Earlier quoted context omitted.
What about the living expenses?
I'll be living off my savings
Sorry, I meant the living expenses of your children, this was related to university costs.
The Simple Math Behind Early Retirement
241–246 of 246 posts
Re: The Simple Math Behind Early Retirement
#242Earlier quoted context omitted.
I'll be living off my savings
Sorry, I meant the living expenses of your children, this was related to university costs.
Of course, sorry.
In Australia the government pays students a wage, called Youth Allowance[1], that is something between $268 to $400 every two weeks, depending on circumstances. Combined with a roughly ~10 hour per week part time job, I had no trouble at all putting myself through 5 years of Engineering without any debt. I'm confident my future kids can do the same thing, so I won't need to support them in the same way my parents didn't need to support me (once I went to University at 18)
[1] http://www.humanservices.gov.au/customer/enablers/centrelink...
Re: The Simple Math Behind Early Retirement
#243Cutting a spending habit without losing any quality of life is like an annuity and it increases your freedom. Getting a pay raise keeps paying you for a while, but has disadvantages like: * By definition, you have to keep working to keep getting it * Taxes go up * It may come with some implicit strings that require you to work more or carry more stress * arguably reduces your freedom In our field, getting a pay raise…
Cutting spending without losing quality of life is difficult. In the vast majority of cases, you'll be cutting from social spending (going out less), convenience, or leisure. In every single case, getting an after-tax $10,000 raise is going to be overwhelmingly preferable to cutting your spending by $10,000.
"Cutting spending without losing quality of life is difficult."
But it's easier to cut habitual spending, and replace it with discretionary spending and maintain or increase quality of life.
You may choose to spend your limited money on a large house, a new car, and a boat; but with limited money for extras; or you can get a smaller house, a late-model used car, and have lots of extra money for social occasions and travel.
The former has a high level of habitual spending and you are locked in. If times are tight, even temporarily, you have to sell those things, often at a heavy loss. You are also very strongly attached to your current salary, which reduces your freedom to try a career shift of some kind.
The latter could also be a high quality of life, because you leave your smaller house to go on vacation twice a year, and you can enjoy spending on social events or conveniences. But you have much more freedom and flexibility in your life.
"In the vast majority of cases, you'll be cutting from social spending (going out less), convenience, or leisure."
What about getting a smaller house, or driving a late-model used car rather than a new one, or not buying that boat/plane?
"In every single case, getting an after-tax $10,000 raise is going to be overwhelmingly preferable to cutting your spending by $10,000."
That's true in the sense that more money is better. And cutting total spending (rather than replacing habitual spending with discretionary spending) can often reduce quality of life.
However, there are a lot of dangers in only focusing on getting raises. For one thing, a raise is not necessarily permanent, so it doesn't necessarily translate into more money. And it can lead you to increase your habitual spending, which is much harder to cut later than discretionary spending.
So, I think I would change my point slightly to be: keep habitual spending small, and grow it slowly in response to increases in income. To maintain a high quality of life, spend money in discretionary ways (e.g. "pay for it once") like vacations, conveniences, social outings. Oh, and renting does not necessarily count as discretionary, but it can.
Re: The Simple Math Behind Early Retirement
#244I left a comment over at the site. In short, I also think the 5% assumption is ridiculous. I have perfect data of the date and amount of every retirement contribution I've made since I started in 1993. I used historical data to look up what my APY would be if I had bought an S&P-500 index fund for each of those dates/amounts. I also compared it with historical inflation records. As of today, it wouldn't be 5% after i…
Not sure anyone is reading this thread anymore, but I have to partially retract. In my case, when doing the historical analysis, I thought I had taken dividends into account but I hadn't. So in my case my historical APY would have been about 2.75% (factoring in inflation), not 0.9% . That still shows that 5% isn't close to a safe assumption, but it's not as overwhelming as it was before.
Re: The Simple Math Behind Early Retirement
#245Maybe I missed it, but did the Shockingly Simple Math completely neglect that wages and thus lifestyle typically increase over a career? And that plausible-savings-rates go up as wages increase, as many lifestyle costs are regressive? [1] Calling out young professionals for $4 coffees is not only an act devoid of human understanding, it seems to be ignoring that many young professionals can only maintain their higher…
>Maybe I missed it, but did the Shockingly Simple Math completely neglect that wages and thus lifestyle typically increase over a career? Perhaps. On the other hand, if one assumes that real (inflation-adjusted) wages are stable, then adjusts the rate of return to 3% and the withdrawal rate to 2.5% in real terms, the numbers work out in a similar way, and the general results that follow are the same.
> "if one assumes that real (inflation-adjusted) wages are stable"
How many careers does that describe, over a period of 15-20 years?
Re: The Simple Math Behind Early Retirement
#246Earlier quoted context omitted.
First off, insurance companies do not invest annuity value in the stock market, for the same reasons you should not. i.e. - it is risky and a significant loss of capital without further contributions will result in you running out of money. The reason that you get crap all for your money, is that the insurance company is estimating your life expectancy, low risk asset returns, and then using both the investment retur…
You can just as easily turn that last statement on it's head: No insurance company should assume that for their entire retirement portfolio they can produce inflation beating returns without risking significant capital loss and subsequent penury. The reason I can flip the argument is because, ultimately, the value of your investment is irrelevant. If you are investing $10 billion and earn 10%, or you invest $1 mil an…
It's like you did not read a word I said.
The insurance company are not attempting to make RPI + 4% - which is what the article recommends you must chase to live on. They are not attempting to retain the capital. The article is claiming that he can consistently make those returns ad infinitum - ignoring completely the risk of ruin. The insurance company simply assumes that overall their returns + the capital will cover the cost of the annuity over an average lifespan. They calculate this with a very low risk portfolio - because the capital costs of reserving against risky assets outweigh the benefits of chasing the returns.
Of course you pay them for the privilege, I am not contending that. However - for you to claim that it is equally risky is complete rubbish, and once again you fail to understand that they are offering a very different prospect with different risks and far higher levels of surety.