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The Simple Math Behind Early Retirement

mrmoneymustache.com

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Re: The Simple Math Behind Early Retirement

#21

Post by scottkduncan »

brazzy wrote: post #6

> As soon as you start saving and investing your money, it starts earning money all by itself. No, it doesn't. Money cannot earn money, people do. Saving/investing money only allows people (via an arbitrarily complex system of indirections) to become indebted to you so they'll pay you some of the money they earn. This is vitally important because it means it's impossible for a significant percentage of people to reti…

I think the impact of this phenomenon is partially mitigated by globalized finance, i.e. I can save/invest my money in countries with different demographic profiles than my own. Capital won't stay in countries where everyone is trying to retire early - it will flow to countries where it is relatively scarce and earns a higher return.

Re: The Simple Math Behind Early Retirement

#22

Post by run4yourlives »

jere wrote: post #10
octopus wrote: post #3

MrMoneyMustache (MMM) has a sound philosophy of life based on his experience and on Stoic literature. After reading his blog (and I mean all his articles from 2011) I've stopped buying myself a new computer every six months or so.

>I've stopped buying myself a new computer every six months or so. Err.. why would you do that to start with? Even my hardcore gaming friends can make machines last for years.

For the same reason people buy $5 lattes. People are people.

That said, I question a life so stoic it has absolutely no frivolousness. Sounds a little boring.

Re: The Simple Math Behind Early Retirement

#23

Post by praptak »

brazzy wrote: post #6

> As soon as you start saving and investing your money, it starts earning money all by itself. No, it doesn't. Money cannot earn money, people do. Saving/investing money only allows people (via an arbitrarily complex system of indirections) to become indebted to you so they'll pay you some of the money they earn. This is vitally important because it means it's impossible for a significant percentage of people to reti…

The author hasn't missed the "what if everybody does that" scenario: http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-b...

Re: The Simple Math Behind Early Retirement

#24

Post by octopus »

jere wrote: post #10
octopus wrote: post #3

MrMoneyMustache (MMM) has a sound philosophy of life based on his experience and on Stoic literature. After reading his blog (and I mean all his articles from 2011) I've stopped buying myself a new computer every six months or so.

>I've stopped buying myself a new computer every six months or so. Err.. why would you do that to start with? Even my hardcore gaming friends can make machines last for years.

I've always liked to have the latest and most powerful piece of hardware I could afford ... I know it was a stupid thing to do, but this is the way I was.

Re: The Simple Math Behind Early Retirement

#25

Post by liber8 »

brazzy wrote: post #6

> As soon as you start saving and investing your money, it starts earning money all by itself. No, it doesn't. Money cannot earn money, people do. Saving/investing money only allows people (via an arbitrarily complex system of indirections) to become indebted to you so they'll pay you some of the money they earn. This is vitally important because it means it's impossible for a significant percentage of people to reti…

You do realize you've disproved your own point, right?

>>This is vitally important because it means it's impossible for a significant percentage of people to retire early unless the remaining workforce becomes correspondingly more productive...

>>Arguably, that is already happening even without additional early retirees, simply because the increased average life expectancy (and thus the time people spend in retirement). Effectively, everyone is already doing an early retirement, compared to people 50 years ago.Obviously the remaining workforce has become, and continues to become, correspondingly more productive. If you need another example of this, see 2008-2012. We lost millions of workers from employment ranks, and our GDP is currently higher than its ever been. Sure, past performance is no guaranty of future results, but I and many others believe this trend will only increase in the future. Fewer workers will be producing even more.

Re: The Simple Math Behind Early Retirement

#26

Post by praptak »

jerf wrote: post #20
praptak wrote: post #5

Earlier quoted context omitted.

Covered here: http://www.mrmoneymustache.com/2011/06/06/dude-wheres-my-7-i... Google cache (his server seems not to take HNing well): http://webcache.googleusercontent.com/search?q=cache:UjYtrDk...

One of my favorite infographics ever: http://www.nytimes.com/interactive/2011/01/02/business/20110... As I say every time I link it, read it carefully ; it does not say what most people initially think it is saying when they first see it. In this particular case I bring this up to show that the "standard" 7% over a long term can be optimistic. As it happens that corresponds to the first light green color, and that is…

Yeah, it's not that simple and on top of that "historical performance is no guarantee of the future one".

Re: The Simple Math Behind Early Retirement

#27

Post by simonbarker87 »

MMM has an excellent philosophy, however following his methods and working toward early retirement does require a salary level that is a considerable amount above the minimum basic cost of living for where you are.

By minimum cost of living I'm not talking about the average cost of a restaurant meal in one area/country vs another or the average cost of a cable tv package in one country vs another (if you consider those essentials then you should spent some more time reading the MMM blog).

I'm talking about the cost of a pint of milk, a loaf of bread, a chicken (dead for eating, not as pet), public transport when you can't cycle, car insurance (if you can't avoid owning a car - some people can't), rent (in the UK this is pretty consistent, except in London), mortgage, TV License (don't even try to tell them you don't have a TV, they won't believe you and you'll be fined), gas and electric bills etc.

There is a minimum cost to live in a country and you need to earn a reasonable amount above before you even get to the point of choosing between buying a starbucks or putting that money into savings.

Re: The Simple Math Behind Early Retirement

#28

Post by jere »

octopus wrote: post #24
jere wrote: post #10

Earlier quoted context omitted.

>I've stopped buying myself a new computer every six months or so. Err.. why would you do that to start with? Even my hardcore gaming friends can make machines last for years.

I've always liked to have the latest and most powerful piece of hardware I could afford ... I know it was a stupid thing to do, but this is the way I was.

No offense. Just curious. I know someone who is so obsessed with Apple that he buys all their latest products, which can be a pretty expensive hobby.

Re: The Simple Math Behind Early Retirement

#29

Post by Buzaga »

octopus wrote: post #17
STRML wrote: post #9

This is a really fantastic, simple way of looking at it. There are of course many other factors that go into it. One that may very well work in your favor is saving while living in a big city, then moving some place small later on. This could cut your living expenses by a percentage big enough to make a very significant difference in the number of years you have to work. Of course, once you involve kids, the whole th…

The author has a kid. Just be careful that by retirement he doesn't mean "stop the work and do nothing". In the author's view retirement means financial independence - the point in life where you don't need to work anymore but you work for your own pleasure (or you work on what you really like to do).

yep, if I'm not mistaken he has an article named "first retire.. then get rich" where he mentions learning carpentry or something like that and making even more money, even tho he wouldn't need it

Re: The Simple Math Behind Early Retirement

#30

Post by Ntrails »

LVB wrote: post #7
r4vik wrote: post #2

> Assumptions: > - You can earn 5% investment returns after inflation during your saving years

Maybe a bit high, but I found that dialing that rate down a few points didn't dramatically change my years to retirement.

This is completely naive. There is a reason that modelling is mostly done stochastically - if you get a 1 in 20 event then your years to retirement is going to change hugely.

Worst of all is the assumption that you can live on the interest of your retirement savings - complete rubbish unless you can actually drop your living costs negative should the market (or, more accurately, your assets) drop by 10% over the course of a year.

The closest to a secure way to have your lifetime income guaranteed is an annuity. Guess what, 100k will buy you 4k pa for the rest of your life at age 65. At early retirement it is probably closer to 2k pa - assuming, say, 55?

This, of course, ignores insurance companies going bust - but is clearly safer than investing chasing an RPI + 4% benchmark with your entire retirement nest egg

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