillon 14y ago
    It make no sense for most people to pay off their house aggressively. Refinance periodically if you want to lower your payments, but blowing a lump sum on your mortgage principal over a compressed time period is almost always more expensive in opportunity costs. Quick question: I put $100k in your pocket right now. Would your life be more improved if your mortgage principal was reduced by $100k, or if you went and did something else with it? I think most people could find something better to do -- start a company perhaps? Invest in a rental property? Start a kids college fund? And again, if you did want to put that into your mortgage: refi.
    - mattw 14y ago
      If you completely ignore risk then what you say is true (especially with interest rates so ridiculously low). However, if we're talking about improving lives, I personally find value in eliminating debt (including the mortgage) as quickly as possible because such obligations represent risk. I could apply all these extra mortgage payments to other things (rental property, stock market, etc.), but then I stand a varying (but non-zero) chance of losing money on those things and still being stuck with a mortgage. I'd rather wait a few years and take those risks with my own money instead of money borrowed from the bank, and I think that economic woes of late suggest we'd be better off if a few more people thought this way.

svachalek 14y ago

All of the classic planning advice is based on about a century of economic history, most of that time period having little resemblance to today and things are only getting weirder, faster. Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck, social safety nets are falling apart, and we're expected to work for much longer in a world where age and experience don't count for much anymore. In short I don't think retirement is something you can "plan" for if it's more than 20 years out or so. It's more like disaster preparation. Save as much as possible, live as far below your means as you can handle, keep your skills valuable. Keep your money diversified and expect your returns to just about keep up with the real and honest cost of living increases until the world economy feels like taking a dramatic shift for the better. We're still "unwinding" from all the previous crises so I don't foresee that happening anytime soon.

Wilduck 14y ago
> Inflation is increasing (and increasingly under-reported), investment returns just--to put it bluntly--suck. This is nearly a self contradictory statement. That is, if inflation were getting out of control, we would see high interest rates accompanying that change. I'm not saying your advice it bad (savings are a good idea), although maybe a little extreme sounding (too much doomsday feel for my taste). I do, however, wish people would stop it with the "inflation is scary" rhetoric.
- noname123 14y ago
  The issue is USD is losing its status as the reserve currency and declining exchange rate with BRIC countries are making consumer goods more expensive. Chinese RMB used to be 8:1 in the late 90's, now it's 6:1 and declining. Also due to several rounds of quantitative easing, the Fed injected a lot of money into the money supply. However, banks are not lending as much money to stimulate the economy which doesn't trickle down to ordinary folks; part of the reason being big banks such as BoA and Citi needed to bolster their capital reserve against their illiquid toxic assets from the real estate speculation bubble. As a result, QE1/2/3 caused real inflation to money supply while the stock market and personal savings account returns have remained anemic. I remember I was excited when I got a six-figure job, then I realized that 80K in 1998 amounted to 110K in 2011 and realized that inflation was real.
  - cynicalkane 14y ago
    "real inflation to the money supply" Inflation is what happens to prices, by definition. "Inflation to the money supply" is nonsense, like if you said int x = "foo" or talked about installing new RAM to store your photo album. Also, the notion that banks can cause inflation by not spending reserves is baffling.
    - nradov 14y ago
      Not at all. There are several different definitions for inflation, each of which is equally valid depending on the context. Consumer price inflation is one type. Other types include producer prices or money supply (including debt marked to market).
    - tsotha 14y ago
      This is wrong. CPI is not "inflation" except by common mis-usage. Inflation is defined to be an expansion in the money supply. You can have inflation and falling prices at the same time.
sutterbomb 14y ago
Do you have links to evidence that inflation is increasing, and over what time period? I thought medium term inflation estimates were still under 2%, which is historically rather low.
fennecfoxen 14y ago
This statement about inflation contradicts a variety of recent economic studies suggesting that the CPI understates inflation by a percentage point or so (thus inflating the cost of inflation-linked things like Social Security). Any particular source for your sentiment that it's "increasingly under-reported"? http://goo.gl/wbnUu http://goo.gl/wbnUu

munificent 14y ago

Caveat: I know next to nothing about finance. Things that come to mind that help you save more as you get older: 1. Your previous savings will be compounding. 2. If you're lucky, you'll finish paying off a house which frees up a good chunk. 3. If your career is going well, your salary will keep going up, hopefully faster than inflation.

noname123 14y ago
Lesson I will take is: 1) Save like mad. 2) If buy a house, buy with 10%-20% down-payment and financed with aggressive mortgage payback timeline. 3) Climb the ladder and take the money.
- jessedhillon 14y ago
  It make no sense for most people to pay off their house aggressively. Refinance periodically if you want to lower your payments, but blowing a lump sum on your mortgage principal over a compressed time period is almost always more expensive in opportunity costs. Quick question: I put $100k in your pocket right now. Would your life be more improved if your mortgage principal was reduced by $100k, or if you went and did something else with it? I think most people could find something better to do -- start a company perhaps? Invest in a rental property? Start a kids college fund? And again, if you did want to put that into your mortgage: refi.
  - mattw 14y ago
    If you completely ignore risk then what you say is true (especially with interest rates so ridiculously low). However, if we're talking about improving lives, I personally find value in eliminating debt (including the mortgage) as quickly as possible because such obligations represent risk. I could apply all these extra mortgage payments to other things (rental property, stock market, etc.), but then I stand a varying (but non-zero) chance of losing money on those things and still being stuck with a mortgage. I'd rather wait a few years and take those risks with my own money instead of money borrowed from the bank, and I think that economic woes of late suggest we'd be better off if a few more people thought this way.