This is an argumentative post, but argument arguments he hypothesis need to use facts and figures.
Hypothesis: Anyone with a continuous ability to save 20% of their income can retire in 30 years. This is regardless of the actual numbers.
Known Assumptions
1. Retirement income is invested in an S&P500-type fund, a broad market index fund costing not more than 0.5% per year.
2. The market will not do worse than it has in the past; that is, use every year for which there is data and build a model. If each of these models winds up with you having wealth at the end, then success. If any line does not, then failure.
4. Increases in purchasing power offset by inflation. That is, assuming that your income just keeps up with inflation.
5. Steady post-retirement expenses.
6. Assuming zero income after R-day, as well as health care costs not increasing radically.
7. Almost forgot! Assuming 20% goes to taxes, 20% is saved for retirement, and 60% is spent.
Source: http://www.firecalc.com/
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4 is a big hiccup, I think.
ReplyDeleteIt is; i make less money now than I did five years ago. And that's not uncommon.
ReplyDeleteBut, technically this shouldn't be an assumption. The assumption is, instead, that you can save 20%. So long as that is met, it doesn't actually matter if you have the same income.
ReplyDeleteYou'll just have less money, but be heading towards the same end point.
I think the bigger problem is: how many people can actually save 20% of their income?
ReplyDeleteThat's a whole different argument, Brian Ashford !
ReplyDeleteThis actually kind of relies on a lot of factors - even saving 20% of their salaries, people making under standard costs of living (like people working minimum wage or even up to $15/hr., people who are paid less because of race, gender, etc.) are unlikely to make enough money to have that 20% be enough to account for the required income for such early retirement. Also consider people who become ill or require medical treatment post-retirement, or even people with disabilities, who have lower income in the first place, along with all of the costs of medical treatment. Even steady post-retirement expenses (if we're assuming that health care would be included in this steady cost) may be unable to be accounted for my 20% savings, especially in these instances.
ReplyDeleteAnd, honestly, the ability to save 20% of an income for people of my generation and beyond is completely ridiculous. Most of us barely afford life as it is, let alone trying to manage retirement savings. I technically have a pension (it's incredibly minimal) and a retirement account (also minimal) but they will not even account for a tenth of my needed income for retirement even if I don't retire until I'm 70. I just don't make enough money because of my health, and after retirement, my healthcare costs will likely skyrocket.
Brie Sheldon I feel like I've got to pull apart those premises. I'm gonna try to pull them apart with charitable interpretations, so please don't take it personally.
ReplyDeleteBrie Premise 1: Younger folks cannot possibly save 20% for retirement.
Response: Data, please? Not anecdotal, but data. My anecdotal evidence is the opposite: I'm 35 and save 20%+. My wife is younger, she saves a higher percent. Clearly, it is not "completely ridiculous", unless you are saying this only applies to 20 year olds?
I've heard this before, of course. I've not yet found data I find convincing, especially as the primary argument above is independent of income; If you make 10,000, save 2,000 and if 2,000 disappears to taxes, then in 30 years you can replicate the 6,000 from just investment. If you make 10,000,000 save 2,000,000 and if 2,000,000 disapears to taxes, then in 30 years you can replicate the 6,000,000 from just investments.
That is: The argument is independent of income.
Brie Premise 2: If you make too little then 20% is not enough.
Response: I don't understand this. 20% over 30 years gives an amount of cash that replicates 60% of the income (I should have had this in the assumptions.). So, are you saying that folks who make too little require revenue from other sources? Something like snap or welfare benefits?
If so, that's sort of interesting. Then, there's the claim that there is a lower level under which spending cannot go, such that if there is a decrease in revenue that you must go into deficient spending. Is that what you mean?
Brie Premise 3: Bad health means increased medical costs. This means you need to replicate more of the income.
Response: I think your claim here is that health care costs are not a choice, and are not dependent upon what money you have. Yes? In which case, you cannot control it as a percent of income, such that as income is reduced you have less and less disposal as a percent.
I think that is what you mean on both (2) and (3): that there are costs that exist that are largely independent of income that necessarily eat up a larger percentage for poor workers. If so, that's interesting. But, again, show me the data.
I saw an ad that people should try to save 1% of their annual income and I'm happy to report I save 2.72% for retirement
ReplyDeleteWhat is the relevance, Orion Cooper ?
ReplyDeleteAdmittedly, very little
ReplyDeletere: 1) Seriously not digging data up for this. While yes, there are younger people who make enough money to save some money, they are not the majority, and if you factor in the cost of student loans, the ability to save money is reduced pretty drastically. You cannot calculate this based on income alone - considering only income is flawed in general. Most younger people (I'm 28, and I was speaking specifically at or below my age) are dealing with the requirements for higher education for good jobs, then dealing with the cost of student loans eating up much of their spare income post-graduation regardless of whether they get a job that pays well enough.
ReplyDeleteIf you save 20% of a livable wage, and retire in 30 years, considering increased lifespans, even with interest, it doesn't make a bit of sense to me that you could pay for another 30 years at a livable wage.
2) & 3) I should not have to show you data for it to be quite obvious that the poor and ill have more expenses that eat up more of their income. You can't base an evaluation of how much someone can save strictly based on their income - it's shortsighted and a privileged viewpoint.
I'm not here to argue whether someone with a magically perfect income and life can retire in 30 years - privileged able white cis straight men do it all the time, I'm sure - I'm saying that your premise, because it factors in nothing else, is flawed.
As I don't feel like being badgered to provide data I'm going to step out. The only point I intended to make was that your premise is based on the possibilities available only to people in very good situations, because it doesn't factor in any realistic adjustments inherent to oppression, underprivileged life, and discrimination.
well, I'd recommend saving more, Orion Cooper . I think this suggests a 95% success rate at 45 years of employment and 5 years of retirement. Not a great ratio!
ReplyDeleteBasically everything that Brie Sheldon said. Leaving medical expenses out of your analysis is a huge mistake on its own. Just as great is the issue of the high cost of poverty due to lack of disposable income and predatory lending.
ReplyDeleteWilliam Nichols I'd love to but I can't really save more due to expenses, credit card debt, student loan debt, etc.
ReplyDeleteBy the way, if you'd like some actual facts, you can go to the website of the National Consumer Law Center and do your own research. I work for them as an attorney btw.
ReplyDeleteThere seems to be a fundamental misunderstanding here, which is weird from lawyers and other folks.
ReplyDeleteThe argument says nothing about how many people can save 20%, it says that, if you can save 20%, then relatively early retirement.
The majority of the comments have sidestepped that, and said that 20% is impossible. That is not what this thread is about. Calling this a fault is a non sequitur -- it has nothing to do with the argument in question.
The problem is William Nichols that this sort of argument ignores the actual context of reality. It is circular: "if I can save enough money and if my expenses remain constant, assuming a normal life span I will be fine." But the ability to even consider those assumptions is deeply rooted in privilege. It applies to very few people. So saying that this applies regardless of income is a falsehood because a much larger proportion of the wealthy will be able to assume such things, and even some of them will be wrong. This kind of argument is essentially gnostic. There is no secret. There is no moral way of living that will ensure that the system will not only work, but work better than expected. Good financial advice is that which most people can actually use.
ReplyDeleteHere's an analogous argument to explain why this one is broken:
ReplyDelete"Anyone with the continuous ability to run a mile in 10 minutes can run the Boston Marathon."
It appears to make sense, unless you actually think about the reality of the situation.
Vivian Spartacus
ReplyDelete"Good financial advice is that which most people can actually use. " --
On the contrary, good financial advice is advice that pushes us in the right direction.
Besides, an argument on the internet should never be taken as financial advice. If anything, it should be taken as an "Oh, that's interesting. Maybe I'll see how that ticks", and do your own research to find out what it means to you.
I've talked about this several times, and each time you and I get into the same argument. Its not one I find particularly fruitful; when I talk about this, I am absolutely not talking about Brie, or other folks with major medical issues. I'm pretty sure I've said that before, as well. And yet, each time, you show up and act as if I am. Worse, as if I am saying that Brie is morally insufficient. That's absolutely not the case, and is not implied by anything I've said.
Taken it as granted that this is not directed at Brie, and is not directed at the people you help professionally.
You know, I actually don't think you are a terrible person, or I wouldn't be wasting my time with this. But let me make this crystal clear: When you say "this will push you in the right direction?" You are absolutely making a moral judgment. When you make assumptions that cause people with disabilities to feel badly, to feel as if they are invisible, because "of course it doesn't apply to you", you are being an asshole. It is implied by what you have said. And I feel that, eventually, you will understand this. However, the fact that Brie, and I, and others have the patience to explain this time and time again is not a resource that will last forever. If you have a problem with me calling you out, feel free to block me.
ReplyDeleteOrion Cooper
ReplyDeleteI have those things too!
I think its a good idea to figure out how to climb out of debt. There are calculators (my favorite: http://unbury.us/). If we can't change economic realities (and, largely, we can't), then doing the best we can is the way to go.
And, well, paying credit card interest is never fun. Freeing up even a few dollars a month can make that disapear quicker (you can do the math on that calculator), which moves up the time you can build an emergency fund, and save larger amounts for retirement.
Its hard, but you can do it!
Brian Ashford If I had to guess, I'd say the percentage is a lot higher than the percentage that actually do. There's "can't", then there's "don't want to / don't think it is a priority". These are different things that can often be conflated!
ReplyDelete