How much should one save?

[Frizz B.]

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I look at it this way, I would rather be broke now and being healthy, than to be broke when I am old and retired. My philosophy is, I am going to be a Millionare when I retire, but I will be broke till I get there. The other philosophy of mine was to get to $100,000 as soon as possible, to be top loaded when you are young will make you more money in the future.Use the tsp calculator and put in $100,000 and 20 year to retirement at 12% per year = $1,089,255. Then do the same with $50,000 @ 20 years @ 12% =$544,627. That extra $50,000 in the earl years, made you almost $500,000 extra dollars. So again, start hard and strong for a good life in retirement. Even if you think you can't do it, you would be suprised that you can.

Frizz B.

 

[Pete1]

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It's a myth to believe that you will be broke if you stay with the Federal government for as long as you are suggesting.FERS employees,will receive a modest pension (about 1% for each year of service) and Social Security (or the Social Security offset if you retire prior to age 62). This should amount to around 50% of your current income (assuming 30 years of service). Okay, so that leave's a 50% gap as compared to your current salary and so, you definately need contribute a decent chunk to TSP tocome close to your current salarybut how much? The government gives you an additional 5%plusearnings from the market assuming that you put in at least 5% to TSP. So between the FERS pension, government matching, and social security/FERS offset, the government contribution plus earnings should come in around 60-70% of your current income.Let's assume you put in 10% plus earnings. Now we're up to 70-80%. You will not need to contribute to TSP when you retireso the gap isabout 10-20%assuming only a 10% rate of savings.Not rich but not broke.

 

[Rolo]

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I'm with Frizz on that one and Pete (naw, you're not saying too much at all!) looks like he has a good game goin' on.

Paying now = exponentially more fun later.

Fun now = exponentially more paying later.
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The younger the money, the more it is worth, for money ^ time = retirement / time; meaning, the sooner you invest money, the more valuable it is, which determines how well you retire and how soon you retire. It's not just money, it is time and money, with time being more valuable than the two.

A little bit of money over a lot of time will yield more than a lot of money and a little bit of time.
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Don't get me wrong--I'm not saying that we should all live totally deprived lives for the sake of retirement (unless it is that important to you). However, I am saying that any fun (cost-wise) does cost you much later. A clear understanding of that is important for retirement planning and helps to be motivated in your planning and execution. Yourown goals should determine how much fun and paying you choose to do.

In your case, Az, I would pose a question to ask yourself:If you are used to consuming 90% of your income now, then what is your retirement appetite really going to be like?

Also add in there that my PT will have 300+ bhp by year's end. I really meant, "right on your tail", so plan for some mods. {snicker}

 

[Pete1]

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There is no question regarding starting early. A 22 year old putting in 5% and getting matched 5% will most likely be eons ahead of the 40 year old just getting started. In fact, Ric Edelman's books have examples thatshow that the 22 year old would end up with more at retirment than the 40 year old even if only contributing for 8 years (age 22-30) and never adding anything more. Start early! Start Early!

But also, enjoy life!Any of us could go at any time. You can't take it with you.

 

[Frizz B.]

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I did not deprive myself, but I did do the 10% at the very begginning until I hit my goal of $100,000. Now I contribute what best suits my needs at the time. But I knew I wanted my base of the $100,000. And now that I am able to do the trading online almost daily, I am so glad that I got the base to play with it. It is nice to see when you make $12,000 in a 5 month period, and sometimes not nice when you lose $6,000 in a 2 week period. But nice to see I got that $6,000 back with a little more.

 

[azanon]

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I'm with Pete. There's a lot of scare tactics becoming pretty prevalent today, that's going to have some folks with millions in the bank when their old, and wishing they hadn't deprived themselves so much from 30-60yrs old. Pete's math is pretty much on cue.... 30 yrs is 30% of what you make, social security adds another 20%, not having to fund a retirement adds another 10%, that only leaves you with 40% to replace, minus the less it generally costs in retirement. Folks, saving 15%+ at 30+ years in stocks is overkill.

Sure time is a greater force when it comes to money, but there's one variable in the equation that dampers the beauty of time. Time also crooks a smile at you, and you get older, slower, and more likely to die with each passing day. Trust me, time has had the last laugh on everyone. I'll be damned if i'm going to get cancer and die in my mid 50s and have an overkill bank account. I'm not going to gamble that I will live till 90.

It seems logical to me to estabish your finances for balancing living through all stages of life. I have a 10-month old, and i would like him to know of his dad as a guy who lived within his means, not as a miser or as a spendthrift.

Let me tell you what will happen to you if you become a miser for your whole career; you get so brainwashed into preserving and making money, that over the years, and years turning to decades, you literally forget how to spend money, and when you do, the enjoyment just isnt there anymore. My dad's worthover 1 milin a small town. I can assure you, he hasnt the least clue what to do with it now. You dont just snap your fingers and all of a sudden your view of money changes from what it was for the past 40 years. You know, the author of "Millionairre Next Door" practically acknowledges this to be fact, with the example of the millionairre that gave back the expensive car that was a gift, simply because he could no longer even identify with it.

Also, i can think of about 5 people that were close to me in some form that died from 55-59. How many of you are married men too? You know you'll croak earlier than your wife, and the only one that will benefit is your old lady for an additional 15 years. The joke will be on you, and she'll smile all the way to the bank.

Azanon

 

[Frizz B.]

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By no way am I a miser. Both my kids play classic soccer, both are now playing the sports that they like, I go to Sparks Nevada every year for the doubles tournament in volleyball, I am not planning on Social Security to be there when I retire, the way they talk it won't be. I just worked odd jobs at the begginning to get my base of $100,000 as soon as I could. I put the max in that was allowable and now I put in what is comfortable. I also have a history of long life, my parents are in their late 70's and their parents lived in their early 80's. So to me it is very important not to live life in my retirement years the way my parents are living now, semi comfortable but not well off. I do not want to have to worry about not having money in my retirement years.

If your history is to die of cancer in your early 50's by all means spend now and don't worry, because you might not make it to retirement. If you believer that you will live past the retirement age, like I do, save now and live long and prosper.

 

[azanon]

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I was only speaking generally - not calling anyone a miser. For what its worth, i've sorta decided myself on the defacto 10% - which is what you said you save(d) right Frizz? Even that is more than what most folks do (ask around).

 

[Frizz B.]

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For myself, I would do the max, which at the time was 10 %, now 14 % if you are at all able to. It is my philosophy to put as much as possible as soon as you can and let the interest start to work for you. Once you hit a comfortable amt., mine was $100,000, I then pulled back. Again, this is my philosophy:

[align=center]Everyone is entitled to their own opinion, even if it is wrong. [/align]
[align=left]My 8th grade teacher told me that one, and I have lived by it and tought this to my kids ever since. If someone doesn't agree with the way you think, be happy for them and let them think the way they want to think. [/align]

 

[Rolo]

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hehe, Frizz, yes I have a tendancy to finish that saying for people.

One last thing to add to the "How much do I save?" question: ROI (Return On Investment) and CBA (Cost/Benefit Analysis).

• Matching contributions are worth the most, no brainer, max it. Huge ROI there.
• Unmatched TSP/Traditional/SEP IRA provide an immediate tax break makinga lesser cost/greater benefit. Max it out.
• Roth IRA's have a better ROI than taxable investments, one should fully take advantage of that.
• Taxable investments can have tax-deferred profits if you hold onto them for a long time--bottom rung on the ROI/CBA ladder.

If 12% of your income funds the first three and youinvest 20% total, then the first 12% is doing more with less effort than the last 8%. If you only invest 8%, then 4% of your income is essentially being wasted since your are missing out on those significant advantages; you have reduced the value (return) of those dollars by not letting them work more easily, yet more effectively. You are not just giving up that 4% in cash, but all of the advantages that go along with it.

An effective strategy usually produces better results than mere brute force.

 

[azanon]

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If 12% of your income funds the first three and youinvest 20% total, then the first 12% is doing more with less effort than the last 8%. If you only invest 8%, then 4% of your income is essentially being wasted since your are missing out on those significant advantages

Money not invested in a retirement plan is not "wasted" (completely lost). Sure, it wont be maximized mathematically cause you wont get the tax breaks and the tax deferred growth, but outright lost? Nah.

Some people like having a portolio blend of tax deferred and non-tax deferred accounts; even if they haven't maxed the former. Why? Well, obvious reasons. Tax deferred accounts normally have stiff penalities (with some exceptions) for removal prior to 59 1/2. Tax deductions and tax deferred growth are wonderful, dont get me wrong, but they are not the only factor to consider when you put together your overall portfolio.

 

[azanon]

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Again, this is my philosophy:



[align=center]Everyone is entitled to their own opinion, even if it is wrong.

[/align]

[align=center][/align]

[align=left]I imagine everyone here is in agreement with that philosophy. If anything, I imagine everyone else is motivated by the same thing I am; the opportunity to share what you've learned with others as opposed to just being selfish about what you know. Naturally, you can take it or leave it.[/align]

 

[Rolo]

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azanon wrote:

Money not invested in a retirement plan is not "wasted" (completely lost). Sure, it wont be maximized mathematically cause you wont get the tax breaks and the tax deferred growth, but outright lost? Nah.

er...

wast·ed
adj.
1. Not profitably used or maintained: a wasted inheritance.

waste
v. wast·ed, wast·ing, wastes
v. tr.
1. To use, consume, spend, or expend thoughtlessly or carelessly.
2. To cause to lose energy, strength, or vigor; exhaust, tire, or enfeeble: Disease wasted his body.
3. To fail to take advantage of or use for profit; lose: waste an opportunity.

​

That is the word I wanted, not lost, but wasted, not necessarily squadered.

 

[Frizz B.]

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I also teach my kids that this philosophy is for life in general. Basically don't tell your friends that their opinion is wrong, whether you believe in what they are saying, please let them say it as long as no one gets hurt in the process. If it is their belief then they are entitled to it as long as they do not hurt anyone, mentally, or physically.

 

[azanon]

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I understood you the first time, Rolo. My taxable accounts have been doing quite nicely since jan 03 - clearly "profitable", and in no way characterized accurately as "wasteful" by either your or my definition.

Putting money to good use, and example of which would always including a widely accepted investments (ex: a taxable stock account), could never be accurately characterized as wasting your money. There is an offsetting gain for using taxable accounts - that being you dont have to wait 28 years to use the money! (in my case). Again, retirement accounts are not the be-all, end-all.

In theme with this thread, call that my opinion if you will . hehe

 

[azanon]

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Sorry, i had you a response frizz, but it seemed to have disappeared a few minutes after I posted it. I'm too lazy to retype it.

 

[Rolo]

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azanon wrote:

Putting money to good use, and example of which would always including a widely accepted investments (ex: a taxable stock account), could never be accurately characterized as wasting your money. There is an offsetting gain for using taxable accounts - that being you dont have to wait 28 years to use the money! (in my case). Again, retirement accounts are not the be-all, end-all.

Oh! nono...lemme try to explain that better: If you do not take full advantage of any of the perks that come withinvesting(to include a taxable account) to the extent that you can, whatever shortfall you have is a lost opportunity, a waste of money.

hmmm...I dunno of that explanation helps, heh.

I agree that there are times where a taxable account would be better than an IRA, few, but it happens, particularly since I put stocks in my taxable account and mutual funds in my IRAs so I do not overlap on the tax breaks and waste those tax advantages.

Sorry about your dropped posts; I like reading them.

 

[azanon]

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ok that's fair enough.

So you buy stocks for taxable accounts? I want to do that too, but not sure i have the guts.

I'm wanting to make a quick buck and get my sti early, but i know all the experts say just dont do it. I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

 

[Rolo]

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Ya, my Scottrade account is half of my portfolio; it has two mutual funds in it and 4-6 stocks in it (I posted the stocks elsewhere).

There are so many strategies to buying stocks that there should be no problem with finding a method you like. I buy some for quick gains, based mostly on technical analysis, and some for steady appreciation, and one for the killer dividend.

Withhow-to typebooksand the plethora of online resources, you can turn a nice profit with some time and effort. It is also a way to test your mettle; personally I like to try to master something. Buying stocks, for me, is like going shopping, both of which I enjoy. It is also like the many strategise-and-build computer games.

My brokerage account is my early retirement account,capital for when I need it,and play money. I have a debit card and checks with it, but I have yet to withdraw from it; if I splurge, I just won't contribute as much, or not at all, to it at that moment.


[align=right]"I'd rather fail at something difficult thansucceed at something easy."
-Jesse James[/align]

 

[Rolo]

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azanon wrote:

I'm eyeing DAL right now - poor stock has gotten beaten on by everything imaginable. Folks are betting they wont make it (meaning impending bankruptcy) and the price is reflecting that belief, but I think they're wrong. I'm just not sure i have the guts to put my money on that educated belief.

Ouch, ya, I wouldn't bet $ on it. I would keep an eye on it to look for any promise of it being a phoenix stock. Their debt ratio is over 20:1 and they are not making a profit.

You should also watch their best competitor JBLU, which has done very well. They are losing money right now also, so it may drop to a buy point.

Start with less risky stocks to get comfortable and get a feel for it, then work your way to other types of stock.