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The Simple Math Behind Early Retirement

mrmoneymustache.com

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Re: The Simple Math Behind Early Retirement

#221

Post by dro77 »

jcdavis wrote: post #143
jerf wrote: post #20

Earlier quoted context omitted.

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…

That chart takes away inflation. When people say the expect 7%/year they are not including inflation. 7% a year pre inflation and taxes is likely roughtly 3.5-4%, which is grey on that chart.

Yes. This chart goes along perfectly with MMM's math.

Re: The Simple Math Behind Early Retirement

#222

Post by campnic »

I admit to some naivety on the issue, but it seems like these retirement plans have a some exposure when it comes to inflation. Looking at the world economy and the unprecedented measures that were/are being taken to avoid inflation (fed. resv lending, IMF / Eurobank bailouts for Spain/Greece, etc.) it seems like I would be worried about the future value of my money.

I want to retire. I would worry that if I lived very frugally and planned to retire at 35-40, I could get depressed if outside of my control my future expenses doubled because of inflation while others who are focused on maximizing their earnings would be able to benefit from (possible) inflation through higher wages.

I guess thats the same sort of snow globing that gets people in trouble when they make investments. Who knows what inflation will do.

Re: The Simple Math Behind Early Retirement

#223

Post by fspeech »

Domenic_S wrote: post #217
grecy wrote: post #141

Earlier quoted context omitted.

>> But simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for??? > Again, mathematically accurate, but not helpful Is extremely helpful to those that have the willpower and motivation for early retirement. I personally think about this kind of tradeoff/d…

> I'm saving an enormous amount of my paycheck and will "retire" before I'm 35. I see a lot of 35-year-olds who say "I retired at 35 by saving a lot and things are working out great!"

It's doable but you need investment skills. 5% after inflation is likely pie in sky for most people. You need a lot more nest egg in the current low interest rate environment. Also at 35 you will still need money to put children through college so the future expense is likely higher than your past experience.

Re: The Simple Math Behind Early Retirement

#224

Post by grecy »

fspeech wrote: post #223
Domenic_S wrote: post #217

Earlier quoted context omitted.

> I'm saving an enormous amount of my paycheck and will "retire" before I'm 35. I see a lot of 35-year-olds who say "I retired at 35 by saving a lot and things are working out great!"

It's doable but you need investment skills. 5% after inflation is likely pie in sky for most people. You need a lot more nest egg in the current low interest rate environment. Also at 35 you will still need money to put children through college so the future expense is likely higher than your past experience.

University is free in my country.

(And yes, it will be free as in beer, because I won't be going to work, or paying taxes.)

Re: The Simple Math Behind Early Retirement

#225

Post by muzz »

octopus wrote: post #188
laumars wrote: post #70

Earlier quoted context omitted.

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 t…

> Not to mention that if everyone stopped spending money tomorrow, then the economy would crash, millions of people would lose their job This is a poor argument promoted by the media in the last 50 or 60 years. There is no way in which everyone will stop spending money tomorrow. If something like this will ever happen (people spending less) it will happen gradually and the economy will have time to change.

This actually happened to some extent in 2009 with automobiles. Purchases dropped from 16M/yr to 9M/yr, which was below the obsolescence rate of 11M/yr.

Re: The Simple Math Behind Early Retirement

#226

Post by muzz »

cerebrum wrote: post #58

> - You can earn 5% investment returns after inflation during your saving years Is this a realistic assumption? Just consider how much people have lost in the housing bubble.

Are you referring to the housing bubble?

The 10-year return on the S&P 500 index (not including dividends, otherwise it would be higher) is slightly over 5%, and that includes the biggest stock market meltdown since the Great Depression.

Re: The Simple Math Behind Early Retirement

#227

Post by WickyNilliams »

d4rti wrote: post #140
simonbarker87 wrote: post #27

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 tho…

TV licensing have a page for declaring you have no TV. https://www.tvlicensing.co.uk/no-licence-needed/ I've never had (or needed) a TV license, and I've never been fined.

I've not had or needed a TV licence for the last 4 or so years. Initially the tv licencing people were chasing me up constantly, sending letters to which i just had to respond to say "I still don't need a licence", a few visits to the house etc (all this is kind of tantamount to harassment really), but eventually they backed off.

As for needing a tv licence at all, I don't see why anybody does in the era of broadband. Streaming videos is allowed without a TV licence, provided the stream is not live, so you can even watch video on BBC iPlayer, legitimately. Combined with every other terrestrial channel's free online offerings and more recently netflix, there is no need to pay a tithe to the BBC. It really is a simple adjustment but it gives decent savings.

Re: The Simple Math Behind Early Retirement

#228

Post by marvin »

hudibras wrote: post #161
marvin wrote: post #137

Earlier quoted context omitted.

I'm a big fan of MMM, but I'm also not from the US. From an external point of view, making any assumptions about United States pensions far in the future seems like a bad idea. The United States can barely pay interest on its foreign debt (debt ceiling/fiscal cliff debate), how do you expect it will be able to honor its national debt obligations without resorting to inflation?

As you probably know, discussions about Social Security in the U.S. quickly become holy wars so I'll just answer your question without explanation: I trust the Democrats will protect and defend Social Security from the Republicans who want to destroy it.

I'm just saying practically. Where will the money come from? Politics aside, how are you going to be able to afford it at all, without inflation?

Re: The Simple Math Behind Early Retirement

#229

Post by dalyons »

thenomad wrote: post #200
hudibras wrote: post #84

Earlier quoted context omitted.

And I get 21 HD TV channels over-the-air for free! Now let me tell you about my couponing...

If you can't learn to make better coffee than a Starbucks brew at home (where "better" is defined as "with more complex, refined tastes and less harsh, burned notes") you're doing something badly wrong. Decent beans, a set of digital scales, a cheap hand grinder and a French Press or Aeropress will do the job.

There are plenty of places in the world where the local coffee shop outputs far better coffee than a Starbucks. I've tried a couple of forms of home expresso, and I can't approach the flavour of the coffee shops around where I live. Sure, I can make a better coffee than a Starbucks, but thats not what im competing against for my $4.

Re: The Simple Math Behind Early Retirement

#230

Post by cerebrum »

muzz wrote: post #226
cerebrum wrote: post #58

> - You can earn 5% investment returns after inflation during your saving years Is this a realistic assumption? Just consider how much people have lost in the housing bubble.

Are you referring to the housing bubble? The 10-year return on the S&P 500 index (not including dividends, otherwise it would be higher) is slightly over 5%, and that includes the biggest stock market meltdown since the Great Depression.

Are you taking inflation into account?
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