The Simple Math Behind Early Retirement • Hacker News Board

Re: The Simple Math Behind Early Retirement

#61

Post by bryanlarsen » Fri, Jan 18, 2013, 4:06 PM UTC

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…

Don't the effects balance out? Production goes down because people are retiring early. But so does consumption because these early retirees are consuming less both while they are working and after they have retired. Supply & demand stay balanced at roughly the same place they were before.

Re: The Simple Math Behind Early Retirement

#62

Post by nicholassmith » Fri, Jan 18, 2013, 4:08 PM UTC

Best thing you can do with your finances is do what people are doing to lose weight, track everything. You spend £2, you put it on. Doesn't matter how trivial it is, log it with details so you can track it. At the end of the month have a look to see where it's all gone, it gives you feedback and you can adjust. My take home hasn't changed but how much I'm not spending has, and it's very nice.

I probably won't retire early, I like working. Taste of the biscuit, office natter.

Re: The Simple Math Behind Early Retirement

#63

Post by pragmatic » Fri, Jan 18, 2013, 4:09 PM UTC

liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

Yes, just about everyone. However, this is hacker news. We are not "just about everyone." While I think 5% return is naive in the current economy/gov't, he has some good points.

Hacking your life(style) is way more important than hacking anything else.

I agree, it is psychology, and your family (if you have one) is going to make a huge difference. If your partner can't resist new purses or can't live without the newest smart TV, you're screwed. End of story.

However, if you find someone with your similar mindset, it's amazing what you can achieve.

Re: The Simple Math Behind Early Retirement

#64

Post by peteretep » Fri, Jan 18, 2013, 4:09 PM UTC

ChuckMcM wrote: post #60

Sadly MMM and others don't mention the whole "all 5% per year after tax gains get reset by 20 years when the world markets crash" scenario. Also he doesn't take into account if you have kids and want to help them with their college education where that leaves you savings wise. Yeah, I'm annoyed to have been trying to save money through the second depression.

Not only does he, but it's linked to in this discussion.

As is his having kids.

Re: The Simple Math Behind Early Retirement

#65

Post by TheCapn » Fri, Jan 18, 2013, 4:09 PM UTC

liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

At the heart of it your quarrel with his program is that people have no willpower to change? I mean, you're very right in that we have a horrible track record but, in your opinion, is the advice sound should someone be able to adjust their lifestyle?

Re: The Simple Math Behind Early Retirement

#66

Post by danielweber » Fri, Jan 18, 2013, 4:10 PM UTC

rayiner wrote: post #39

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…

Bingo! This is why I find a lot of the economic debates frustrating. People think that money in the bank is like cans of pork and beans in storage. They don't realize it's just an earmark on the labor of some future person.

He's right that all savings are someone else's debt.

But, if that is your big sticking point, you can literally load up on the cans of pork and beans as your retirement fund.

"Savings account" is an abstraction for that, and it's important to realize how abstractions leak and fail, but for most people the abstraction is just fine.

Re: The Simple Math Behind Early Retirement

#67

Post by jasonkester » Fri, Jan 18, 2013, 4:10 PM UTC

brazzy wrote: post #45

jasonkester wrote: post #44

Earlier quoted context omitted.

The cool thing is that your statement can be 100% true and you can still retire early. As you say, a significant fraction of the population can't. But you get to choose whether you want to be part of the smaller fraction who retire early, or whether you want to help those who are. All you need do is not spend your entire paycheck each month. The rest will be taken care of by the (still) significant fraction of the po…

Unless it gets taken care of by the increasingly significant fraction of the population who has their lives extended for a few more years at any cost.

Ah, never mind then. So I guess the plan is to stop saving money now, since you've shown that compound interest is a fallacy? I'll get right on it.

Re: The Simple Math Behind Early Retirement

#68

Post by petercooper » Fri, Jan 18, 2013, 4:11 PM UTC

My strategy is a bit different though is ultimately still a case of sacrificing now for an income later.

I'm building a company that can keep running (eventually) without my involvement so I can continue to draw a salary for as long as I wish or, if I so wish, sell it to provide the lump sum I need. Slightly risky since I'm not saving for retirement at all but putting all my money into building said business.. ;-)

Re: The Simple Math Behind Early Retirement

#69

Post by Strshps1MoreTim » Fri, Jan 18, 2013, 4:11 PM UTC

NickM wrote: post #42

brazzy wrote: post #33

Earlier quoted context omitted.

I haven't disproved my main point at all (returns from investment are ultimately funded by the working population) - just perhaps not given the proper weight to the caveat about increased productivity when talking about the effects. However, fact is that most people's incomes have stagnated or decreased. The increased productivity is not quite enough to compensate for the increasing number of retirees and/or super ri…

If you look at peoples' gross paycheck income, it appears to have stagnated, but much of this is due to the rising costs of healthcare. Incomes are effectively continuing to rise, it's just that much of that increase is being funneled into benefits rather than take home pay. Then again, it's also important to bear in mind that most common investments are made in stocks and bonds, not in workers. In this case you're i…

Or you can open your eyes and see the obvious fact: all productivity gains have been cashed by the top 1%.

Re: The Simple Math Behind Early Retirement

#70

Post by laumars » Fri, Jan 18, 2013, 4:12 PM UTC

liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

Not to mention that if everyone stopped spending money tomorrow, then the economy would crash, millions of people would lose their job - meaning both personal savings and government resources are crippled. Which means the chances of you having enough money and a state pension you can live off by retirement age is significantly reduced.

While I'm not trying to argue that saving is a bad thing (clearly it's important to have some savings!), it's also fair to say that spending is good for the economy as well.