How to Retire at 40(bloomberg.com)
bloomberg.com
How to Retire at 40
https://www.bloomberg.com/features/2016-early-retirement/
112 comments
3% of $1.5m is only $45k. If you and your spouse can live off of $45k while you're still earning, you can save ~$100k per year and accumulate $1.5m by the time you're 40, easily. See Mr. Money Moustache for details on how this isn't as unreasonable to do as you would think: http://www.mrmoneymustache.com/
If you and your spouse can live off of $45k while you're still earning, you can save ~$100k per year and accumulate $1.5m by the time you're 40, easily.
To spend and save $145k net income per year, you need a gross comp of $240k per year where I live. To save $1.5M at a rate of $100k per year would take 15 years. To do so by age 40 would mean that you need to be at a $240k/year salary by the tender of age of 25, and also have the restraint to live off of a mere $45k per year (presumably in a city with a high cost of living, since you are earning $240k at 25). And after you retire at age 40, you get to spend 2% of your $1.5M per year ($30K) which is below the poverty line where I live (at least as a household income).
To spend and save $145k net income per year, you need a gross comp of $240k per year where I live. To save $1.5M at a rate of $100k per year would take 15 years. To do so by age 40 would mean that you need to be at a $240k/year salary by the tender of age of 25, and also have the restraint to live off of a mere $45k per year (presumably in a city with a high cost of living, since you are earning $240k at 25). And after you retire at age 40, you get to spend 2% of your $1.5M per year ($30K) which is below the poverty line where I live (at least as a household income).
You are not factoring in the tax savings of a 401k or other retirement account. For instance a married couple that earns up to $183k a year can save $36k a year in the 401k, plus the employer match, and another $11k in IRA's that reduces your does not count as income. Your contributions grow tax free with compound interest. If you contributed $3916 a month from when you were 18 until 40 with 5% annual interest you would have a nest egg of 1.8Mil. If you each had a salary of 75k a year you would only be paying taxes on 100k of income, about 71k take home.
If you tap your 401k before you're 60, you will face major tax penalties. So, that's at least 20 years you have to manage without your 401k funds if you attempt to retire at 40.
You will still be making money each year from your 401k, though.
Thus, for the math to work you need to verify that you have (or earn via interest/other investing) twenty years of expenses via funds outside of your 401k.
Thus, for the math to work you need to verify that you have (or earn via interest/other investing) twenty years of expenses via funds outside of your 401k.
No - Google for 401k SEPPs.
The earlier comment also omitted the backdoor Roth, which can get a married couple another 11k post-tax into a Roth, which can then grow and be used tax free.
The earlier comment also omitted the backdoor Roth, which can get a married couple another 11k post-tax into a Roth, which can then grow and be used tax free.
An interesting exemption (basically, you set up a structured, regular payout of your 401k over the remaining life expectancy and don't touch it). I still don't see this being realistic in almost any case, but it's a good option to keep in mind.
That said, "$3916 a month from when you were 18 until 40" is simply not realistic for most people. How about college? You're not going to get a $100k+ a year job without either college or years of experience. Where do you find that perfect mate capable of immediately working their own $100k salary and contributing almost $2k a month to retirement at 18?
Personally, I make a really good salary (it's worth noting that it took until I was nearly 40 to even get to this point), have a working spouse, live in a relatively inexpensive part of the country, and I still could not put $4k into an 401k or roth IRA every month. Owning a house and reliable cars, having dependents... it's not realistic; it leaves nothing for wiggle room.
I'm also going to come out and say it: working yourself to the bone, skimping and saving is no way to live some of the most active years of your life.
That's my 2¢.
That said, "$3916 a month from when you were 18 until 40" is simply not realistic for most people. How about college? You're not going to get a $100k+ a year job without either college or years of experience. Where do you find that perfect mate capable of immediately working their own $100k salary and contributing almost $2k a month to retirement at 18?
Personally, I make a really good salary (it's worth noting that it took until I was nearly 40 to even get to this point), have a working spouse, live in a relatively inexpensive part of the country, and I still could not put $4k into an 401k or roth IRA every month. Owning a house and reliable cars, having dependents... it's not realistic; it leaves nothing for wiggle room.
I'm also going to come out and say it: working yourself to the bone, skimping and saving is no way to live some of the most active years of your life.
That's my 2¢.
"I'm also going to come out and say it: working yourself to the bone, skimping and saving is no way to live some of the most active years of your life."
Exactly the response to all of these "retire young" articles. They neglect to say that you are doing it at the expense of not taking advantage of a healthy young body to adventure and enjoy life while you can...you may get hit by a bus tomorrow and then what a freaking waste of time all the penny pinching was!
Exactly the response to all of these "retire young" articles. They neglect to say that you are doing it at the expense of not taking advantage of a healthy young body to adventure and enjoy life while you can...you may get hit by a bus tomorrow and then what a freaking waste of time all the penny pinching was!
I'm assuming both you and your spouse are earning money, in my numbers. Additionally, you would presumably make investments with the money that you're saving, so you don't quite have to save the whole $1.5m straight up. I'm also not sure why you used a 2% withdrawal rate -- typically 4 to 5% is regarded as a conservative rate, which would be $60k to $75k per year.
I'm not suggesting that doing this is a walk in the park, you definitely have to prioritize around it (which may include living in a city that isn't insanely expensive), but it's doable.
I'm not suggesting that doing this is a walk in the park, you definitely have to prioritize around it (which may include living in a city that isn't insanely expensive), but it's doable.
You should also: Drive a reasonable used car (if at all); send your kids to public school; live with roommates (or spouse); commute so you can live in a cheaper area; avoid expensive vacations; cook at home more frequently; etc.
I tried explaining all this to coworkers when I worked at Google, and many people dismiss the idea. These are the same people who:
- Drive a new Tesla
- Pay $120k/yr to send their four kids to private schools despite good public schools in the area
- Insist on living in SF and commuting 2 hrs by bus each way
- Jetset around the world for vacations
- Eat out at every non-Google meal
You can lead a horse to water... but sometimes you just can't make them drink. And guess which of my coworkers complained the loudest about unlivable wages in SFBA...?
I tried explaining all this to coworkers when I worked at Google, and many people dismiss the idea. These are the same people who:
- Drive a new Tesla
- Pay $120k/yr to send their four kids to private schools despite good public schools in the area
- Insist on living in SF and commuting 2 hrs by bus each way
- Jetset around the world for vacations
- Eat out at every non-Google meal
You can lead a horse to water... but sometimes you just can't make them drink. And guess which of my coworkers complained the loudest about unlivable wages in SFBA...?
Why do you need gross of $240K?
Are you saying you pay $95K in tax?
If you have a 401K you can save a significant amount pretax. You're also not factoring in portfolio growth over the 15 years you're saving.
Are you saying you pay $95K in tax?
If you have a 401K you can save a significant amount pretax. You're also not factoring in portfolio growth over the 15 years you're saving.
$145K take home pay is surely like $200+K/year? (In the UK, if you earn ~£110K+/year after tax, you're in the top 1% of taxpayers.)
If your spouse is going to work too, I admit that is a lot more doable.
If not, well... looks like the secret is, "be rich/well-paid, and don't piss it all away". Excellent advice, but I could have told you that already ;)
If your spouse is going to work too, I admit that is a lot more doable.
If not, well... looks like the secret is, "be rich/well-paid, and don't piss it all away". Excellent advice, but I could have told you that already ;)
$145K take home pay is surely like $200+K/year?
It's $240k/year in Canada.
If your spouse is going to work too, I admit that is a lot more doable.
Is it? Saving $1.5M by age 40 gives you a $30k/year life annuity (2%) for retirement. During the accumulation phase you need to save $100k/year for 15 years, so you only get to spend $45k per year during your pre-retirement life. Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family?? I think not, that's called poverty. You need to be earning $240k gross per household member starting from age 25, in order to make this retirement "plan" work.
It's $240k/year in Canada.
If your spouse is going to work too, I admit that is a lot more doable.
Is it? Saving $1.5M by age 40 gives you a $30k/year life annuity (2%) for retirement. During the accumulation phase you need to save $100k/year for 15 years, so you only get to spend $45k per year during your pre-retirement life. Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family?? I think not, that's called poverty. You need to be earning $240k gross per household member starting from age 25, in order to make this retirement "plan" work.
>Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family?? I think not, that's called poverty.
Ah yes, the hacker news bubble where $40k a year is poverty.
Sometimes I am just speechless... This is one of those times.
Ah yes, the hacker news bubble where $40k a year is poverty.
Sometimes I am just speechless... This is one of those times.
"Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family?"
You'd be in good company.
The median household income in the US is ~$51k. The median personal income is ~$30k. The poverty line in the continental US for a family of 4 is ~$25k.
You'd be in good company.
The median household income in the US is ~$51k. The median personal income is ~$30k. The poverty line in the continental US for a family of 4 is ~$25k.
$30k/year is ~$550/week.
If you already own a home that is more than enough to live well as a family in most parts of the US.
> Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family??
Of course you have to make sacrifices. It all depends on what you want in life.
I lived with my parents until my early thirties and that allowed me to buy a house outright.
If you already own a home that is more than enough to live well as a family in most parts of the US.
> Living off $30-45k/year maybe makes sense for 1 person, but 2 people or a whole family??
Of course you have to make sacrifices. It all depends on what you want in life.
I lived with my parents until my early thirties and that allowed me to buy a house outright.
Although it is advice that an alarming number of people don't seem to follow. I have spent the last decade and a half working with plenty of reasonably high earning individuals. Although I have only occasionally got any insight into their personal financial situation the number of them still living pay to pay is mind blowing.
How is that possible? Are they not saving up or the cash just goes down the drain here and there?
Spending tends to rise inline with income if you are some combination of foolish, bored or unhappy. Most people are some or all of those things at least some of the time. In particular people safely ensconced in comfortable long-term, well paying office jobs tend to be bored and unhappy a lot of the time.
That can lead you to make poor decisions which provide short burst of happiness. No matter how large an income you have you will be able to get a mortgage, a car loan and credit card payments sufficient to entirely consume your paycheck. And if you do still wind up with extra cash why not put in a swimming pool/buy a boat/take an expensive vacation. That will cheer you up (for a while).
Stuff like a more expensive home, vehicles and boats are especially disastrous financially because they have ongoing costs in addition to the upfront expense. You pay a bunch of money now and then have to pay money for maintenance, insurance etc for as long as you own the thing.
That can lead you to make poor decisions which provide short burst of happiness. No matter how large an income you have you will be able to get a mortgage, a car loan and credit card payments sufficient to entirely consume your paycheck. And if you do still wind up with extra cash why not put in a swimming pool/buy a boat/take an expensive vacation. That will cheer you up (for a while).
Stuff like a more expensive home, vehicles and boats are especially disastrous financially because they have ongoing costs in addition to the upfront expense. You pay a bunch of money now and then have to pay money for maintenance, insurance etc for as long as you own the thing.
If you have $20 on your pocket you tend to spend $20. If you have $40 you tend to spend $40.
(Not you specifically, people in general. Or society encourages this)
(Not you specifically, people in general. Or society encourages this)
Living on $45K / year is certainly doable (I have), but the model of having $1.5M in assets to freely generate that income does not represent a very broad population.
If you consider the typical MMM budget caveat of owning one's own house, $45k is an extraordinarily high rate of expenditure. Given a $45k expenditure in the SF Bay Area, with rent of $3k per month, and with a typical tax rate of 39%, this equates to someone spending every penny they make of $113k.
The MMM achievement of annual expense spending of $24k is not far off from what I assume most HNers have after rent and savings.
The MMM achievement of annual expense spending of $24k is not far off from what I assume most HNers have after rent and savings.
It's easy if you're earning $150k a year, but not if you're making a median salary and living mostly paycheck-to-paycheck. Remember that most people outside of the Silicon Valley area don't have the luxury of being able to save $100k every year.
Not that much people in SV can do that either.
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> If you and your spouse can live off of $45k while you're still earning
That's easy! I can just move back to Europe. Sweet.
> you can save ~$100k
Oh ... no ... no I can't get that in Europe. Well maybe I could, but my SO is not an engineer and can't get decent remote jobs.
That's easy! I can just move back to Europe. Sweet.
> you can save ~$100k
Oh ... no ... no I can't get that in Europe. Well maybe I could, but my SO is not an engineer and can't get decent remote jobs.
Do engineer jobs in Europe even pay that well? The salaries I see posted look pitiful. Converted to USD, the high-paying jobs I see are maybe 80-90k, and you're paying much more in taxes. Senior positions appear to pay that much or less, and many of the senior positions require a PhD, some highly specialized skills, etc.
That cap is about right, maybe big tech companies pay more. PhD is not really a general requirement, most ads mention equivalent experience.
> Well maybe I could, but my SO is not an engineer and can't get decent remote jobs.
Any suggestions for these remote jobs that pay 100k+?
Also how do taxes work in that case?
For example the tax rate in Germany on that amount ($100,000/91.000€) would mean your net pay would be around 51.000€/year. I'm including healthcare and retirement contributions in this figure.
I live in a major city in Germany and my annual expenses are around 16.000€ for a modest lifestyle. So that's only saving 35.000€/year. Hardly close to 100k.
I'm not aware of many European countries where the tax rate is significantly lower for individuals. Unless you lived somewhere like Bulgaria where the cost of living is much lower.
Any suggestions for these remote jobs that pay 100k+?
Also how do taxes work in that case?
For example the tax rate in Germany on that amount ($100,000/91.000€) would mean your net pay would be around 51.000€/year. I'm including healthcare and retirement contributions in this figure.
I live in a major city in Germany and my annual expenses are around 16.000€ for a modest lifestyle. So that's only saving 35.000€/year. Hardly close to 100k.
I'm not aware of many European countries where the tax rate is significantly lower for individuals. Unless you lived somewhere like Bulgaria where the cost of living is much lower.
How many rental properties does the man who says a bucket of grain is actually a big deal? Guess.
> This was achieved not through luck or amazing skill, but simply by living a lifestyle about 50% less expensive than most of our peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two.
http://www.mrmoneymustache.com/about/
Just a couple of extra people (maybe two families) working and giving a big slice of their income. Everyone can do this, right? Wait. If we all do it how can we all live off part of the wages of at least two wage earners?
> This was achieved not through luck or amazing skill, but simply by living a lifestyle about 50% less expensive than most of our peers and investing the surplus in very boring conservative Vanguard index funds and a rental house or two.
http://www.mrmoneymustache.com/about/
Just a couple of extra people (maybe two families) working and giving a big slice of their income. Everyone can do this, right? Wait. If we all do it how can we all live off part of the wages of at least two wage earners?
I've never spent more than $30k per year in my life. I'm 28 and live in the Bay Area
Yeah, but are you under rent control ?
I own a home in Hayward. I did get lucky and buy in 2012 tho when prices were about 35% lower
you didnt spend more than 30k in 2012?
I transferred money from my bank account to the equity in my home; from an assets and liabilities standpoint, that's no different than transferring money from your checking account to your stock account. Spending money is depleting assets. Now, the closing costs were real expenditures and totaled around $4k, but I'm pretty sure I was still under $30k for the year. Definitely my most expensive year though.
So you're saying the key to spending $30k/y in the Bay Area is to have a high six figure bank account that you use to buy a house?
I put $34k down on an 80-10-10 mortgage. You can easily save that amount in a year or two if you are willing to live on $30-40k a year, which is still possible while renting if you are willing to live with roommates. My salary at the time was $85k.
What are the property taxes like in California? I'm just outside Boston and pay about $6k per year on a $400k house.
Wow, this is nuts. I spend 5k a year in taxes for a $128k home... New York State for you...
Mine are ~$4.1k per year, lower than they would be if I bought this year because of https://en.wikipedia.org/wiki/California_Proposition_13_(197...
It is about 1.17% in most of california. Closer to 1.5% in SF, Berkeley, Oakland. But the tax increases by at most 2% per year. So $4800 a year on a $400k house in Castro Valley, Burlingame Hills, Broadmoor, or other cities without extra taxes.
It is possible to spend $45k a year, but not if you need to live in a expensive area where you can make $145k a year.
That's the trick for sure.
To help save I like to weigh every large potential purchase against getting 4% every year for the rest of my life.
For example, I want and can afford a Tesla, but $100k/25/12 is $333/month for the rest of my days. So I drive an old Toyota.
To help save I like to weigh every large potential purchase against getting 4% every year for the rest of my life.
For example, I want and can afford a Tesla, but $100k/25/12 is $333/month for the rest of my days. So I drive an old Toyota.
That's a terrible burden that you've built yourself. You have to enjoy life otherwise you are just vegetating till death. At least that's the sentiment I get from your post.
The best (observational) evidence I've seen suggests that possessions are an extremely temporary way to increase happiness. By not buying stuff the parent poster lowers his monthly expenditures and increases his invested capital bringing him closer to financial independence. Not going to say that brings happiness, but I will say that money stress seems to be a permanent happiness drain. (Again, purely an observation)
This is paradoxical, do you recognize?
> bringing him closer to financial independence
And what do you do with that independence if you are not going to spend it on anything? Living like that will train you to stockpile money and after you've reached the tipping point (when you can live on the interests) you are likely to continue to be the person who you were before: not spending on anything special, stockpiling money.
> bringing him closer to financial independence
And what do you do with that independence if you are not going to spend it on anything? Living like that will train you to stockpile money and after you've reached the tipping point (when you can live on the interests) you are likely to continue to be the person who you were before: not spending on anything special, stockpiling money.
Essentially, any "how to retire at age X" title can be rewritten as "how to budget $Y at age X."
Did you think there was going to be a way to retire without having a bunch of money saved?
> We asked three people who retired in their 30s and 40s to explain how they’ve made it pay off.
Alright. Let's see how they do it...
1. "a blog where he chronicles his retirement experience"
2. "writing a book about retirement"
3. "blogging about financial independence"
The trick to early retirement is blogging about early retirement.
Alright. Let's see how they do it...
1. "a blog where he chronicles his retirement experience"
2. "writing a book about retirement"
3. "blogging about financial independence"
The trick to early retirement is blogging about early retirement.
Quickest path to get rich is to write a book "How to get rich"
On the Warrior Forum they do deeper depths of recursion on that.
I.e. guys making money selling products about how to make money by selling products on how to make money. Seriously.
I.e. guys making money selling products about how to make money by selling products on how to make money. Seriously.
There's a guy who wrote a "How to Write a How to Write Book" book:
http://www.brianpiddock.co.uk/home.htm
http://www.brianpiddock.co.uk/home.htm
You should check out the "digital nomad" communities in SE Asia. The only thing anyone is selling is marketing courses/seminars/ebooks
Did blog and book came before early retirement or after? You are confusing cause and effect. Early retirement doesn't mean you retire and do nothing, it means you do what you want to do, when you want to do, how long you want to do, at your choice.... These people took up blogging and book writing after they retired.
Alternatively this is just the subset of early retiring people who are vocal and visible about it.
If you wanted to interview some early retirees, what easier way to find them than to Google up some 'blogs?
Except they all have significant savings they could live off of if they didn't have those other sources of income.
>>The trick to early retirement is blogging about early retirement.
And the trick to never having enough money to retire is to believe its not possible at the first place.
At the end you get what you want, and in some way that's very brutally fair.
And the trick to never having enough money to retire is to believe its not possible at the first place.
At the end you get what you want, and in some way that's very brutally fair.
[deleted]
Or alternatively have 500k in the bank and move to a cheap European city where you can live off 14k per year.
I'm actually more of a fan of Stefan Sagmeister's method of retirement, where he split up his retirement years and moved it to in between his productive years.
https://www.ted.com/talks/stefan_sagmeister_the_power_of_tim...
I could earn in a year enough cash to take the next year off, do fun things, learn new things and then spend the next few on what I figured out in that one "retired" year.
I'm actually more of a fan of Stefan Sagmeister's method of retirement, where he split up his retirement years and moved it to in between his productive years.
https://www.ted.com/talks/stefan_sagmeister_the_power_of_tim...
I could earn in a year enough cash to take the next year off, do fun things, learn new things and then spend the next few on what I figured out in that one "retired" year.
I'm sure there are cheap places in the US too. I live in a cheap place in Australia, which has the advantage of a government-provided health system and qualification for an age pension at 67. So only household expenses between age ~40 and 67 need to be budgeted for, and with a frugal lifestyle without kids that's not much.
Except land prices are crazy here in Australian cities
There are still places, if you avoid the larger cities.
> qualification for an age pension at 67
>only household expenses between age ~40 and 67 need to be budgeted for
Pension is $20k/year. You're an Aussie, so you know how incredibly high our cost of living is. 35cents/kWh for electricity (!!) 3x what some places in the US pay + the insane prices we pay for groceries, gas, entertainment, vice taxes etc.
Unless you have supplemental income from investments you will be straddling the poverty line on the Australian pension. I've seen pensioners mend shoes with gaffer tape.
This all assumes that the pension system stays solvent which is not guaranteed. Already there is talk of lifting retirement age to 70+
> I live in a cheap place in Australia
You're probably comparing to other places in Australia (east coast?). Relative to other countries, unfortunately, there is no cheap place in Australia.
>only household expenses between age ~40 and 67 need to be budgeted for
Pension is $20k/year. You're an Aussie, so you know how incredibly high our cost of living is. 35cents/kWh for electricity (!!) 3x what some places in the US pay + the insane prices we pay for groceries, gas, entertainment, vice taxes etc.
Unless you have supplemental income from investments you will be straddling the poverty line on the Australian pension. I've seen pensioners mend shoes with gaffer tape.
This all assumes that the pension system stays solvent which is not guaranteed. Already there is talk of lifting retirement age to 70+
> I live in a cheap place in Australia
You're probably comparing to other places in Australia (east coast?). Relative to other countries, unfortunately, there is no cheap place in Australia.
I could live in Europe, but I'm not convinced it would be cheaper. Australia may be more expensive for some things, but there are also savings. Health insurance would be desirable or compulsory in some countries. Not every country has a decent tax-free income allowance like Australia (19k or so), and some even charge a wealth tax. My housing costs are actually reasonable, renting in a city of ~20k with a high unemployment rate. Since my income is so low, my partner can still qualify for Centrelink benefits. Petrol? Don't own a vehicle. Vice taxes? My only vice is an Internet connection. My entertainment is an Internet connection .. frugal all round. The lifting of the pension age to 70 and beyond is potentially an issue.
By the time I get there I don't expect to receive any pension. The scheme will likely to collapse and I can't even plan with a single country.
Those cheap European cities tend to get more expensive at a really fast pace. You might easily be looking at 50% increase in living expenses in 10 years if you want to live within the same standard now and then.
It's not difficult if you plan for it and make it a goal. Mine is to be financially independent by 40, so I could never work another day.
Realistically I love working, and can't wait to be able to donate more, volunteer more, and help my children with education a starting businesses.
Realistically I love working, and can't wait to be able to donate more, volunteer more, and help my children with education a starting businesses.
"He’s “hoarding cash” on the chance he can buy stocks when prices dip, as he expects they will"
That's called market timing, and it does. not. work. It doesn't work for professional traders, it doesn't work for algorithms, and it will not work for you. Don't. Do. It.
That's called market timing, and it does. not. work. It doesn't work for professional traders, it doesn't work for algorithms, and it will not work for you. Don't. Do. It.
I think timing the market doesn't work, when you look at short term. Short term is hard to define. But say, a target from a few months to even 3-4 years is short term. And long term say 10-15 years or more.
After seeing a few crashes, eg. one in 2000 (dot com bust) and then later in 2007 (real estate crash), and you go back in history and see some more. But after living through a few crashes, you can draw the common trait of them, and that is market wide gloom and doom. When the sentiment is very low.
So, IMHO, its not bad to wait for those kind of crashes, and then invest. And the market does bounce back in a few years (if we look at history). Of course there's always a first time for anything, and its possible that it never does come up. But then you are screwed anyway, if you invest by any strategy.
A safeguard for that is classic not all eggs in a basket. So what's wrong in timing this way? And this heuristic matches with all the classic investment advise buy low and sell high. My personal translation to that is buy, when all the TV channels are saying it will never come up, and don't buy when most TV channels are saying its going to go up. The latter has been the case, for past 2 years, in my geography at least.
After seeing a few crashes, eg. one in 2000 (dot com bust) and then later in 2007 (real estate crash), and you go back in history and see some more. But after living through a few crashes, you can draw the common trait of them, and that is market wide gloom and doom. When the sentiment is very low.
So, IMHO, its not bad to wait for those kind of crashes, and then invest. And the market does bounce back in a few years (if we look at history). Of course there's always a first time for anything, and its possible that it never does come up. But then you are screwed anyway, if you invest by any strategy.
A safeguard for that is classic not all eggs in a basket. So what's wrong in timing this way? And this heuristic matches with all the classic investment advise buy low and sell high. My personal translation to that is buy, when all the TV channels are saying it will never come up, and don't buy when most TV channels are saying its going to go up. The latter has been the case, for past 2 years, in my geography at least.
Strange you got downvoted for this. So I will enforce you stance.
Suppose you have $50.000 to invest, what is the best strategy to invest it? If you run over the history of stocks, the best strategy is to invest it all at once, now. Not wait until you THINK the market is low, not splitting it up and buying in smaller chunks to spread your risk.
Suppose you have $50.000 to invest, what is the best strategy to invest it? If you run over the history of stocks, the best strategy is to invest it all at once, now. Not wait until you THINK the market is low, not splitting it up and buying in smaller chunks to spread your risk.
well.. it depends. You didn't really specify goals, which is the most important thing.
In many cases you are correct. Somewhat related see Vanguard's research "Dollar-cost averaging just means taking risk later" [1] which finds lump sum investing is better in ~2/3 of the cases they considered. They had a specific time horizon.
Individual's have unique situations and goals and should consider those instead of just dumping everything into an s&p index fund asap. Maybe an individual is more sensitive to sequence risk at different points in his life? There is an entire profession (financial planners) which allows you to outsource these decisions to if you want. Same for the spending part of retirement (hint: most common advice (bond/stock mix) is exactly the opposite of what it should be e.g. "Rising Equity Glidepath" [2])
[1] https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c... [2] https://www.kitces.com/blog/should-equity-exposure-decrease-...
In many cases you are correct. Somewhat related see Vanguard's research "Dollar-cost averaging just means taking risk later" [1] which finds lump sum investing is better in ~2/3 of the cases they considered. They had a specific time horizon.
Individual's have unique situations and goals and should consider those instead of just dumping everything into an s&p index fund asap. Maybe an individual is more sensitive to sequence risk at different points in his life? There is an entire profession (financial planners) which allows you to outsource these decisions to if you want. Same for the spending part of retirement (hint: most common advice (bond/stock mix) is exactly the opposite of what it should be e.g. "Rising Equity Glidepath" [2])
[1] https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-c... [2] https://www.kitces.com/blog/should-equity-exposure-decrease-...
...but the history of stocks is sufficiently short and localized as to have weak predictive power over what's going to happen in the future.
1) No, it's not market timing. It's crash timing, and it works great.
2) Buy low, sell high - never goes out of style.
2) Buy low, sell high - never goes out of style.
Just skimmed the article for lack of time, I will give it a proper reading in a bit...
I may have missed it, but I was fully expecting to see something about the Military here. At least for USA based persons. I have several friends that are beginning to retire or thinking about retirement in their mid to late 30's.
Full health insurance, and a pension for the rest of their lives. It may not be a ton in all cases, but most of my friends are young enough to pursue whatever they want with a ton of financial security if they so desire. Or go chill in a van down by the river.... either way it's a decent option.
I may have missed it, but I was fully expecting to see something about the Military here. At least for USA based persons. I have several friends that are beginning to retire or thinking about retirement in their mid to late 30's.
Full health insurance, and a pension for the rest of their lives. It may not be a ton in all cases, but most of my friends are young enough to pursue whatever they want with a ton of financial security if they so desire. Or go chill in a van down by the river.... either way it's a decent option.
Military pensions aren't super high, unless you're very high up. I picked 03 on the calculator (Army Captain, mid-level officer) and got < 40k before taxes. High enlisted ranks are looking at < 30k. The benefits are good though.
http://militarypay.defense.gov/Calculators/Active-Duty-Retir...
An extra 25k/year after taxes does give you a bunch of flexibility, but it's not really 'do nothing' retirement unless you live somewhere cheap, especially if there's a family to support.
http://militarypay.defense.gov/Calculators/Active-Duty-Retir...
An extra 25k/year after taxes does give you a bunch of flexibility, but it's not really 'do nothing' retirement unless you live somewhere cheap, especially if there's a family to support.
You can't 'retire' in the sense that you receive a pension with less than 20 years. Which means you were at least an E5 (you had to mess up a lot to retire as an E5). You are certainly higher than an O3 if you were an officer.
Presumably after 20 years you've also got other savings such as the TSP retirement account which the military matches 50% on (up to a certain amount only I believe). Your retirement payout can be based on your highest 3 years of service (you get to choose now), which are typically going to be the last few, which if much of that is spent overseas will significantly increase your retirement package.
You still won't be living in SF but you should be able to live pretty comfortably in a normally priced city as long as the retirement package isn't your only form of savings. Bonus points if you'er now 20 years into paying off your house as well.
Presumably after 20 years you've also got other savings such as the TSP retirement account which the military matches 50% on (up to a certain amount only I believe). Your retirement payout can be based on your highest 3 years of service (you get to choose now), which are typically going to be the last few, which if much of that is spent overseas will significantly increase your retirement package.
You still won't be living in SF but you should be able to live pretty comfortably in a normally priced city as long as the retirement package isn't your only form of savings. Bonus points if you'er now 20 years into paying off your house as well.
>Which means you were at least an E5 (you had to mess up a lot to retire as an E5)
Looks like the high year tenure for an E5 is 14 years so you'd have to retire at least an E6.
https://en.m.wikipedia.org/wiki/High_Year_Tenure
Looks like the high year tenure for an E5 is 14 years so you'd have to retire at least an E6.
https://en.m.wikipedia.org/wiki/High_Year_Tenure
The median individual income is around $30k so it's definitely livable.
Late 20s here, in a more advantageous financial situation than the folks in the article. I honestly don't know what I'd do with myself.
I'd be lying if I said early retirement hadn't crossed my mind, but just from the experience of taking a month or two off work between jobs, I'm 100% certain I'd be bored out of my mind. If one were to retire at 40, then what? Even spending a full 5 years traveling the world and screwing around, that leaves you another 40 or 45 years of idleness.
Maybe I'm just not the type for this, but I'd have to do _something_ productive.
I'd be lying if I said early retirement hadn't crossed my mind, but just from the experience of taking a month or two off work between jobs, I'm 100% certain I'd be bored out of my mind. If one were to retire at 40, then what? Even spending a full 5 years traveling the world and screwing around, that leaves you another 40 or 45 years of idleness.
Maybe I'm just not the type for this, but I'd have to do _something_ productive.
I never really got the "wouldn't know what to do with myself" argument. Especially with people who work in IT.
First, I would occupy my time with hobbies. With all that time I could try anything I wanted that looks interesting. And if I really had to do something, as a programmer, I could contribute to open source projects. Being retired would give me enough time to help out in these projects or simply further educate myself in new technologies that I find interesting. There is no much to do. But I can't get myself to do most of these things because after a full work day I am exhausted and don't have the drive to do much besides surfing the net while the TV is on in the background.
First, I would occupy my time with hobbies. With all that time I could try anything I wanted that looks interesting. And if I really had to do something, as a programmer, I could contribute to open source projects. Being retired would give me enough time to help out in these projects or simply further educate myself in new technologies that I find interesting. There is no much to do. But I can't get myself to do most of these things because after a full work day I am exhausted and don't have the drive to do much besides surfing the net while the TV is on in the background.
The scary thing is that some people have all these plans for their retirement, like working on their hobbies, or getting back into something creative. But once you finally get there, you might realize that you've lost whatever you had. Either you forgot how to do everything, or the field has moved on without you, or you lost the passion itself, which is the saddest thing.
I recently experienced some form of that. I just got back into things like music, acting, writing, and filmmaking after a very long hiatus. I was never really that good at anything, but now I feel very rusty. And everything I do is bad. And somehow I don't feel quite as creative as I used to be. But I'm going to keep working on it, because I feel like I need to have a change from software development. But if you asked me what I would do if I could retire right now and not have to worry about money, then it would be this, as well as working on electronics and software projects, maybe learning how to weld or do woodworking. There's a lot of fun things to do, and cool things to make. I guess that's not for everyone, though.
Even if you decide to pursue a fulfilling career where you enjoy everything about your job, don't let that be the only thing in your life. The world is much bigger than that.
I recently experienced some form of that. I just got back into things like music, acting, writing, and filmmaking after a very long hiatus. I was never really that good at anything, but now I feel very rusty. And everything I do is bad. And somehow I don't feel quite as creative as I used to be. But I'm going to keep working on it, because I feel like I need to have a change from software development. But if you asked me what I would do if I could retire right now and not have to worry about money, then it would be this, as well as working on electronics and software projects, maybe learning how to weld or do woodworking. There's a lot of fun things to do, and cool things to make. I guess that's not for everyone, though.
Even if you decide to pursue a fulfilling career where you enjoy everything about your job, don't let that be the only thing in your life. The world is much bigger than that.
Dammit, I just turned 46.
Isn't it more fun reading these articles from the other side? I find reading such fun and interesting, and you always gain something from them, like the 4% rule in this one, which was new to me. Of course you can intuitively plan something which is similar.
Retirement is not for me. Freedom to work on projects of choice is. Some financial independence or close to it, is needed for both, so this article and especially the story/plans of others were very illuminating. Although, my geography is different. So numbers change and I don't think its a linear on the cost of living scale, due to cultural reasons. In India for example, parents sometimes pay up to not just college, but also the marriage expense of their children. :-)
Retirement is not for me. Freedom to work on projects of choice is. Some financial independence or close to it, is needed for both, so this article and especially the story/plans of others were very illuminating. Although, my geography is different. So numbers change and I don't think its a linear on the cost of living scale, due to cultural reasons. In India for example, parents sometimes pay up to not just college, but also the marriage expense of their children. :-)
This pretty easy if you start off with a public sector job right after school.
Go work a government job for 20 years and rock that sweet pension.
Go work a government job for 20 years and rock that sweet pension.
This works in the military and some public safety positions, but most civilian public pensions, while they might (e.g.) vest retiree health benefits after 20 years regardless of age, have a minimum age to start drawing benefits, and an even later age to draw maximum benefits. For example, one common California state (and local) arrangement, the CalPERS "2% at 55" formula, gives 1.1% × (highest annual salary) × (years of service) at 50, 2% at 55 (hence the name) and 2.5% at 63, but below 50 you aren't eligible to retire.
Probably isn't difficult once you get started and have goals set in place to do so. I'm only in my early 20's I haven't even thought about retirement. However, I am saving all my money at the moment. Hopefully that helps me out later when I really need it.
In addition to what you are doing in your 20s, One favor you can do to your future yourself is to learn about investing and finance. Recipe is simple.
* Maximize your income
* Minimize your expenses
* Save the difference
* Grow your savings.
* Maximize your income
* Minimize your expenses
* Save the difference
* Grow your savings.
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How not to retire at 40, if you're an American - go back to school after 30 and try to turn your hobby interest in programming into a second career.
Having money, makes money. What a revelation.
Medical care, children, and less fortunate family members would likely make this impractical for many--if not most.
How to retire at 40...if you're a financial blogger.
TL;DR Have 1-2-N million US on you investment portfolio and live on %.
Haha, pretty much. Beat me to the point.
1) Have millions in the bank already. 2) ??? 3) Profit!
1) Have millions in the bank already. 2) ??? 3) Profit!
Oh, easy!
On a related topic: This couple on a dentist's salary and after escaping Nazis and the holocaust saved with Warren Buffet and $400 million -- the largest single donation in Israel's history -- to the water research for Ben Gurion University.
http://www.wsj.com/articles/after-fleeing-the-nazis-a-legacy...
http://www.wsj.com/articles/after-fleeing-the-nazis-a-legacy...
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Knew they wouldn't let me down: "rental income,". So can everyone live off a big chunk of another families labour?
"The equity in their home—worth about 21 times their annual expenses". And what about now where the average first time buyer age is near 40!
Last one is a banker. Just need to work in an industry secretly building massive debt and take your bonus each year and you are golden.
Money moustache man all over again.
"The equity in their home—worth about 21 times their annual expenses". And what about now where the average first time buyer age is near 40!
Last one is a banker. Just need to work in an industry secretly building massive debt and take your bonus each year and you are golden.
Money moustache man all over again.
Having a place to live is one of the primary needs people have. Why shouldn't you be able to make an income off of that? Everyone lives off of other people's labor...unless you're subsistence farming or something.
I'll give you the banker one though.
I'll give you the banker one though.
Housing is a basic need and western finance and govt structures work to skim off labour through land. If you are borrowing to rent out you are simply a debt collector for the banks.
We used to have decent manufacturing jobs where the other half didn't have to work who could run a car, had good hours and enough money.
Now land is the primary cost for every family. The same pile of bricks for more of your labour. You happy with that? It's the system not the cost of building or materials. Think of the advances since the 1960s in materials and construction.
We used to have decent manufacturing jobs where the other half didn't have to work who could run a car, had good hours and enough money.
Now land is the primary cost for every family. The same pile of bricks for more of your labour. You happy with that? It's the system not the cost of building or materials. Think of the advances since the 1960s in materials and construction.
Yes, but they are not making more land
That is the exact reason why these vultures should be curtailed.
Could you expand on the Money Mustache comment?
From what I can gather he currently makes quite a bit of income from putting his followers into bad products he promotes and advertises on his site, such as Geico (premiums going towards massive marketing campaigns, not keeping costs low) and Betterment (layering fees on top of index funds which you could buy directly for no extra fee)
From what I can gather he currently makes quite a bit of income from putting his followers into bad products he promotes and advertises on his site, such as Geico (premiums going towards massive marketing campaigns, not keeping costs low) and Betterment (layering fees on top of index funds which you could buy directly for no extra fee)
I know nothing of any of this. I don't follow him because he derives part of his income from rent, which I deem unproductive and it doesn't scale across the population at large.
It would be interesting to hear what these people are doing for health insurance.
Yeah, the tricky part is accumulating the first $1.5 million in the first place. After that, it's a bit easier.